Changes to Pennsylvania Overtime Calculation Rules Mean Employers May Underpay Some Hired Non-Exempt Employees | Tucker Arensberg, PC

It’s not uncommon for employers to focus their compliance efforts on federal laws like the Fair Labor Standards Act (FLSA), the Americans with Disabilities Act (ADA), or Title VII of the Civil Rights Act, but it’s important for employers to remember this that Pennsylvania has its own state-specific labor laws, which in an increasing number of cases provide more robust legal protections for workers than their state counterparts. This is important because in such cases, local employers must apply the law that is more beneficial to their workers.

One area in particular where Pennsylvania has moved further and further away from federal rules is wage and hour laws, where the Commonwealth statute – the Pennsylvania Minimum Wage Act (PMWA) – has in some cases been interpreted to mean that workers are entitled to higher wages than the FLSA does require.

Case in point: just last year, the Pennsylvania Supreme Court in Heimbach et al. v., et alDetermined Amazon must pay its Pennsylvania workers for the time they spent waiting for and going through mandatory screenings after their shifts, even though a federal court had just ruled that the time it took to go through the even demonstrations was Not eligible for compensation under federal law. The court ruled that the PMWA imposed stricter requirements than the FLSA, so Amazon employees in Pennsylvania were entitled to be paid for time spent in the screening process, while employees in other states were not .

Similarly, last summer the Pennsylvania Dept. of Labor and Industry passed PMWA regulations to change the way overtime must be calculated employed, non-exempt employees. (Side note: Just because employees are paid a salary doesn’t necessarily mean they aren’t also eligible for overtime pay.)

As employers know, overtime pay must generally be calculated at 1.5 times an employee’s ‘normal’ pay. The latest round of PMWA amendments altered the calculation of this “regular rate” for salaried, non-exempt workers in a way that will result in higher wages for workers in some cases.

The PMWA now requires that a salaried, non-exempt employee’s regular rate be calculated by dividing by all compensation to be included in the regular rate 40 Hours, rather than the total number of hours (direct hours plus overtime) worked by the employee that week, as the FLSA’s fluctuating work week method envisages. The resulting regular rate is then multiplied by 1.5 and then multiplied by the number of overtime hours worked to determine the amount of overtime pay due.

In simpler terms, Pennsylvania changed the denominator in the regular rate equation, requiring employers to divide the weekly wage by 40 instead of by all the hours the employee worked that week. And with that, the PMWA is now requiring employers to pay their employees higher overtime rates. A simple example should illustrate how.

Suppose an employee earns €1,000 per week. Her hours fluctuate weekly, but her salary remains constant. This week she works 50 hours. Under the new PMWA regulations, this employee is owed $375 in overtime pay, compared to the $100 she would be entitled to it under the FLSA’s fluctuating work week method.

Since employers must follow the law that brings the greatest benefit to the employee, here that means following the PMWA. Employers who fail to do so could inadvertently reduce their employees’ overtime hours and potentially expose themselves to wage and hour liability. Therefore, employers with non-exempt employees working in the Commonwealth should carefully review their payroll practices to ensure compliance with the new rules.