Pennsylvania Employers Beware: Changes to Overtime Rate Calculations for Salaried, Nonexempt Employees Go Into Effect August 5
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Beginning August 5, Pennsylvania employers with salaried, nonexempt employees cannot use the fluctuating workweek method of calculating overtime pay for salaried employees. Instead, employers must (1) calculate the regular rate of pay by adding all remuneration paid to the employee during the workweek and divide this amount by 40 hours – not the total hours the employee worked, and (2) multiply that rate by the number of overtime hours worked that week and then multiplying that rate by 1.5. This reflects a change in the Pennsylvania Minimum Wage Act (PMWA) and a divergence from the federal Fair Labor Standards Act (FLSA).
Background
Employers may pay nonexempt employees a salary that represents straight-time wages for all of the employees’ work performed in a workweek, regardless of the number of hours they worked in that workweek. However, nonexempt employees who are paid on this basis must receive overtime compensation for hours worked over 40 in a workweek. Calculating overtime compensation for these employees depends on two things: (1) determining the regular rate that serves as the foundation for overtime pay, and (2) determining the multiplier to apply to overtime hours. Pursuant to recent amendments to the PMWA, Pennsylvania law now departs from federal law for employees paid using a fluctuating-workweek plan.
FLSA vs. Newly-Amended PMWA
Under the FLSA’s fluctuating workweek (FWW) method, overtime pay for salaried, nonexempt employees is calculated by dividing the employee’s regular rate (which includes salary as well as other compensation) by the total hours worked that week and then multiplying that rate by the total hours worked that week and then multiplying that rate by the number of overtime hours worked and multiplying that number by .5 (meaning, “half time”). As a general matter, the employee’s regular rate will decrease as the hours worked increase, and vice versa.
For example, assume that John Doe’s fluctuating workweek salary is $600 and he works 50 hours in a given week. His regular rate is $12.00 per hour ($600 / 50 hours). His overtime premium is $60 (($600 / 50) x .5 x 10 overtime hours). John Doe is owed $660 for the week of work.
In 2019, the Pennsylvania Supreme Court ruled that the PMWA prohibited the fluctuating workweek method because the PMWA required that overtime be paid at time and a half (not just half time as permitted by the FLSA). See Chevalier v. Gen. Nutrition Ctrs., 220 A.3d 1038, 1051-59 (Pa. 2019). Thereafter, the PMWA was amended to codify that holding: use of the FWW is not permissible under Pennsylvania law. In addition, the recent amendments also state that regular rate is calculated by dividing the regular rate (including things like weekly salary as well as non-discretionary bonuses and commissions) by 40 rather than by all the hours the employee actually worked that week. The employee’s regular rate is then multiplied by 1.5 and then multiplied by the number of overtime hours to determine the amount of overtime pay due.
Under Pennsylvania law, John Doe’s fluctuating workweek salary would be calculated as follows: his regular rate is $15 ($600 / 40 hours). His overtime premium is $225 (($600 / 40) x 1.5 x 10 overtime hours). John Doe is owed $825 for the week of work.
Impact
Pennsylvania’s method of calculating overtime pay for salaried, nonexempt employees is unique. It may result in salaried employees receiving significantly more in overtime pay than they would receive if overtime were calculated under the FLSA’s FWW method. In fact, as amended, the PMWA is more employee-friendly than even California. Employers need to be careful to comply with these additional obligations under the more restrictive PMWA.
Employers should also be aware that the recent amendment impacts hourly, nonexempt employees as well. Specifically, with regard to the compensation included in regular rate, Pennsylvania’s Department of Labor states that “certain types of income, such as bonuses and other compensation, are treated no differently for overtime-eligible salaried employees than for hourly employees when determining overtime.” The Department declined, however, to further clarify how its rulemaking impacts the calculation of overtime on commissions and bonuses for hourly employees.
Pennsylvania employers should take this opportunity to review their payroll practices to ensure that they are compliant with Pennsylvania’s more restrictive rules for salaried, nonexempt employees.