Pennsylvania Supreme Court Clarifies Overtime Pay Calculation for Non-Exempt Salaried Workers

Employers in Pennsylvania should be aware of a new decision that may impact how they pay non-exempt salaried employees. In Chevalier, et al. v. General Nutrition Centers Inc., et al., No. 22 WAP (November 20, 2019), the Supreme Court of Pennsylvania held that employers cannot use the “Fluctuating Work Week Method” (FWW Method) to pay non-exempt salaried employees. Instead, they must pay all hours worked over 40 at the rate of 1.5 times the employee’s regular rate.

Both federal law (under the Fair Labor Standards Act) and Pennsylvania law (under the Pennsylvania Minimum Wage Act of 1968) generally require employers to pay employees overtime compensation at no less than 1.5 times the employees’ regular rates. Prior to Chevalier, however, only federal law expressly sanctioned the FWW.

Under federal law, the FWW Method follows a two-step process:

• Step 1: Determine the salaried employee’s regular rate in a given week by dividing the employee’s weekly salary by the total number of hours the employee worked that week.
• Step 2: Calculate the overtime pay by multiplying the number of overtime hours by 0.5 times the regular rate. This presumes that the “1” has already been paid via the weekly salary.¹

In Chevalier, the Court ruled that the Pennsylvania Minimum Wage Act and its implementing regulations do not permit employers to use the FWW Method. The Chevalier Court also ruled that, for purposes of non-exempt salaried workers who work fluctuating hours, employers must calculate their overtime pay using the following approach:

• Step 1: Determine the salaried employee’s regular rate in a given week by dividing the employee’s weekly salary by the total number of hours the employee worked that week (this is the same under the FWW method).
• Step 2: Calculate the overtime pay by multiplying the number of overtime hours by 1.5 times the regular rate. This differs from the FWW Method, which presumes that the “1” has already been paid via the weekly salary.

The Court reasoned that states “have the authority to enact more beneficial wage and hour laws than those provided in the FLSA,” and Pennsylvania law supports the use of such an approach here.

Based on the Chevalier decision, employers who pay non-exempt workers a fixed hourly rate and 1.5 times that hourly rate for hours worked in excess of 40 in a workweek need not change anything. However, employers who pay non-exempt employees a fixed weekly salary now must calculate pay for hours worked in excess of 40 in a workweek according to the formula described above.