Minimum Wage Laws Alert: Pennsylvania’s Minimum Wage Act is Groundbreaking

In the latest HR updates about wage and hour laws, Pennsylvania has passed one of the most important minimum wage laws of the year.  Even though this law only applies to Pennsylvania, it’s still among the HR updates that companies should know about because it may herald bigger changes in other states—or even at federal level.  It’s also worth noting that the state hasn’t changed its overtime pay regulations since 1977.  This new law will be incredibly impactful.  Estimations say that the new legislation could allow over 140,00 workers in Pennsylvania to be eligible for overtime pay.  Read on to see what Pennsylvania employers should include in their strategic HR planning for compensation in 2021 and beyond.  Employers in Pennsylvania should check with their HR services to see if they will need to prepare to make changes in January, either to job descriptions and classifications, or compensation (or both).     

 
This new law, the Minimum Wage Act (MWA) will take effect on January 1, 2021. It will affect a few things: the threshold for qualifying for overtime, as well as the duties tests for executive, administrative, and professional workers.  

 
Overtime Threshold: Whereas previous wage and hour laws set the threshold higher, Pennsylvania workers who earn up to $35,568 annually will now qualify for overtime pay.  On October 3, 2021, that salary level will raise to $40,560 annually.  Then on October 3, 2022 it will increase again to $45,500.  As of 2023, this salary threshold for overtime will automatically adjust every three years.  Per the law, up to 10 percent of salary levels can be satisfied by commissions, incentive payments, and non-discretionary bonuses. The final effect of the law is that regardless of an employee’s job duties or responsibilities, they will be eligible for overtime pay if they earn less than these amounts.  

Duties test changes: The MWA will also amend the duties test to determine what executive, professional, and administrative workers are exempt from overtime rules when the salary threshold is met.  These criteria (laid out in Section 5(a)(c)) are significantly more stringent than the federal guidelines in the Fair Labor Standards Act.  

 
Executive exemption duties test: To qualify for this exemption, workers must meet the salary basis test, their primary duty must be “management of the enterprise or managing a customarily recognized department or subdivision of enterprise,” and their work must require them to regularly supervise at least two full-time employees.  The kinds of workers who would qualify as exempt per this test may include a CEO, CFO, or HR director. HR departments need to remember that job titles don’t determine status. Instead, they should focus on the duties and functions within job descriptions. 

 
Administrative exemption duties test: To qualify for this exemption, employees must meet the salary basis test, their primary duties must consist of work done in an office (i.e. nonmanual) that is oriented around general operation, management policies, or customer service.  Lastly, this work must require the employee to apply their own independent judgment and discretion in completing their job. Some examples of employees who’d qualify as exempt under this law may be a consultant, an insurance claim adjuster, or an academic advisor. This exemption is often the most difficult for HR departments to interpret.  

 
Professional exemption duties test: To qualify as exempt, employees must meet the salary basis test and perform duties that generally require “knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction and study or work that is original or creative in character in a recognized field of artistic endeavor.”  Additionally, workers must also frequently apply their own discretion to complete daily duties or use creative prowess, perhaps in a field of “artistic endeavor.”  Professional jobs that would qualify as exempt per this test may include architect, engineer, author, attorney, or doctor.