Remember all the confusion and upheaval when the Obama administration proposed sweeping changes to the salary thresholds for exemption from overtime pay until a federal court shot down the effort on the eve of its effective date? Pennsylvania is about to create a show of its own that could radically impact many workforces.

Governor Wolf announced yesterday a proposal to raise the salary for exempt status from the federal minimum for salaried employees to more than double that amount in incremental shifts over three years.

The current level is $455 per week or $23,660 annually. Governor Wolf wants to push this to:

• $610 per week, or $31,720 annually starting January 1, 2020
• $766 per week, or $39,832 annually starting January 1, 2021
• $921 per week, or $47,892 annually starting January 1, 2022.

Thereafter, Governor Wolf proposed that the salary threshold would be updated automatically every three years so workers are not left behind the rate of inflation.

The administration predicts that this would extend overtime eligibility to up to 460,000 additional workers, or almost one in eight employees, in four years. If the proposal is implemented, employers faced with these regulations would either need to track hours and pay overtime to newly qualified workers or raise salaries above $47,892 by 2022 to keep those workers exempt.

Of additional concern for the employer community under the governor’s proposal is that the duties test for executive, administration, and professional worker exemptions will be “clarified.” A true clarification would make it easier for employers to know if a worker qualifies for overtime, but any changes in the duties tests will add years of uncertainty as the impact of any change is fleshed out in day-to-day challenges to employer pay practices. Because little information is available about these proposed clarifications, employers will need to monitor them vigilantly.

Governor Wolf cannot change the overtime regulations himself. Any change must come through the Department of Labor & Industry (L&I), which is expected to release the proposed regulations for public notice and comment in March. L&I must first publish a Notice of Proposed Rulemaking in the Pennsylvania Bulletin and allow “sufficient time” for public comment and reviews required by statute before taking final action. Usually, the comment period lasts for 30 days. L&I must then review and consider any written comments submitted and “may” hold such public hearings as seem appropriate.

Employers who are affected by this proposal may submit a comment. Comments will be a part of the public record and must be forwarded by the agency to the legislative standing committee and to the Independent Regulatory Review Commission (IRRC). In addition, the agency must respond to the comments in its submittal of the final regulation. Following the public comment period, the updated regulation also must be approved by the IRRC. The IRRC reviews proposed and final regulations to ensure there is statutory authority for the agency to promulgate the regulation and consistency with the statute that the regulation implements. In addition, the IRRC provides oversight over the economic and fiscal impact of the regulation and the reasonableness of the regulation. The Wolf administration has been touting the IRRC’s current makeup, noting that the five-member board of the IRRC is made up of three individuals appointed by Democrats and two appointed by Republicans, noting the 3-2 Democratic majority.

While all of this sounds like a lengthy process, new regulations can be finalized prior to the 2018 elections when Governor Wolf will be seeking a second term. Extensive comments from the business community may be successful in slowing down the process or requiring that legitimate business interests in different parts of the state be factored into the overall results. 

In the meantime, Pennsylvania employers should review their employee classifications and employee salaries in order to assess the impact this regulatory change would have on their business and prepare to submit comments regarding that impact.