The rate of overtime pay to which an employee is entitled can differ greatly under state and federal labor law when an employee is paid on a salaried basis. Just ask RadioShack, which recently lost a putative federal class action case involving over 100 salaried employees.
Pennsylvania’s Minimum Wage Act (PMWA), like its federal counterpart, requires overtime pay at not less than one and one-half times the regular rate of pay for any hours worked over 40 by employees subject to the law. Most positions, including many managerial roles, are classified as “non-exempt,” making the majority of employees entitled to overtime pay.
The math is simple enough for an employee earning an hourly wage, say $10 an hour. For every hour of work performed over 40, the employee receives his or her regular “time” (base of $10 per hour) plus “a half” (another $5 per hour) equaling $15 for every overtime hour worked. The math is not so simple, however, regarding salaried employees who receive a set amount of pay per week regardless of how many or few hours of work they perform.
RadioShack used the “fluctuating workweek” method for calculating salaried employees’ pay, a method that is expressly allowed by the federal Fair Labor Standards Act (FLSA). The “fluctuating workweek” method was incorporated into current federal regulations as the codification of the U.S. Supreme Court’s long ago opinion in Overnight Motor Transportation Co. v. Missel. The Court in Overnight Motor was tasked with interpreting a salaried employee’s “regular rate at which he is employed” to determine the proper time-and-a-half calculation. Here the Court determined that a salaried employee’s “regular rate” was his weekly salary divided by the actual hours worked in a particular week (even though this formulation would yield a lower rate the more hours an employee worked). Under this case and the later regulation, overtime pay could then be calculated by adding “one-half” the regular (actual) rate for each overtime hour worked. This “fluctuating” calculation, argued RadioShack, was also permitted under Pennsylvania’s PMWA.
The U.S. District Court for the Eastern District of Pennsylvania disagreed in a July 10 decision. In doing so it relied on the reasoning in earlier cases distinguishing the PMWA from the FLSA. By regulatory mandate, overtime pay under the PMWA is “computed at a rate not less than 1½ times therate established by theagreement or understanding as the basic rate,” 34 Pa. Code § 231.43(d)(3) (emphasis added). Once set, the employer and employee cannot contract around the agreed upon rate to avoid the requirement that overtime pay be at “1 ½ times” that rate.
The PMWA regulation does not share the “one-half” the regular rate of pay language in the FLSA regulations for salaried workers whose weekly hours “fluctuate.” The District Court noted that had Pennsylvania regulators wished to adopt the federal “one-half” standard they could have easily done so. The Court also embraced a proposition furthered earlier by the Pennsylvania Supreme Court—that Pennsylvania regulators chose a more employee-friendly overtime provision than their federal counterparts, which they are permitted to do.