Proposed Legislation Could Change the Way Pennsylvania Businesses Handle Overtime Compensation

In January, Governor Tom Wolf announced his plan to change the eligibility requirements for employees to receive overtime. Wolf’s plan mirrored the plan circulated by the Obama administration, through the United States Department of Labor. The Pennsylvania Department of Labor and Industry submitted its proposed regulation in June.

U.S. businesses will not yet have to contend with the Obama administration’s changes, after a federal district court judge issued a nationwide injunction. Pennsylvania businesses, however, may face the Pennsylvania Department of Labor and Industry’s proposed changes before the end of the year, should the regulation be successful.

The Pennsylvania plan increases the minimum salary at which an employee is potentially eligible for overtime. At the moment, if an employee makes over $23,360 in a year, they are not eligible for overtime. This figure would go up in stages, first to $31,720, then to $39,832, and finally to $47,892. After the implementation, employees making under $47,892 annually will be eligible for overtime compensation, up from the original $23,360 annually. Additionally, every three years, this number will automatically adjust upward.

The proposed regulation also attempts to clarify the ‘duties test’ exceptions to the salary eligibility minimums. For certain work ‘duties,’ even if an employee makes under the salary eligibility amount, he or she will not be able to earn overtime due to this exception. Employees who perform “executive, administrative, or professional capacity” duties, are exempt from this overtime regulation. The proposed regulation intends to clarify these ‘duties’ in the exemption.

Part of the regulatory process involves a period of time to allow for public comment, typically 30 days from the publishing of the proposed new regulation. The original deadline for submitting these comments was July 23rd, but a group of business associations came together to request an extension to allow more interested individuals and businesses to weigh in. This extension was granted, making the new deadline for comments August 22nd.

Some businesses are in favor of the new plan, arguing that putting more money in the pockets of the middle class will stimulate Pennsylvania’s economy. Others oppose the plan, asserting that businesses will have to cap the newly eligible employee’s hours at 40 per week, and hire more part time workers to avoid paying overtime which would be financially unsustainable for the employers.

One group which could be particularly vulnerable are nonprofits. For these organizations, an increase in expenses does not necessarily correspond with an increase in government funding. Nonprofits worry that the extra time employees put in to make things happen for causes they believe in will now have to be tracked and compensated. Those in favor of the change say it will finally end the “compulsory volunteering” that nonprofits usually pressure their employees to do, typically in the form of staffing various fundraising events during what would be overtime hours without compensation.

Regardless of where a business falls on the issue, it should have a plan in place to accommodate the changes, if this legislation proves successful. Calculations should be done to ascertain what the increase in cost would be to continue operations with current staffing situations unchanged. Various options to lower the staffing cost may be useful to consider. Compliance with this law would take effect gradually over a course of three and a half years, which allows businesses the opportunity to cushion the effects if proper strategies are implemented. But with an estimated 465,000 employees eventually potentially affected, preparations and strategies should not be delayed.

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