5459 RULES AND REGULATIONS...amends the regulations to delete the use of the word ‘‘his’’...

RULES AND REGULATIONSTitle 34—LABOR AND INDUSTRY

DEPARTMENT OF LABOR AND INDUSTRY[ 34 PA. CODE CH. 231 ]

Minimum Wage

The Department of Labor and Industry (Department)amends Chapter 231 (relating to minimum wage). Theamendments are submitted in accordance with sections5(a)(5) and 9 of The Minimum Wage Act of 1968 (act),(43 P.S. §§ 333.105(a)(5) and 333.109), for the purpose ofcarrying out the act and to safeguard the minimum wagerates established thereby.Statutory Authority

This final-form rulemaking is issued under the author-ity provided in section 5(a) of the act, which requires theSecretary of Labor and Industry (Secretary) to define theterms ‘‘bona fide executive’’, ‘‘administrative’’ and ‘‘profes-sionals’’, and section 9 of the act, which requires theSecretary to enforce the act and to

make and, from time to time, revise regulations, withthe assistance of the [Minimum Wage AdvisoryBoard], when requested by the secretary, which shallbe deemed appropriate to carry out the purposes ofthis act and to safeguard the minimum wage ratesthereby established. Such regulations may include,but are not limited to, regulations defining andgoverning bona fide executive, administrative, orprofessional employes and outside salespersons,learners and apprentices, their number, proportion,length of learning period, and other working condi-tions; handicapped workers; part-time pay; overtimestandards; bonuses; allowances for board, lodging,apparel, or other facilities or services customarilyfurnished by employers to employes; allowances forgratuities; or allowances for such other special condi-tions or circumstances which may be incidental to aparticular employer-employe relationship.

The act provides three exemptions from the minimumwage and overtime provisions of the act for individualsemployed in the following capacities: executive, adminis-trative and professional (EAP). Section 5(a)(5) of the actauthorizes the Secretary to define and delimit theseexemptions by regulation.

Purpose

This final-form rulemaking amends the Department’sexisting minimum wage regulations in §§ 231.1, 231.71—231.74 and 231.82—231.84.

This final-form rulemaking provides a long overdueupdate of the definitions of the EAP employees who areexempt from the overtime and minimum wage provisionsof the act and modernizes the obsolete salary thresholdfor those workers. This final-form rulemaking is consis-tent with the stated purpose of section 1 of the act (43P.S. § 333.101): to protect employees from unreasonablylow wages not fairly commensurate with the value of theservices rendered. To the extent permissible and appropri-ate under Pennsylvania law, it more closely aligns withFederal law, which provides more consistency for employ-ers and lessens the burden of compliance with differentFederal and State standards. The amendments to theduties test for the EAP exemptions make the applicabletest easier to understand and therefore will increase

compliance. This final-form rulemaking will result in lessmisclassification of workers, thus reducing litigation overan employee’s status.

The update to the salary thresholds will protect em-ployees in this Commonwealth from being arbitrarilydesignated as exempt and required to work excessiveovertime hours without additional compensation. Thecurrent Federal salary threshold of $23,660 over which anEAP employee does not have to be paid overtime isartificially low due to the passage of 15 years since thesalary thresholds were updated and the lack of adjust-ment for inflation or the current economy. Although theFederal threshold was scheduled to be increased onJanuary 1, 2020, that threshold is based upon theearnings of the lowest-paid salaried employees in thenation and is not reflective of this Commonwealth’seconomy. This final-form rulemaking uses a methodologythat takes into account the economic realities in theCommonwealth, uses more relevant, Pennsylvania-specific data, and also utilizes that same methodology toadjust the salary threshold at regular intervals where thedata supports an adjustment. It thus replaces infrequent,dramatic changes caused by sporadic rulemaking withmore predictable and modest changes by maintaining thesalary level at a fixed percentage of earnings to helpensure that the test continues to reflect actual wageconditions consistent with the duties of exempt employ-ees, providing a gradual threshold adjustment betweencomprehensive rulemaking.

This final-form rulemaking also gradually phases in thehigher salary threshold, first adopting the new Federalthreshold and then incrementally adjusting to thePennsylvania-appropriate threshold. This will allow timefor employers to plan and adjust operations to determinehow best to implement this final-form rulemaking basedon the individual needs of the business. This final-formrulemaking need not have a detrimental impact onemployers. As more fully explained herein, employers willhave a range of options to choose from in implementingthe new duties test and updated thresholds for their EAPemployees, enabling employers to make these changescost neutral for their operation.

Ensuring that workers are fairly compensated and paida living wage will have an overall positive economicimpact for this Commonwealth. In addition, increasedcompetitiveness of employers in this Commonwealth toattract skilled labor, positive economic impact due toincreased spending by affected workers and discretionarytime returned to employees are all benefits to the Com-monwealth.

This final-form rulemaking is in the public interest, iswithin the Department’s statutory authority and is con-sistent with the legislative intent expressed in the act. Ittakes into account the concerns of the various stakehold-ers and will have a positive economic impact on thisCommonwealth without overly onerous requirements onbusinesses and it is all accomplished with a clear, feasibleand reasonable regulatory scheme and provisions.

Background

The EAP exemptions (otherwise known as the ‘‘white-collar exemptions’’) signal the General Assembly’s inten-tion to exclude bona fide EAP employees from the act’sprotections. The act does not define these terms. Rather,

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the General Assembly specifically gave authority to theDepartment to define each of these exemptions throughregulation.

In addition to the act, the requirement to pay employ-ees a minimum wage and overtime is found in the FairLabor Standards Act of 1938 (FLSA) (29 U.S.C.A.§§ 201—219). Section 13(a)(1) of the FLSA (29 U.S.C.A.§ 213(a)(1)) also contains similar EAP exemptions fromits minimum wage and overtime requirements. TheUnited States Department of Labor (USDOL) also issuedregulations defining these exemptions at 29 CFR541.100—541.304.

Under both the Federal and Commonwealth regula-tions, there is a three-prong test that an employee mustmeet to be exempt from minimum wage and overtimerequirements. First, the employee cannot be paid on anhourly basis; second, the employee must receive a salaryat a threshold set by regulation; and third, the employeemust perform specific duties set by regulations.

However, there are two significant differences betweenCommonwealth regulations implementing the act andUSDOL’s regulations implementing the FLSA, which cre-ates a dual regulatory scheme. First, the salary thresh-olds for the act’s EAP exemptions are much lower thanthe salary thresholds for the FLSA’s EAP exemptions.Second, the duties test to qualify for the act’s EAPexemptions is different than the duties test to qualify forthe FLSA’s EAP exemptions.

The lower salary threshold has essentially rendered theact inconsequential to protect employees from misclas-sification, because it is exceeded by the Federal thresholdfor virtually all employees. The FLSA applies to allemployers with gross sales of at least $500,000 or whoengage in interstate commerce. The term ‘‘interstatecommerce’’ has been defined very broadly and, in fact,includes nearly every employer in this Commonwealth. Inaddition, the current Commonwealth regulations containan outdated duties test and salary threshold to determinewhether an EAP employee is exempt from payment ofovertime for hours worked in excess of 40 per week. Thecurrent duties test for executive employees are set forthin § 231.82 (relating to executive); for administrativeemployees in § 231.83 (relating to administrative); andfor professional employees in § 231.84 (relating to profes-sional). The current salary thresholds range from$155 per week to $250 per week, well below the hourlyminimum wage.

The Commonwealth’s regulations have not been up-dated since 1977, which results in three issues.

First, many individuals are being improperly classifiedas exempt because the salary thresholds found in theCommonwealth’s current regulations are not reflective ofthe current salaries of individuals who are EAP orprofessionals. The salary thresholds established in therecently superseded USDOL regulations defining theFLSA were established in 2004 and were also not reflec-tive of the current salaries of employees serving inexecutive, administrative or professional capacities. Onlyrecently, on September 27, 2019, the USDOL issued afinal rule raising the FLSA’s salary thresholds for exemptEAP employees to $684 per week effective January 1,2020. See Defining and Delimiting the Exemptions forExecutive, Administrative, Professional, Outside Salesand Computer Employees, 84 FR 51230 (September 27,2019).

However, the data USDOL used to support the Federalsalary threshold was based upon workers in the lowest-

wage region of the country (that is, the South). Thosewages are not reflective of wages paid to workers in thisCommonwealth. Thus, a regulatory change is necessary toensure that individuals who are not EAP or professionalsare not improperly exempted from minimum wages andovertime under the act.

Second, the Commonwealth’s regulations for the EAPexemptions contain two separate tests for employees to beexempt: the short test and the long test. Under the shorttest, an employee is exempt if that employee performs onespecific duty listed in the regulation governing the ex-emption and is compensated at or above the higher salarythreshold listed in that regulation. Under the long test,an employee is exempt if that employee performs all theduties found in the regulation governing the exemptionand is compensated at or above the lower salary thresh-old listed in that regulation. This differs from the FLSA’sregulations defining the EAP exemptions, which containone standard duties test and one salary threshold foreach exemption.

Third, the duties to qualify for each exemption havebecome outdated and need to be clarified to prevent theimproper classification of employees and to be moreconsistent the duties for the EAP exemptions found in theFLSA’s regulations defining the EAP exemptions.

The Department agrees with many commentators thatmaking the act’s regulations consistent with the FLSA’sregulations with regard to duties would make complianceeasier for employers who would no longer have to makeseparate evaluations of an employee’s duties to determinewhether they are exempt under both the act and theFLSA. As such, the Department has made an effort toharmonize its regulations with the Federal regulations tothe extent permissible and appropriate under the act.

Compliance with Executive Order 1996-1, Regulatory Re-view and Promulgation

The Governor’s Middle-Class Task Force held six meet-ings between September 29, 2017, and November 20,2017. These meetings included workers and students,along with representatives of businesses, labor unions,workforce development programs, institutions of highereducation and other post-secondary training. On severaloccasions, workers expressed concern about the inabilityto join the ranks of the middle class or maintain theirmiddle-class status because of low or stagnant wages.

On January 10, 2018, the Department solicited inputon a draft of the proposed rulemaking from the MinimumWage Advisory Board (Board). The Department presentedits intention to revise the regulations to the Board at anopen meeting and gave the Board members the ability tocomment. The Board is appointed by the Secretary undersection 6 of the act (43 P.S. § 333.106) to assist theSecretary to carry out the duties prescribed by the act.The Board consists of three representatives of an estab-lished, recognized association of employers (including thePA Chamber of Business and Industry (PA Chamber)) andthree representatives from the general public.

In its presentation, the Department informed the Boardthat it was clarifying the duties tests in the regulationsincluding replacing the short and long tests with astandard duties test. In addition, the Department notifiedthe members that it was raising the salary threshold toqualify for the executive, administrative and professionalexemptions. The Board members were provided the op-portunity to comment on the Department’s intention toupdate the regulations. Some Board members expressedapproval of the intention to update the regulations, and

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some members expressed concerns about such a largeincrease in the salary threshold. Department staff consid-ered this feedback, and introduced a phase-in approach toraising the salary threshold over a 3-year period.

The proposed rulemaking was published at 48 Pa.B.3731 (June 23, 2018) with a 30-day public commentperiod. The Department extended the public commentperiod for an additional 30 days, with a notice publishedat 48 Pa.B. 4258 (July 21, 2018). The public commentperiod closed on August 22, 2018.

During the public comment period, the Departmentreceived 917 unique comments from 898 commenters,including comments from the legislature. In total, theDepartment received 1,101 comments, some of whichwere submitted more than once by the same commenta-tor. The Department also received comments from theIndependent Regulatory Review Commission (IRRC).

In response to comments related to the Department’soutreach efforts, the Department hosted ten roundtablemeetings throughout this Commonwealth to consult withthe regulated community and obtain feedback on theproposed rulemaking. The Department, together with thePennsylvania Chamber of Commerce and the AmericanFederation of Labor and Congress of Industrial Organiza-tions (AFL-CIO), held five sessions with businesses inthis Commonwealth and local chambers of commerce, andfive sessions with local labor organizations between May20, 2019, and June 6, 2019. The agendas for theseroundtable meetings provided that the goals were toeducate stakeholders on the exemptions and the Depart-ment’s application, and to engage stakeholders and elicitfeedback. The Department specifically asked the stake-holders to discuss the impacts of the proposed rulemakingand provide recommendations for changes.

On May 20, 2019, the Department held a roundtable inHarrisburg, PA including the following participants: Key-stone Research Center, Service Employees InternationalUnion (SEIU), Communications Workers of America,SEIU Healthcare and AFL-CIO.

On May 21, 2019, the Department held a roundtable inHarrisburg, PA, including the following participants: Har-risburg Regional Chamber of Commerce, the Pennsylva-nia Chamber of Commerce, Pennsylvania Association ofCommunity Bankers, Army Heritage Foundation, NedSmith Nature Center, HACC, Perfectly Pennsylvania,RETTEW, Capital Blue Cross, Greater Reading ChamberAlliance, York County Economic Alliance, Hampton Inn,Insurance Agents and Brokers, Hershey Entertainmentand Resorts, Dickinson College and Pennsylvania Consor-tium for Liberal Arts.

On May 22, 2019, the Department held a roundtable inErie, PA for local businesses, including the followingparticipants: Country Fair Stores, Family House, Inc.,Community Health Net, Knox McLaughlin, Erie FederalCredit Union, Community Resources for Independence,Achievement Center, North Country Brewing Companyand Mercyhurst.

On May 22, 2019, the Department held another round-table in Erie, PA for local labor organizations, includingthe following participants: AFL-CIO Northwest, IBEW 56,UE Local 506 (Wabtech) and UE Local 618 (Wabtech).

On May 28, 2019, the Department held a roundtable inMalvern, PA, including the following participants: AbelBrothers Towing & Automotive, Inc., East Goshen Town-ship, Aqua, Miller’s Insurance Agency, Inc., CCCBI, EndoInternational, Chester County Economic DevelopmentCouncil, Sojourn Philly, Desmond Hotel & Conference

Center, Community Action Partnership, Cozen O’Connor,Exton Regional Chamber of Commerce, Post & Schell,Chester County Economic Development Council, Wawa,Inc., Gawthrop Greenwood, PC, Germantown CricketClub, National Bank of Ethopia and West Chester Uni-versity.

On May 29, 2019, the Department held a roundtable inPlymouth Meeting, PA including the following partici-pants: Philadelphia AFL-CIO, Pathways PA, CommunityLegal Services, Outten & Golden, Stephan Zouras, R.,Winebrake and Santillo, Berger Montague and UFCW.

On June 2, 2019, the Department held a roundtable inPittsburgh, PA, including the following participants: USWand Mon Valley Unemployed Committee.

On June 5, 2019, the Department held another round-table in Pittsburgh, PA, including the following partici-pants: Allie Kiski Chamber of Commerce, Sodini & Com-pany, African American Chamber of Commerce of WesternPennsylvania, Keep It Simple Training, Eat’N Park, SMCBusiness Controls, North Side/North Shore Chamber ofCommerce, Priory Hospitality, HR-FamilyLinks, Duquesne,Robert Morris, Community Care Connect, MHY FamilyServices, Community Human Services, Standard Bank,Littler Mendelsohn and Family House.

On June 6, 2019, the Department held a roundtable inScranton, PA for local businesses, including the followingparticipants: Greater Scranton Chamber, Ufberg Law,Advocacy Alliance, Fidelity Bank, Commonwealth Health/Moses Taylor Hospital, Girl Scouts in the Heart of PA,Allied Services, SLHDA, UFCW Federal Credit Union,Institute for HR & Services, Needle Law, GreaterScranton Chamber and Ben Franklin Technology Part-ners. Also, on June 6, 2019, the Department held anotherroundtable for local labor organization in Scranton, Penn-sylvania including the following participants: AFSCMEand Labor Law Compliance.

In these roundtable sessions, businesses in this Com-monwealth and local chambers of commerce commentedthat the proposed rulemaking’s departure from the Fed-eral rule creates confusion, especially for employers inmultiple states, and that it is challenging for employersto know whether they are in compliance with Federal andState law. Businesses in this Commonwealth expressedconcern about the proposed rulemaking’s use of data fromthe Northeast census region to develop the exempt salarythresholds, arguing that Pennsylvania is the lowest wage-earning state within that region. Employers suggestedthat the proposed rulemaking required employers toterminate positions, cease funding health insurance andmove salaried positions to hourly positions. Employersalso suggested that employees will lose the flexibility intheir schedules to meet ‘‘crunch times’’ when overtime isneeded and to offset times when work is less plentiful.

Businesses in this Commonwealth commented that theincrease from year 1 to year 3 is a big increase andrecommended raising the wage at a slower rate. Lastly,the local chambers of commerce expressed a concernabout the Commonwealth’s ability to compete in the otherstates with lower salary thresholds. They recommendthat the Department adopt a rulemaking that adopts theFederal rules and adds the exceptions.

Nonprofit organizations commented that they are notable to absorb this increase in costs or to budget forovertime. They noted that events and programs are oftenscheduled in the evening and that employees at nonprofitorganizations do not have standard working hours. Non-profit organizations also expressed concerns about in-

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creasing costs and not knowing whether there will be anincrease in government contracts that help fund theiroperations. They recommended that employees be exemptfrom overtime if they average 40 hours over a 2-week payperiod.

The local labor organizations commented that the pro-posed rulemaking would properly compensate workersand is an integral part of raising the minimum wage.They also commented that the existing law places mana-gerial expectations on employees at small businesses thatare not actually managers. The local labor organizationsrecommended more public outreach on this rulemaking,noting that many employees are not aware that they areentitled to overtime and that the law contains exemptionsfor overtime.

The local labor organizations supported the proposedrulemaking and commented that social workers, casemanagers and secretaries may now be eligible for over-time and that these changes are an integral part ofraising the minimum wage. They also commented thatthe incremental increases made this proposed rulemakingeasier for the employer. These local labor organizationsbelieved it was appropriate to use data from the North-east census region which includes Pennsylvania. Theyalso recommend a pay schedule for other than salariedworkers, and asked the Department to consider that anemployee may be employed by two employers under thesame umbrella organization and, for that reason, notcollect overtime.

The Department considered the comments from thelocal businesses, local chambers of commerce and thelocal labor organizations in the development of thisfinal-form rulemaking. In particular, the Departmentconsidered how nonprofit organizations will be affected,especially those reimbursed at a formula rate by Stateand Federal government. As a result of these comments,the Department is considering outlining best practices foremployers to allow employers to consider options toimplement this final-form rulemaking. In addition, theDepartment will engage in outreach activities and estab-lish educational sessions to ensure that stakeholders areinformed of the EAP exemptions’ new duties tests andsalary threshold and the differences between State andFederal requirements. Once this final-form rulemaking isapproved, the Department will hold educational sessionsfor all stakeholders in Harrisburg, Scranton, Pittsburgh,Altoona, Philadelphia and Erie. The Department willwork with the Regional Chambers and associations todistribute fact sheets and offer assistance. The Depart-ment will ensure that those organizations have theBureau’s toll-free number and the e-mail address of aresource account created specifically for this issue so thatquestions will be answered timely and consistently.

Summary of Comments and Responses on the ProposedRulemaking

The proposed rulemaking was published at 48 Pa.B.3731. Public comments on the proposed rulemaking wereaccepted through August 23, 2018. The Department re-ceived comments from 898 commentators during thepublic comment period and IRRC. The comments wereconsidered and are addressed in the comment and re-sponse document that accompanies this final-form rule-making. A summary of major comments and responses isset forth as follows. The remaining comments are ad-dressed in the comment and response document attachedto this final-form rulemaking.

IRRC Comments1. Efforts to reach consensus

IRRC commented that the proposed rulemaking hadnot achieved consensus and that the Department shouldengage in dialogue with individuals and representativesof those programs and employment sectors that were partof the initial Governor’s Middle-Class Task Force meeting.In response, the Department engaged in an extensivepublic outreach campaign.

The Middle-Class Task Force held six sessions betweenSeptember 29, 2017, and November 20, 2017 and engaged74 participants who served as representatives of regionalchambers, businesses, educational institutions, nonprofitgroups, labor organizations and the general public. Inresponse to IRRC’s direction to engage in stakeholderoutreach and engage in dialogue with representatives ofthe Governor’s Middle-Class Task Force meetings, theDepartment held ten stakeholder roundtable sessionsacross the State between May 20, 2019, and June 6, 2019,as detailed previously. Five regional chambers hosted thebusiness stakeholder roundtables and five labor organiza-tions hosted the labor stakeholder roundtables. The De-partment invited and met with participants spanningeach sector at the roundtable meetings to provide educa-tion on the current application of the EAP exemptions,explain the Department’s proposed rulemaking, and listento attendees’ feedback on how the proposed rulemakingwould impact their lives, businesses or organizations. Thebusiness roundtables were attended by members of thebusiness community, educational institutions, nonprofitgroups and lawyers who represent employers. The laborroundtables were attended by labor organizations, mem-bers of the general public, and attorneys who representemployees.

The purpose of the roundtables and the extensivereview of comments that the Department undertook wasintended to find areas of agreement between vastlyopposed interests. Although it is not possible to achievetotal consensus, the Department has carefully evaluatedthe concerns of all affected groups.

There is no dispute that the current Pennsylvaniasalary threshold is obsolete and needs to be updated.Although it will be superseded by a new Federal thresh-old to become effective on January 1, 2020, the Federalthreshold of $23,660 has been in place since 2004 andwas likewise obsolete. The long-term failure to adjust thesalary threshold dilutes the purpose of the regulation;namely, that the duties test and salary threshold differen-tiate between exempt individuals performing actual, EAPduties, while lower paid white-collar workers are ex-tended overtime protections. Such a failure demands anappropriate increase in the salary threshold.

The Department also heeded the commentators whourged the Department to await publication of the Federalrule and to more closely align with the Federal standards.As discussed at length herein, the Department has takensubstantial steps to more closely align with the Federalstandards, to the extent consistent with its statutoryauthority. As described herein, there are some Federalexemptions that the act simply does not empower theDepartment to adopt.

The Department has also revised its methodology, as isdiscussed in detail herein, based on comments regardingthe use of salary and wage data information for theNortheast region of the country. Instead, it has developedits salary threshold figures for this final-form rulemakingstrictly from Pennsylvania data, so that it accuratelyreflects economic realities in the Commonwealth.



2. Legislative comments

In its comment, IRRC specifically identified two legisla-tive concerns: whether the legislative process should beused instead of the regulatory process; and whether theDepartment should wait for the Federal government toissue its overtime rule. IRRC also encouraged the Depart-ment to work with the standing committees and Statelawmakers to address their issues as this final-formrulemaking was developed.

The Department received the following legislative com-ments that also suggested use of the legislative processover the regulatory process: The Honorable Senators LisaBaker, Kim Ward, The Honorable Representative RobertKauffman, and members of the House Labor and IndustryCommittee (The Honorable Representatives RyanMackenzie, Jesse Topper, Jim Cox, Cris Dush, SherylDelozier, Mark Gillen, Seth Grove, Dawn Keefer, FredKeller, Kate Klunk, David Maloney, John McGinnis,Steven Mentzer, Eric Nelson and Jack Rader). The De-partment also received comments expressing a similarconcern from Michael Lawson and from Gail Landis, onbehalf of the Greater Reading Chamber of Commerce.

The Department also received comments supporting theDepartment’s use of the regulatory process to increasesalary thresholds and revise definitions from the follow-ing legislators: The Honorable Representative John Gal-loway, The Honorable Senator Christine Tartaglione andmembers of the House Labor and Industry Committee(The Honorable Representatives John Galloway, LeanneKrueger, Morgan Cephas, Daniel Deasy, Maria Donatucci,Jeanne McNeill, Dan Miller, Gerald Mullery, Ed Neilson,Adam Ravenstahl, and Pam Snyder).

Under section 5(a)(5) of the act, the Secretary isauthorized to define and delimit employment in a bonafide ‘‘executive, administrative or professional capacity.’’While the Department acknowledges the legislature’sability to address such issues through the legislativeprocess, as the law exists at this time, the Department’suse of the regulatory process to increase salary thresh-olds, revise definitions and update the duties tests forEPA employees is squarely within the Department’sstatutory authority.

In response to IRRC’s concern and numerous othercomments asking the Department to wait for the publica-tion of the final USDOL rulemaking, the Departmentpostponed publication of its final-form rulemaking pack-age until the USDOL rulemaking was published. TheUSDOL promulgated its final rule on September 27,2019, at 84 FR 51230, establishing a new salary thresh-old for employees performing in EAP capacities effectiveon January 1, 2020. In USDOL’s final rulemaking,USDOL updated its current salary threshold to qualifyfor the EAP exemptions from $455 per week to $684 perweek for all employees except for employees who are notemployed by the Federal government and who work inthe Northern Mariana Islands, Guam, Puerto Rico, theUnited States Virgin Islands or American Samoa. TheUSDOL’s final rule also updated the salary threshold foremployees who are highly compensated employees, workin educational establishments and computer employees.In its final rule, the USDOL clarified that a weekly salaryrate may be translated into an equivalent amount forperiods longer than a week, and amended its rule to allowten percent of the salary amount to be satisfied by thepayment of nondiscretionary bonuses, incentives and com-missions paid annually or more frequently instead ofquarterly or more frequently.

The Department has more closely aligned this final-form rulemaking with the Federal regulations, includingthe new Federal rule effective on January 1, 2020. Adetailed explanation of the Federal rule and the Depart-ment’s efforts to align with that rule appears herein, inresponse IRRC’s fifth comment.

The Department engaged with the legislature after theproposed regulatory package was submitted to IRRC.First, in July 2018, the Department met with staff of theDepartment’s legislative oversight committees, which areLabor and Industry Committees of the House of Repre-sentatives and the Senate. The meeting offered an over-view of and an opportunity to answer questions about theDepartment’s proposed regulations to modernize overtimeregulations. Of particular note, majority committee stafffrom both the House and Senate expressed concernsabout the new salary threshold and questioned whyexemptions and technical language were not being up-dated to align more with Federal regulations.

In September 2018, the House Labor and IndustryCommittee held a public hearing regarding the Depart-ment’s proposed regulations. The Secretary of Labor andIndustry and the Deputy Secretary for Safety and LaborManagement Relations, who oversee the program areathat administers and enforces Pennsylvania’s labor laws,participated in this public hearing by offering oral andwritten testimony and answering questions asked bycommittee members. The public hearing offered a valu-able opportunity to hear from a range of stakeholdergroups. A significant takeaway from this public hearingwas that many employers and individuals indicated afundamental misunderstanding of eligibility and applica-bility of current overtime exemptions for workers. Forexample, some employers believe any salaried employee isautomatically exempt from overtime.

Lastly, the Department received the written commentsreferenced previously from legislators and standing com-mittees during the regulatory review process, which havebeen taken into consideration and are addressed herein.

3. The Regulation is in the public interest

IRRC commented that the Department should providemore detailed information for each section of this final-form regulation in the preamble and should explain whythe amendments are required. The Department has doneso herein on pages 38—44 of the preamble, under ‘‘Sum-mary of Amendments.’’

In enacting the act, the General Assembly establishedthe public policy direction underpinning the Department’sexercise of its authority under the act:

Employes are employed in some occupations in theCommonwealth of Pennsylvania for wages unreason-ably low and not fairly commensurate with the valueof the services rendered. Such a condition is contraryto public interest and public policy commands itsregulation. Employes employed in such occupationsare not as a class on a level of equality in bargainingwith their employers in regard to minimum fair wagestandards, and ‘‘freedom of contract’’ as applied totheir relations with their employers is illusory.Judged by any reasonable standard, wages in suchoccupations are often found to bear no relation to thefair value of the services rendered. In the absence ofeffective minimum fair wage rates for employes, thedepression of wages by some employers constitutes aserious form of unfair competition against otheremployers, reduces the purchasing power of the work-ers and threatens the stability of the economy. The



evils of unreasonable and unfair wages as theyaffect some employes employed in the Common-wealth of Pennsylvania are such as to renderimperative the exercise of the police power ofthe Commonwealth for the protection of indus-try and of the employes employed therein andof the public interest of the community at large.

43 P.S. § 333.101 (emphasis added). The legislature hasdetermined that the protection of workers from unreason-ably low wages is in the public interest.

This final-form rulemaking is in the public interestbecause the Commonwealth’s current regulation is obso-lete and no longer is relevant to provide guidance toemployers to properly classify employees as exempt andto protect employees from employers who improperlymisclassify them as exempt. The regulation is obsolete fortwo reasons. First, the duties test in the current regula-tions is out of date and no longer aligns with the USDOLduties test as it once did. The two different duties testsprescribed by Federal and State law make it difficult foremployers to accurately determine which employees areexempt from receiving overtime. Second, the salarythreshold in the Department’s current regulation hasfailed to keep pace with current wages and thus appliesto very few of the salaried employees it was intended toprotect. The Department’s final-form rulemaking is in-tended to update these regulations for easier comprehen-sion and compliance by this Commonwealth’s businesscommunity, and to provide protections to certain white-collar employees consistent with the express intent of theact.

The duties and salary threshold tests in the act havenot been updated since 1977. At that time, the duties andsalary threshold aligned with the USDOL rules. Since1977, the USDOL has updated the Federal regulationstwice, in 2004 and in 2019, and have significantlychanged both the duties and salary threshold tests for theFLSA’s salary exemptions. Although the Federal salarythreshold will be updated on January 1, 2020, thatthreshold was calculated based on salary data for theSouthern region of the United States—a region with thelowest wages Nationally. The Department will initiallyalign with the Federal threshold and take a graduatedapproach to achieving a threshold that is representativeof the Commonwealth’s economy.

Updating Pennsylvania’s duties test and the salarythreshold is essential to meet the intent of the overtimeexemption regulation. As the Department discovered dur-ing its stakeholder outreach, both employers and employ-ees often misunderstand this regulation. There is confu-sion around Pennsylvania’s antiquated use of both a shortand long test for EAP exemptions. Further, most individu-als understand only the salary threshold portion of theregulation, and mistakenly assume that if they make over$23,660 (USDOL’s current threshold until the updatedUSDOL regulation takes effect on January 1, 2020), theyare ineligible for overtime. However, under both theDepartment’s regulation and USDOL’s regulation, theindividual must make over the salary threshold and meetthe duties test. The increase in the salary threshold willbetter align the average salaries paid for employees whoperform EAP duties with those duties; aligning Pennsyl-vania’s duties test with the Federal duties test will assistemployers with compliance.

Even opponents of the proposed rulemaking acknowl-edge that the existing regulation is outdated and thesalary thresholds are obsolete. The methodology used bythe Department to arrive at a fair and realistic salary

threshold and the alignment of the duties test with theFederal regulation is in the public interest.

4. Economic or fiscal impacts of the regulation; protectionof the public health, safety and welfare

IRRC commented that the Department should explainthe reasonableness of the proposed salary thresholds inlight of the fact that the National average for salaryincreases has been about 3% and that, even with the3-year phase in, the Department’s proposed salary in-crease is significant. IRRC summarized a number of thepublic comments, which are addressed more fully in theattached comment and response document that accompa-nies this final-form rulemaking. IRRC’s comment ex-pressed concern with the cost of compliance for nonprofitand educational institutions, as well as local govern-ments. It asked the Department to consult with theregulated community to ‘‘gain a thorough understandingof the fiscal impacts of this proposal.’’

As set forth in detail herein, the Department consultedat length with the regulated community in an effort tounderstand concerns and to appreciate the impact of theregulation on both businesses and employees. As a resultof that outreach, the Department has revised its method-ology to take into account concerns with the geographicreach of the data set selected. As previously outlined, therevised salary threshold in the final-form rulemaking isbased on Pennsylvania Occupation Employment Statisticsdata. This data better reflects economic realities inPennsylvania and has, in fact, resulted in a salarythreshold that is more than $2,000 lower than the salarylevel the Department proposed last year.

Business response to the salary threshold will varydepending on the characteristics of the business’s opera-tions, current staffing structure and current schedulingpractices. Each affected employer must consider the regu-lation, including both the duties test and the salarythreshold, and consider if they will adjust operations tomake the regulation cost neutral, or if they wish tomaintain several options for operations, including requir-ing employees to work beyond 40 hours per week, andtherefore respond to the regulation in a way that mayincrease payroll costs. To adjust for this final-form rule-making, employers may pursue one or a combination ofoptions: pay nonexempt employees overtime; limit nonex-empt employee hours to 40 hours a week to avoidovertime costs; allow for some overtime but reduce basepay or benefits; or raise nonexempt employee salariesabove the threshold.

The Department estimates the total direct cost to theregulated community in this Commonwealth to complywith this regulation to be an average of $78.42 peremployer per year across the current and next 5 fiscalyears:

FY 2019-2020 Total Employer Cost: $6,961,025

FY 2020-2021 Total Employer Cost: $14,315,133—$14,734,347







This takes into consideration that all employers in theState will review the new regulation and that some willrecognize that they are exempt from the regulation due tobeing certain municipal, public or limited types of non-profit employers. It also considers that, given that thesalary threshold will be phased in to $45,500 over2 years, the number of newly nonexempt workers in thefirst year will be lower than the number of newlynonexempt workers upon full implementation.

In addition to the fiscal and economic impact on thebusiness community, there will be a fiscal and economicimpact for affected workers and for communities in thisCommonwealth. Approximately 82,000 EAP workersStatewide will benefit from these updated regulations byJanuary 1, 2022. Depending on how their employer reactsto these regulations, these individuals and their familiescould benefit from increased income or improved qualityof work/family balance, or both.

FY 2020-2021: $3,565,467—$3,984,681 in increasedworker wages





These additional wages to workers create ‘‘inducedspending’’ in the community; this is consumer spendingon retail establishments, restaurants and other goods andservices. Estimated induced spending is as follows:

FY 2020-2021 Economic Impact: $1,957,441—$2,187,590 in induced spending





Finally, additional wages and induced spending createsan increase in tax revenue for State and local govern-ments. Estimated additional tax revenues are as follows:

FY 2020-2021: $181,839—$203,219 in State and localtax revenues

FY 2021-2022: $673,805—$753,028 in State and localtax revenues

FY 2022-2023: $1,013,450—$1,132,607 in State andlocal tax revenues

FY 2023-2024: $1,042,968—$1,165,596 in State andlocal tax revenues

FY 2024-2025: $1,042,968—$1,165,596 in State andlocal tax revenues5. Clarity, feasibility and reasonableness; possible conflict

with or duplication of statutes or existing regulations

IRRC commented that the proposed rulemaking did notfully align with Federal regulations. IRRC pointed outthat exemptions exist in Federal regulations for highlycompensated employees, outside sales, certain computeremployees, business owners and employees of educational

establishments and reiterated the concern that omissionof these provisions will contribute to inconsistencies andcomplicate compliance.

As an initial matter, ‘‘the FLSA does not supersedestate law; Pennsylvania may enact and impose moregenerous overtime provisions than those contained underthe FLSA which are more beneficial to employees.’’Bayada Nurses, Inc. v. Com., Dep’t of Labor & Indus.,8 A.3d 866, 883 (2010). In Bayada, the PennsylvaniaSupreme Court noted that other courts confronting re-lated issues have held that the FLSA does not prohibitstate regulation of wages and overtime if the state’sstandards are more beneficial to workers. Id. at 883(citing Pettis Moving Co., Inc. v. Roberts, 784 F.2d 439,441 (2d Cir. 1986) (‘‘Section 218(a) of the FLSA explicitlypermits states to set more stringent overtime provisionsthan the FLSA.’’)). See also Knepper v. Rite Aid Corp.,675 F.3d 249, 262 (3d Cir. 2012) (FLSA’s saving clauseevinces a clear intent to preserve rather than supplantstate law and undermines any suggestion that Congressintended to occupy the field of wage and hour regulation).

Thus while the FLSA’s purpose is to establish a Na-tional floor under which wage protections cannot drop,the FLSA does not supersede a state’s minimum wagelaws, require that states adopt minimum wage andovertime standards at levels established in the FLSA, norprohibit a state’s provision of more stringent protections.Computer employee exemption

The Department cannot create a computer exemptionbecause that exemption does not exist in the act. Whilethe FLSA specifically exempts ‘‘any employee who is acomputer systems analyst, computer programmer, soft-ware engineer, or other similarly skilled worker’’ anddefines the relevant duties and compensation rate, see29 U.S.C.A. § 213(a)(17), this exemption does not existanywhere in the act. The Department cannot add anentirely different category of exempt employee throughregulation where the legislature has not so provided. See,e.g. Nationwide Mut. Ins. Co. v. Foster, 580 A.2d 436,442 (Pa. Cmwlth. 1990) (agencies cannot add substantiveterms to statutes which do not exist in the statute).Other exemptions

The Department’s current regulations implementing theact contain an exemption for outside sales but do notcontain exemptions for highly compensated employees,business owners and employees of educational establish-ments. Moreover, the Department’s proposed rulemakingdid not address updating or creating these exemptionsand, due to that lack of notice, the Department receivedno comments from labor organizations regarding whetherthe outside sales exemption should be updated, or a newexemption created. As such, it would be more appropriateto address these issues in a future rulemaking where theDepartment can conduct outreach and receive input fromall interested parties.

Other commentators recommended that the Depart-ment mirror Federal law and adopt an 8/80 rule for thehealth care industry. For the Department to adopt thisrule, the Department would need to amend § 231.42(relating to workweek), which implements the act anddefines the term ‘‘workweek’’ as a period of 7 consecutivework days. This amendment also would be better ad-dressed in a future rulemaking to provide all interestedparties an opportunity to review and comment on anyproposed changes.

Other commentators noted the absence of a concurrentduties test and key definitions such as primary duty and



salary basis. While the Department has more closelyaligned its regulations with Federal regulations, theDepartment has not adopted all Federal definitions.However, the Department does look to Federal law forguidance for interpreting its regulations. The Departmentwill continue to review Federal regulations and mayaddress any additional inconsistencies in future rulemak-ings.

Federal overtime rule

IRRC observed that many commentators, includingmembers of the legislature, noted that the USDOL was inthe process of promulgating a Federal overtime rule.Specifically, that comment was submitted by the Honor-able Representative Robert Kauffman, the HonorableSenator Kim Ward, members of the House State Govern-ment Committee (The Honorable Representatives DarylMetcalfe, Matt Dowling, Cris Dush, Seth Grove, KristinHill, Jerry Knowles, Brett Miller, Brad Roae, Frank Ryan,Rick Saccone, Tommy Sankey, Craig Staats, Justin Walsh,Judy Ward, and Jeff Wheeland), members of the HouseLabor and Industry Committee (Honorable Representa-tives Ryan Mackenzie, Jesse Topper, Jim Cox, Cris Dush,Sheryl Delozier, Mark Gillen, Seth Grove, Dawn Keefer,Fred Keller, Kate Klunk, David Maloney, John McGinnis,Steven Mentzer, Eric Nelson and Jack Rader), suggestingthat the Department should await the USDOL rule-making process. There were also a number of publiccomments to that effect, which are addressed more fullyin the attached comment and response document thataccompanies this final-form rulemaking.

In fact, the Department heeded the suggestion that itawait the final USDOL rulemaking. The USDOL promul-gated its final rule on September 27, 2019, at 84 FR51230, establishing a new salary threshold for employeesperforming in EAP capacities effective on January 1,2020. In USDOL’s final rulemaking, USDOL updated itscurrent salary threshold to qualify for the EAP exemp-tions from $455 per week to $684 per week for allemployees except for employees who are not employed bythe Federal government and who work in United Statesterritories. The USDOL’s final rule also updated thesalary threshold for employees who are highly compen-sated employees, work in educational establishments andcomputer employees. In its final rule, the USDOL clari-fied that a weekly salary rate may be translated into anequivalent amount for periods longer than a week, andamended its rule to allow 10% of the salary amount to besatisfied by the payment of nondiscretionary bonuses,incentives and commissions paid annually or more fre-quently instead of quarterly or more frequently.

After reviewing the USDOL’s final rulemaking, in itsfinal regulations, the Department adjusted its initialsalary threshold to $684 per week and amended thelanguage allowing the payment of quarterly bonuses toallow the payment of yearly bonuses. The Department’sfinal regulations will also let employers decide whether touse a calendar year, fiscal year or anniversary of hireyear for calculating and paying bonuses.

Applicability

IRRC commented on the concerns of public employers.IRRC noted the comments from public employers, whichare addressed more fully in the attached comment andresponse document that accompanies this final-form rule-making, that public employers would incur compliancecosts. As explained as follows, the Department’s overtimeregulations have been and continue to be inapplicable topublic employers, including State-affiliated entities, coun-

ties, municipalities and public-school systems. This final-form rulemaking does nothing to change that status.Instead, the FLSA, which expressly includes state-relatedentities within its definition of covered employers, estab-lishes the rules applicable to public employers.

Section 3(g) of the act (43 P.S. § 333.103(g)) defines theterm ‘‘employer’’ as ‘‘any individual, partnership, associa-tion, corporation, business trust, or any person or groupof persons acting, directly or indirectly, in the interest ofan employer in relation to any employe.’’ The termspecifically omits public employers. The omission of publicemployers from the act’s definition of ‘‘employer’’ indicatesthe intent of the General Assembly to exclude publicemployers from coverage under the act. Neither courtsnor agencies can add requirements to a statute byinterpretation. See, e.g., Kegerise v. Delgrande, 183 A.3d997, 1005 (Pa. 2018) (courts ‘‘must not add, by interpreta-tion, a requirement not included by the legislature’’);Shapiro v. State Bd. of Accountancy, 856 A.2d 864,877 (Pa. Cmwlth. 2004) (court may not insert a word thelegislature failed to supply into a statute). In construingthe Wage Payment and Collection Law (43 P.S.§§ 260.1—260.13), the Commonwealth Court held that it‘‘must give effect to the legislature’s intent as it wasexpressed in the language of the statute and cannotsupply an omission in a statute where it appears that thematter has been intentionally omitted. Municipal corpora-tions such as the Borough are not included within thedefinition of ‘‘employer,’’ and we, as an appellate court,cannot expand the definition of ‘‘employer’’ to includethem.’’ Huffman v. Borough of Millvale, 591 A.2d 1137,1138-39 (Pa. Cmwlth. 1991). Likewise, an agency cannotsupply a term that appears to have been intentionallyomitted from a statute through an interpretative rule.See, e.g., Nationwide Mut. Ins. Co. v. Foster, 580 A.2d436, 442 (Pa. Cmwlth. 1990) (agencies cannot add termsto statutes which do not exist in the statute).

Although no Pennsylvania court has specifically ad-dressed whether the act applies to public employers, in1976 the Attorney General opined that the act does notapply to public employees. Office of Attorney General,Official Opinion No. 76-29, Applicability of MinimumWage Act to Public Employes, 1 Pa. D.&C. 33 (Pa. A.G.),1976 WL 401515 (October 18, 1976). The Attorney Gen-eral traced the parallel development of the definition of‘‘employer’’ in the act and the FLSA. The AttorneyGeneral noted that the FLSA was amended on April 8,1974, P.L. 93-259, 88 Stat. 62 to specifically include publicagencies within the definition of ‘‘employer’’ in29 U.S.C.A. § 203(d), and to remove the exemptionpreviously afforded the States and their political subdivi-sions. Since 1974, the FLSA has defined ‘‘employer’’ as‘‘any person acting directly or indirectly in the interest ofan employer in relation to an employee and includes apublic agency,’’ 29 U.S.C.A. § 203(d), and provided adefinition of ‘‘employee’’ applicable to individuals em-ployed by a public agency which generally includes ‘‘anyindividual employed by a State, political subdivision of aState, or an interstate governmental agency.’’ 29 U.S.C.A.§ 203(e)(2)(C).

The General Assembly has amended the act five timessince the FLSA was amended to include public entitieswithin the definition of ‘‘employer’’ in 1974, but has notaltered the definition of ‘‘employer’’ to include publicentities. The General Assembly’s clear intention by itsomission was not to extend coverage under the act topublic employers. Accordingly, because the General As-sembly has chosen not to include the Commonwealth orany of its political subdivisions in the act’s definition of



employer, the Department has properly interpreted theact to exclude them. This exemption is longstanding andit appears, from the relatively small number of comments,that most public employers understood that the proposedrulemaking would not apply to them.

IRRC suggested that the Department explicitly identifythe types of employers which are exempt from therequirements of the act and, thus, the Department’sregulations implementing the act.

The following employers are exempt from the act undersection 5(a)(4) by virtue of their omission from the text ofthe act: Commonwealth agencies, counties, cities, bor-oughs, townships, state-related schools, Penn State Uni-versity, public schools, conservation districts and portauthorities. Additionally, there is a specific exemption inthe act for weekly, semiweekly or daily newspapers with acirculation of less than 4,000, the major part of whichcirculation is within the county where published orcounties contiguous thereto. There is also a specificexemption in the act under section 5(a)(9) for publicamusement or recreational establishments, organizedcamps, or religious or nonprofit educational conferencecenters, if they do not operate for more than 7 months inany calendar year, or if during the preceding calendaryear, their average receipts for any 6 months of such yearwere not more than 33 1/3% of its average receipts for theother 6 months of the year. The Department is alsoconstitutionally precluded from enforcing the act againstFederal entities. ‘‘Of course, under fundamental tenets ofour Republic the Commonwealth of Pennsylvania has nopower to make the Federal government subject to any ofits laws and regulations.’’ Hughes v. WCAB (SalemTransp. Co., Inc.), 513 A.2d 576, 578 (Pa. Cmwlth. 1986).

6. Reasonableness of requirements, implementation proce-dures and timetables for compliance by the public andprivate sectors

IRRC next commented that the Department shouldexplain how the implementation schedule provides suffi-cient time for compliance and for employers to makenecessary adjustments to business practices, as well as acommunication strategy. IRRC noted a comment from theHonorable Representative John Galloway that suggestedthat the Department consider delaying the initial imple-mentation for a period of time to allow notification toemployers.

Because the Department waited for the publication ofthe Federal regulation, and aligned the threshold for thefirst year with the Federal threshold which becomes

effective on January 1, 2020, this final-form rulemakinghas little impact until January 1, 2021. The regulatedcommunity is already on notice of the increased Federalthreshold and will have a year before the first of twograduated steps to bring the exempt salary threshold tothe level warranted by Pennsylvania-specific data be-comes effective.

The Department will engage in outreach activities andestablish educational sessions to ensure that stakeholdersare informed of the EAP exemptions’ new duties tests andsalary threshold and provide clarity on the differencesbetween State and Federal requirements. Following ap-proval of this final-form rulemaking, the Departmentplans to hold educational sessions for all stakeholders inHarrisburg, Scranton, Pittsburgh, Altoona, Philadelphiaand Erie. In addition, the Department will work with theState and Regional Chambers and associations to distrib-ute fact sheets and offer assistance. The Department willensure that those organizations have the Bureau’s toll-free number and the e-mail address of a resource accountcreated specifically for this issue so that questions will beanswered timely and consistently.7. Whether regulation is supported by acceptable data;

reasonableness of requirements, implementation proce-dures and timetables for compliance; statutory author-ity; whether the regulation represents a policy decisionof such a substantial nature that it requires legislativereview

Salary threshold phase-inMany commenters expressed concern about the salary

threshold’s large increase from phase in through finalamount, thereby potentially creating many newly nonex-empt workers. IRRC pointed to commenters’ statementsthat the average salary increases each year at 3%.However, the Department notes that the salary thresholdhas not increased for 15 years and on the State level for42 years. The increase from the phase in amount to finalamount is intended to compensate for the lack of appro-priate updates to the salary threshold for many years.

Further, the Department’s proposed increase alignswith or is less than salary threshold increases in previousState and Federal rulemakings. The Department hasheeded the comments of the employer community that itcannot accommodate sharp increases to the salary thresh-old, and will therefore establish a Pennsylvania-specificsalary threshold over 3 years and implement an auto-matic review and escalation mechanism every 3 years toavoid sharply increasing the salary threshold in thefuture.

Year Weekly Salary Threshold % Increase from Previous Threshold1975(previous rulemaking in 1970)

Short Test: $250Long-Test for Exec & Admin: $155Long-Test for Prof: $170

Short Test: 25% increaseLong Test, E&A: 24% increaseLong Test, Prof: 21% increase

2004 USDOL $455 ($23,660 annually) 82% increase from Long Test192% increase fromExecutive/Administrative Test168% increase from Short Test

2020 USDOL $684 ($35,568 annually) 50% from 20042021 PAL&I $780 ($40,560 annually) 14% from 2020 USDOL2022 PAL&I $875 ($45,500 annually) 12% from PAL&I 2021



Since the proposed rulemaking was published, theFederal government has issued a rule establishing a newsalary threshold for EAP employees. The Department hasaligned the State threshold for the first year with theFederal threshold that will become effective on January1, 2020. Therefore, there is no impact to employers fromthe Pennsylvania-specific salary threshold until January1, 2021, when the incremental increase in the thresholdwould diverge from the Federal threshold. Therefore,employers will have time to prepare and adjust, and theDepartment will undertake a communication and educa-tional campaign, described previously, to ensure thatemployers are aware of the changes and their obligationsunder this regulation.

Automatic Review and Adjustment Mechanism

This final-form rulemaking also includes a mechanismto automatically review and adjust the exempt salarythreshold every 3 years where the data establishes that itis necessary to prevent an erosion of its effectiveness.‘‘Experience has shown that fixed earning thresholdsbecome substantially less effective over time. Additionally,lengthy delays between updates necessitate disruptivelylarge increases when overdue updates finally occur.’’ SeeUSDOL Wage and Hour Division Fact Sheet: Final Ruleto Update the Regulations Defining and Delimiting theExemptions for Executive, Administrative and Profes-sional Employees (September 2019). This has been theexperience in this Commonwealth where the salarythreshold has eroded over the passage of 15 years duringwhich no adjustment was made for economic growth orinflation, resulting in an artificially low threshold thatallows employees working in EAP capacities to be desig-nated as exempt and required to work often excessiveovertime hours without additional compensation. In addi-tion to the misalignment of the exempt salary level andEAP duties, sporadic large increases lead to the employercommunity having to play ‘‘catch up’’ each time the salarythreshold is increased. Several commenters noted thatdifficulty of attempting to level-set wages in a 3-yearperiod after so many years of regulatory inaction.

This final-form rulemaking will provide a mechanism toreview and adjust the salary threshold every 3 yearsusing the same Pennsylvania-specific data-set and meth-odology used to establish the Pennsylvania salary levelfor Year 3 of the 3-year phase-in period ($875/week or$45,500 annual pay). This is a change from the proposedrulemaking which proposed to use data based on the 30thpercentile of weekly earnings of full-time nonhourly work-ers in the Northeast region. As previously noted, theDepartment agreed with commenters that the Northeastregion, which includes Pennsylvania wages at the low endof high-wage eastern seaboard cities, was not the appro-priate measure for the Commonwealth. Instead, thisfinal-form rulemaking provides for a triennial adjustmentof the salary threshold—based on the 10th percentile ofwages in the exempt occupations in this Commonwealthbased on the data. The triennial salary level adjustmentwould be reviewed by the Board and published in thePennsylvania Bulletin at least 30 days in advance of theeffective date, giving the employer community adequatetime to adjust to the smaller, more predictable salarylevel adjustments In times of economic downturn, whenwages are not expected to rise, it is unlikely that thethen-current data will support an increase to the salarythreshold.

The Department has the statutory authority to promul-gate the automatic adjustment mechanism of the regula-tions. Courts in the Commonwealth have long recognized

the power of an administrative agency to administer astatutorily-mandated program and under the act, hasexpressly delegated authority to the Department to ‘‘de-fine and delimit’’ the EAP terms in section 5(a) of the act,and left it to the Department’s discretion how to do so.This is the same broad delegation of authority underpin-ning the Department’s use of a salary threshold as acharacteristic to define the EAP exemption in 1977, theexercise of which authority has never been challenged inPennsylvania. The Department has made other signifi-cant changes to the way the act is implemented under thesame broad authority to define the EAP categories bydeleting the long and short tests in the EAP exemptions,by allowing bonuses to count towards the salary amountand by aligning the duties more closely with the Federalregulation.

Under the automatic adjustment mechanism, salarylevel changes will occur at regular, 3-year intervals usingthe same methodology and data used to establish theoriginal Pennsylvania-specific salary threshold. Thismechanism will benefit employers and employees byreplacing infrequent, and this more drastic salary levelchanges with gradual changes occurring at predictableintervals. The automatic adjustment mechanism was partof the Department’s proposed rulemaking which estab-lished a salary threshold that adequately distinguishesbetween who may meet the duties requirements of theEAP exemptions and those who likely do not. The auto-matic review and adjustment provision merely recalcu-lates this salary threshold every 3 years using currentdata and the same methodology used to establish theinitial Pennsylvania EAP salary threshold. Because themethodology and dataset remain the same, the automaticadjustment mechanism merely keeps the salary thresholdaccurate considering changing salary levels in the Penn-sylvania workplace. It does not change the duties test,salary level test or the methodology used to calculate thesalary

The Department has considered the input and feedbackof the regulated community in establishing the newPennsylvania salary threshold. The automatic adjustmentprovision does not change the salary level test set in theDepartment’s final regulations and which requires thatexempt employees be paid a salary equal to at least theweighted average 10th percentile of wages for exemptoccupations in Pennsylvania. The weighting reflects therelative number of individuals employed in the particularexempt occupations. Using the automatic adjustmentprovision does not substantively change the salary leveltest or duties test, but merely adjusts the salary thresh-old based on current data in the same dataset used toestablish the Pennsylvania-specific salary level estab-lished in this final-form rulemaking. Thus, the automaticadjustment provision is not a new rulemaking. Thestandard and process for calculating the adjustment isbeing set in this final-form rulemaking. It is merely amechanism to preserve the accuracy and continuing effec-tiveness of the salary level test. The triennial adjustmentmechanism, which will be based on current data, willensure that the salary test continues to reflect the samesalary threshold based on the weighted average 10thpercentile of wages for exempt occupations in this Com-monwealth.

As the effectiveness of the salary threshold erodes overtime, workers may be mistakenly misclassified as exemptsolely based on salary alone and not in concert with theduties test. Thus, when the salary threshold is againadjusted in a regulatory update, employers are faced witha situation in which a large number of previously ex-



empted employees may now be nonexempt, either due toinitial misclassification or due to the salary thresholdbeing updated to reflect wages being paid to employees inthe current labor market.

The Department has therefore indexed the adjustmentof the salary threshold to the weighted average 10thpercentile wage of all exempt workers in Pennsylvaniaand will update the salary threshold in 2023 and thenevery 3 years thereafter.

The automatic review and adjustment mechanism al-lows the regulation to be carried out as intended: therewould be few instances of an employee being exempt priorto a regulatory update and subject to overtime uponupdate due to a large increase in the salary threshold toreflect current wages. Periodic small adjustments to thesalary threshold allow the salary threshold to continue tomeet the intent of the regulation without causing up-heaval to the employer community.

Federal district court litigation over 2016 Federal rule-making

IRRC asked how the Department’s rulemaking differsfrom a Federal regulation that was rejected by a districtcourt in Texas on the grounds that the salary level was sohigh that it rendered the duties test for the EAP exemp-tions irrelevant and whether the Department consideredanother methodology. As explained herein, the Depart-ment has revised its methodology in its final-form rule-making and that methodology differs significantly fromthat used in the Texas case.

In May 2016, the USDOL published a regulation whichraised the minimum salary level for exempt employeesunder the FLSA from $455 per week to $913 per week.The new salary level was based on the 40th percentile ofweekly earnings of full-time salaried workers in thelowest wage region of the United States (the South), andalso created an automatic updating mechanism thatadjusts the minimum salary level every 3 years startingin 2020.

In response, the State of Nevada and 20 other statessued the USDOL challenging the overtime regulation.The parties challenging the Federal regulation assertedthat revisions to the minimum salary threshold exceededUSDOL’s authority under section 213(a)(1) and was in-consistent with the intent of the FLSA because theregulation increased the minimum salary threshold to sohigh a level that it was no longer a plausible proxy forthe job duties of an executive, administrative, or profes-sional capacity employee. The USDOL countered that theregulation is within its delegated authority because sec-tion 213(a)(1) explicitly grants authority to the Depart-ment to define and delimit the terms ‘‘bona fide executive,administrative, or professional capacity,’’ and, therefore,the court should defer to the USDOL’s interpretation ofthe statute.

The Federal district court held the USDOL regulationimplementing a salary increase to the FLSA’s exemptionsinvalid. Nevada v. United States Dep’t of Labor,275 F.Supp.3d 795 (E.D. Texas 2017). The Federal districtcourt noted that the USDOL has the authority to imple-ment a salary threshold to identify those persons servingin EAP capacities and thus exempt from overtime pay,because the salary threshold serves as a defining charac-teristic when determining who, in good faith, performsactual EAP duties. The Federal district court determined,however, that because the regulation more than doubledthe previous minimum salary level, making overtimestatus depend predominately on a minimum salary level,

and thereby supplanting an analysis of an employee’s jobduties. The court noted that entire categories of previ-ously exempt employees who perform ‘‘bona fide execu-tive, administrative, or professional capacity’’ dutieswould now qualify for the exemption based on salaryalone. The court held that because the FLSA unambigu-ously indicated Congress’s intent that employees doing‘‘bona fide executive, administrative, or professional ca-pacity’’ duties to be exempt from overtime pay, theUSDOL exceeded its authority by using a salary-level testthat effectively eliminates the duties-focused test pre-scribed under the FLSA.

The Federal district court decision is neitherprecedential nor is particularly applicable to the Depart-ment’s final-form rulemaking because of significant fac-tual dissimilarities between the 2016 USDOL final ruleand the Department’s final regulations. The final regula-tions implementing the act differ in material respectsfrom the 2016 Federal regulation, including the methodol-ogy, which relies upon Pennsylvania-specific data regard-ing exempt employees, and resulting exempt salarythresholds that are reflective of the existing Common-wealth workforce of exempt employees.

More specifically, the Department’s regulation differsfrom the 2016 USDOL regulation invalidated by theTexas Federal district court in the at least three signifi-cant ways.

First, the Department’s increase is smaller than the2016 USDOL rule and is phased in over 2 years ratherthan immediately effective. In the Nevada case, theFederal district court based its decision that USDOL’sregulation violated the FLSA in part on the fact thatUSDOL immediately doubled the salary threshold, from$455 to $913 per week, which in the court’s view effec-tively eliminated the test based on the employee’s duties.Under the Department’s regulation, the salary level im-mediately resets to $684, to be consistent with the salarythreshold set in the USDOL’s new rule, which becomeseffective on January 1, 2020. The Pennsylvania-specificsalary threshold gradually rises to the Year 2 intermedi-ate salary threshold of $780 (a 14% increase of the salarylevel effective on January 1, 2020) and in the followingyear to the Year 3 salary threshold of $875 (a 12%increase over the Year 2 salary level). This gradualphase-in avoids what was perceived to be a disruptivelylarge increase.

Second, unlike the USDOL’s 2016 rulemaking, whichfocused exclusively on the salary level of exempt employ-ees in the EAP categories, the increase in the salarythreshold is part of the larger effort to update the EAPdefinitions to make the more relevant in the modernmarketplace and more consistent with the Federal exemp-tions. The Department’s final-form rulemaking also up-dates the duties test to qualify for the EAP exemption,including eliminating the long and short tests, establish-ing that the duties remain the focus of the exemptanalysis. The Department’s comprehensive overhaul ofthe Commonwealth’s EAP regulations undercuts the no-tion that the salary threshold is intended to be or will bedeterminative of an employee’s status, in disregard of ananalysis of the employee’s job duties. In Nevada, the courtnoted that the USDOL’s 2016 rulemaking stated thatwhite collar employees earning less than $913 per weekwould be eligible for overtime ‘‘irrespective of their jobduties and responsibilities.’’ 275 F.Supp.3d at 806 (quoting81 FR 32391, 32405 (May 23, 2016)). In this final-formrulemaking, the Department both modernized its defini-tions and developed a salary threshold that is consistent



with EAP duties, calculated using the data of exemptemployees in this Commonwealth.

Third, the Department used a different methodology tocalculate the salary threshold than the USDOL used in2016 to calculate its salary threshold. Pennsylvania’s EAPsalary threshold has failed to keep pace with the risingnominal salaries of exempt salaried workers, and nolonger protects most EAP workers intended by thisregulation to receive minimum wage and overtime pay.The salary threshold has not been updated since1977 and is currently $8,060 per year for executive andadministrative employees under the long test. For Profes-sional employees the salary threshold is $8,840 per yearfor the long test. For all the EAP exemptions, the annualsalary threshold is $13,000 per year for the short test.The purpose of the salary threshold is such that nonex-empt workers should be unlikely to make more than thethreshold, and exempt workers should be unlikely tomake less than the threshold. Today in this Common-wealth, the average yearly salary of individuals in exemptoccupations is $82,480. As such, the current salarythresholds are irrelevant because virtually all white-collarworkers make a higher salary than the salary threshold.This final-form rulemaking sets the salary threshold forall EAP exemptions at the weighted average of 10thpercentile exempt wages (the Department’s methodologyfor determining salary threshold) and would be $45,500per year. This will act as a real threshold to ensure thatsalaried workers are properly classified as exempt.

Moreover, the decision of the Texas Federal districtcourt is inherently flawed. The standard imposed by thecourt in that case created a standard that would invali-date nearly any regulation that relied on a salary thresh-old. An examination of the decision shows that the judgenot only misunderstood the operation of the rule at issue,he based his decision on the fact that the regulation gavenew overtime protections to workers whose jobs had notchanged. The decision ignored the fact that the2004 amendment to the Federal rule similarly extendedovertime protections to workers whose jobs had notchanged, as does the new USDOL rule, which estimatesthat 1.2 million workers who would otherwise be exemptunder the current salary level will qualify for overtimebased on the change in the salary threshold alone. See84 FR 51238. There is no precedent for deciding that arule is invalid based solely on its impact.

The Federal district court in Nevada did not analyzethe legal validity of the automatic adjustment provisionin the 2016 USDOL rulemaking, instead finding thatbecause the salary level set in the rulemaking wasinvalid, so too was the automatic adjustment of thatsalary level.

Basis for salary increase in final regulations

There was a split in commentary from legislators whobelieved that the salary threshold increase proposed inthe Department’s proposed rulemaking was sufficientlyhigh as to be inconsistent with the definitions of the EAPduties, and others who did not.

The Honorable Representative Robert Kauffman con-ceded the need to update the salary threshold butcommented that the Department’s proposed rulemakingincreased it so significantly that the exemptions weremore heavily dependent on a salary test than a dutiestest. The Honorable Senator Kim Ward likewise concededthat the salary thresholds should be updated, but thatthe proposed increase exceeded a reasonable level and, insome cases, would make the duties test irrelevant. The

Honorable Senator Lisa Baker commented that the regu-lations would be subject to legal challenge.

However, some legislative comments were supportive ofthe salary threshold. The Honorable Representative JohnGalloway noted the severe need for improvements tominimum wage and overtime rules and estimated thatwhen fully enacted, the threshold would expand overtimeprotection to 455,000 Pennsylvanians. The HonorableSenator Christine Tartaglione commented that the Na-tional mandatory overtime threshold of $23,660 is too lowand results in someone who makes $11.38 per hour notqualifying for mandatory overtime pay. The members ofthe House Labor and Industry Committee (the HonorableRepresentatives John Galloway, Leanne Krueger, MorganCephas, Daniel Deasy, Maria Donatucci, Jeanne McNeill,Dan Miller, Gerald Mullery, Ed Neilson, AdamRavenstahl and Pam Snyder) also supported the thresh-old to provide ‘‘meaningful and tangible wage protectionsfor low-wage and middle-class workers.’’

IRRC requested that the Department explain the rea-sonableness of the final option pursued and how itsmethodology differs from the USDOL’s methodology inderiving the exempt salary level in the now-superseded2016 Federal rulemaking. After carefully considering thepublic comments and the feedback that the Departmentreceived from its roundtable discussions, the Departmentadjusted the methodology and dataset that it used toarrive at its salary level.

Feedback provided to the Department was also sharplysplit. The Department reviewed more than 1,000 publiccomments and hosted ten stakeholder roundtables acrossthe State. Businesses overwhelmingly stated that $47,892is too high for the salary threshold, and workers, labororganizations, and others stated that $47,892 is adequateor is too low.

In conjunction with its review of these comments, theDepartment re-examined the intent of the General As-sembly in exempting EAP employees from the minimumwage and salary provisions of the act, and the purpose ofthe salary level test, which serves as a defining character-istic when determining who, in good faith, performs EAPduties. Defining characteristics of the current overtimeexemptions are as follows:

• The individual must be paid a salary, versus anhourly wage; and

• The individual is employed in an EAP capacity—under the respective duties tests; and

• The individual must be compensated at a salary basisof a certain amount—the salary threshold (not less than$250 a week per Pennsylvania’s current regulation; incurrent practice $455 a week as per the USDOL FairLabor Standards Act update in 2004).

Duties Test

Regarding the duties test, the Department is in agree-ment with many commentators that Pennsylvania’s du-ties test should align with the Federal regulations. TheCommonwealth’s current regulations align with the Fed-eral law as it existed in 1977, which included the longand short duties test. At the time, Federal regulationsincluded a long test with a more restrictive duties testand a lower salary threshold, and a short test with a lessstringent duties requirements and a higher salary thresh-old. In 2004 the duties test was simplified to reflect theless stringent duties in the short test and eliminated thelong test.



The duties test in the Department’s proposed rule-making still differed from the USDOL duties test. In thisfinal-form rulemaking, the Department has mirrored thegeneral duties test set forth in the Federal regulations,acknowledging that consistently-expressed concern of em-ployers that the discrepancies between the Common-wealth’s regulations and USDOL regulations make itdifficult for employers to know if they are in compliancewith the duties test. Aligning the duties test more closelyto the Federal duties will provide increased clarity to bothemployers and employees as to who is and is not anexempt employee.Salary Threshold

Regarding the salary threshold, the Department be-lieves that the threshold should be set at an amount thatallows the Department to enforce the intent of the actexemptions: that individuals performing actual executive,administrative or professional duties are exempt, whilelower-paid white-collar workers are extended overtimeprotections.

The Department considered the salary thresholds thatUSDOL set in its previous rulemakings. Historically,USDOL examined data on actual wages paid to exemptemployees, and then set the salary level at an amountslightly lower than might be indicated by data. In1940 and 1949, USDOL looked at the average salary paidto the lowest level of exempt employee. In 1949, theUSDOL created the new short test, which differed from

the initial duties test, now the long test. The mostsignificant difference between the short test and long testwas that the long test limited the amount of time anexempt employee could spend on nonexempt duties, whilethe short test did not include a specific limit on nonex-empt work. 69 FR 22122, 22165 (April 23, 2004).

Beginning in 1958, USDOL set salary levels for thelong test to exclude approximately the lowest-paid 10% ofexempt salaried employees.

The salary tests have thus been set for the country asa whole. . .with appropriate consideration given to thefact that the same salary cannot operate with equaleffect as a test in high-wage and low-wage industriesand regions, and in metropolitan and rural areas, inan economy as complex and diversified as that of theUnited States. Despite the variation in effect, how-ever, it is clear that the objectives of the salary testswill be accomplished if the levels selected are set atpoints near the lower end of the current range ofsalaries for each of the categories. Such levels willassist in demarcating the ‘‘bona fide’’ executive, ad-ministrative, and professional employees without dis-qualifying any substantial number of such employees.

Id. at 22166. Throughout the regulatory history ofUSDOL using both a short and long test, the short testthreshold was significantly higher than the long testthreshold (see table as follows).

Year Executive Administrative Professional Short Test1938 $30 $30 None None1940 $30 $50 $50 None1949 $55 $75 $75 $1001958 $80 $95 $95 $1251963 $100 $100 $115 $1501970 $125 $125 $140 $2001975 $155 $155 $170 $250

Id. at 22165.However, in 2004, USDOL departed from this method-

ology in its final rulemaking, streamlining the long andshort duties test into a single test, as well as moving fromthe previous salary threshold methodology to the use ofthe 20th percentile of all salaried employees in the South.Id. at 22167.

USDOL justified this departure from previous method-ology in two ways. First, USDOL stated that the changein salary threshold methodology was due to the changefrom the short and long test structure. Second, USDOLstated that ‘‘this adjustment (from use of exempt workersto all salaried workers) achieved much the same purposeas restricting the analysis to a lower percentage ofexempt employees. Assuming that employees earning alower salary are more likely nonexempt, both approachesare capable of reaching exactly the same endpoint.’’ 69 FR22167.

This logic underpinning the USDOL’s 2004 change inmethodology was flawed for two significant reasons. First,the 10th percentile of exempt workers was the methodtraditionally used for the long test, and as per informa-tion from previous rulemakings, the long test thresholdwas historically set significantly lower than the short testthreshold. Therefore, when eliminating the two differenttests and moving to one standard test, it would have beenreasonable and logical for the USDOL to have sought a

salary threshold that was more inclusive of lower-salariedworkers, rather than ‘‘reaching exactly the same end-point.’’ Second, the setting of the salary threshold ‘‘at thelower end of the range of salaries’’ for exempt occupationscannot be accurately carried out if the data used todetermine a lower range includes data on all salaries—exempt or otherwise. Further, exempt occupations, espe-cially the ‘‘executive’’ category, employ fewer people thannonexempt occupations, as nonmanagement employeesgenerally outnumber management employees in mostestablishments. Therefore, including data on all salariedemployees will ‘‘water down’’ the dataset, providing askewed ‘‘lower end of the range of salaries’’ than would beprovided by considering only data on exempt occupations.

This flawed analysis was the basis for the recentFederal rulemaking that established $684 per week asthe salary threshold to qualify for the EAP exemptions.However, the purpose of setting a salary threshold is toassist the Department in identifying employees that theGeneral Assembly intended to be exempt. The use ofsalary data of employees who work in nonexempt jobclassifications does not align to this purpose.

For the Department to fulfill the intent of the GeneralAssembly in enacting the overtime exemption into law,the Department chose a methodology for determining thesalary threshold that differs from the USDOL’s methodol-ogy in two distinct ways. First, the Department used data



based on exempt full-time workers, rather than theUSDOL’s methodology of using data based on all full-timeworkers. Second, the Department used wage informationthat is specific to Pennsylvania to determine the salarythreshold, rather than the USDOL’s methodology of set-ting the threshold using the 20th percentile of workers inthe Nation’s lowest wage region. The USDOL’s use ofincome percentile in the lowest wage region is intended toensure that the Federal salary threshold is useable inevery area of the Nation—that is, that the threshold,even if used in the lowest wage areas of the country,would be highly unlikely to include actual EAP employ-ees.

Pennsylvania’s Methodology

In response to public comment, the Departmentchanged the methodology in this final-form rulemakingfrom the methodology used in the proposed rulemaking.In the proposed rulemaking, the Department set thesalary threshold at 30% of all salaried workers in theNortheast Region. Commentators accurately pointed outthat this data included wage data from high income areassuch as New York City, Boston and other northeastmetropolitan areas. In consideration of this concern, theDepartment revised the methodology to limit the calcula-tion of the salary threshold to Pennsylvania-specific data.

The Department’s labor market information bureau, theCenter for Workforce Information and Analysis (CWIA),reviewed more than 800 Standard Occupational Classifi-cation (SOC) titles and determined that 300 SOC titleshave job duties that reasonably fall into the exempt EAPcategories, while 500 were deemed to be potentiallynonexempt. Using Pennsylvania’s Occupational Employ-ment Statistics data for 2018, the most recent year forwhich this data is available, CWIA identified the employ-ment volume and 10th percentile wage for each exemptoccupation. The 10th percentile wage for each occupationwas multiplied by total employment in the same occupa-tion to create a weighted 10th percentile wage for eachexempt occupation. CWIA then aggregated total employ-ment across all exempt occupations, aggregated theweighted 10th percentile wages for total weighted 10thpercentile wage across all exempt occupations, and di-vided the aggregated weighted 10th percentile wage byaggregated employment to determine the average 10thpercentile wage of all exempt workers, which is $45,500.

To set its final salary three-step implementation pro-cess, the Department raised its initial salary threshold to$684 per week which is consistent with USDOL’s newlyissued salary level. That salary threshold will be effectiveas of the date of publication in the Pennsylvania Bulletin.The Department dropped its proposed salary threshold of$921 per week to the final $875 per week, which will beeffective 2 years after publication of the initial salarythreshold in the Pennsylvania Bulletin. The Department’sintermediate or second step increase is now $780 perweek, which is halfway between the initial salary thresh-old and the final salary threshold and is effective 1 yearfrom publication of the initial salary threshold in thePennsylvania Bulletin: $684 on date of publication, $780one year after publication, $875 two years after publica-tion.

Whether this regulation represents a policy decision ofsuch a substantial nature that it should receive legisla-tive review

IRRC again commented that the Department shouldclarify to what extent it has engaged the legislature indeveloping the regulation. As previously noted, the De-

partment engaged with the legislature after the proposedregulatory package was submitted to IRRC.

First, in July 2018, the Department met with staff ofthe Department’s legislative oversight committees, whichare Labor and Industry Committees of the House ofRepresentatives and Senate. The meeting offered anoverview of and an opportunity to answer questions aboutthe Department’s proposed regulations to modernize over-time regulations. Of particular note, majority committeestaff from both the House and Senate expressed concernsabout the new salary threshold and questioned whyexemptions and technical language were not being up-dated to align more with Federal regulations.

Secondly, in September 2018, the House Laborand Industry Committee held a public hearing on thetopic of the Department’s proposed regulations. The Sec-retary of Labor and Industry and the Deputy Secretaryfor Safety and Labor Management Relations, which over-sees the program area that administers and enforceslabor laws in this Commonwealth, participated in thispublic hearing by offering oral and written testimony andanswering questions asked by committee members. More-over, the public hearing offered a valuable opportunity tohear from a range of stakeholder groups. A significanttakeaway from this public hearing was that many em-ployers and individuals indicated a fundamental misun-derstanding of eligibility and applicability of overtimeexemptions for workers. Lastly, the Department receivedwritten comments from legislators and standing commit-tees during the regulatory review process, which havebeen taken into consideration and are addressed herein.

The Department’s authority to adopt regulations defin-ing and delimiting the EAP exemptions of the act is clear.The General Assembly has already made a basic policydecision and indicated, in enacting section 1 of the act,that it intended to protect employees from ‘‘unreasonablylow’’ wages that were ‘‘not fairly commensurate with thevalue of the services rendered.’’ The General Assemblyhas also specifically directed the Department to define theEAP exemptions by regulation. Section 5(a) of the act,provides that ‘‘[e]mployment in the following classifica-tions shall be exempt from both the minimum wage andovertime provisions of this act: (5) In a bona fide execu-tive, administrative, or professional capacity. . .(as suchterms are defined and delimited from time to time byregulations of the secretary).’’ Therefore, this final-formrulemaking is not required to be the subject of legislation.

Inclusion of bonus pay

IRRC next commented on the inclusion of bonus pay. Itcited a public comment submitted by Anna Caporuscio onbehalf of Sheetz, Inc., which noted the burden on employ-ers of making quarterly adjustments for every exemptemployee for which a nondiscretionary bonus, incentive orcommission is used to satisfy the salary threshold. IRRCrequested that the Department explain its determinationthat 10% was an appropriate cap for bonus pay andprovide its rationale for establishing a percentage cap aspart of the salary level test.

In the proposed rulemaking, the Department proposedto allow up to 10% of the salary threshold to be satisfiedby nondiscretionary bonuses, incentives, and commis-sions, paid quarterly or more frequently. In this final-formrulemaking, the Department’s proposal regarding thepercentage of the salary threshold remains at 10%;however, this final-form rulemaking states that the pay-ment may be an annual payment. The Departmentselected a 10% cap for bonus pay to align with the



Federal regulation. This is also reflective of businessoperations without creating an undue hardship on em-ployees.

The intent of the Department in allowing a certainpercentage of salary to be payable by bonus or otherincentive payment was meant to reflect the way thatcertain industries, business models, or occupations, orboth, structure their compensation package to employees,while at the same time not creating an undue hardshipon employees, especially lower-salaried employees. Forinstance, an individual making $36,000 a year wouldhave a gross weekly salary of $692; allowing 10% of thatsalary to be paid in a lump sum reduces weekly salary to$623, a reduction of $276 a month. For lower-incomeworkers, any reduction in wages results in hardship.

While the Department believes that requiring bonusesto be paid on at least a quarterly basis is the mostbeneficial to employees, it has also taken into consider-ation comments from employers that this creates anunnecessary administrative burden and may not take intoaccount certain sales occupations that rely on ‘‘busyseasons’’ for a majority of earnings. As such, the Depart-ment’s final-form rulemaking provides that bonuses maynow count towards the salary threshold if they are paidon an annual basis. This is consistent with USDOL’sSeptember 2019 final rule.

8. Clarity, feasibility and reasonableness; possible conflictwith or duplication of statutes or existing regulation

IRRC commented that the existing regulations use thephrase ‘‘customarily and regularly’’ to describe the discre-tion and independent judgment that an individual work-ing in an administrative capacity must possess to qualifyfor an exemption from the overtime rule and noted thatthis phrase does not appear in the Federal regulation. See§ 231.83(a)(2). IRRC indicated that several commentatorsexpressed concern that the Department did not amendthis provision in its proposed rulemaking. One commenta-tor who expressed this concern applauded the Depart-ment’s efforts to align the duties test with the Federalregulations. After reviewing these comments and consid-ering IRRC’s recommendation, the Department has re-moved this language from its final-form rulemaking andreplaced it with language that mirrors the language inthe USDOL’s regulation defining the administrative ex-emption. See 29 CFR 541.200 (relating to general rule foradministrative employees).

9. Miscellaneous

IRRC commented regarding the use of the term ‘‘handi-capped worker’’ in § 231.1 (relating to definitions). IRRCurged the Department to update the term to ‘‘worker witha disability.’’ The Department agrees with IRRC that thisterm is an outdated term that should be updated. TheDepartment also made appropriate amendments in§ 231.71—231.74.

Additional legislative comments

In addition to the comments that were referenced oradopted by IRRC, there were other comments from Statelawmakers that are addressed as follows.

The Honorable Representative Robert Kauffman com-mented that the proposed salary thresholds are so highthat they reduce the importance of the duties test. TheHonorable Senator Kim Ward, while conceding that thesalary threshold should be updated, expressed that theduties of the individual should be the main decidingfactor.

This final-form rulemaking does not inappropriatelyreduce the importance of the duties test. The duties testis not, as some commentators suggested, rendered irrel-evant. In fact, as discussed previously, the Departmentacknowledges the importance of a duties test by amend-ing its regulations to more closely align with the Federalduties test.

The Honorable Representative Kauffman also expressedconcern that the ability of the Commonwealth and coun-ties to provide cost-effective health care and humanservices will be impaired by imposing these requirementson provider agencies. However, the General Assembly hasalready made a basic policy decision and indicated, inenacting section 1 of the act, that it intended to protectemployees from ‘‘unreasonably low’’ wages that were ‘‘notfairly commensurate with the value of the services ren-dered.’’ That employees being paid a fair wage for theirwork may result in some minimal cost increases is not areason to reject this final-form rulemaking. In fact,employers have a range of options to respond to thepossibility of small cost increases occasioned by thisfinal-form rulemaking. Business response to the regula-tion will vary depending on the characteristics of thebusiness’s operations, current staffing structure and cur-rent scheduling practices. To adjust for this final-formrulemaking, employers may pursue one or a combinationof several options:

• Pay nonexempt employees’ overtime;• Limit nonexempt employee hours to 40 hours a week

to avoid overtime costs;• Allow for some overtime but reducing base pay or

benefits;• Raise nonexempt employee salaries to above the

threshold.There has been a Federal minimum wage since 1938

and business have found more efficient ways to operate.They can hire additional employees to supplement thework of nonexempt employees, cap employees’ hours toavoid the extra cost of overtime and switch employeesfrom a salary basis to an hourly basis without having tochange duties. Employers will have the flexibility todetermine what approach works best for them. But thefact that an employer provides human services should notgive them the right to pay an unreasonably low wage toits workers, particularly at a level that makes theiremployees eligible for public assistance benefits. TheGeneral Assembly determined, in not exemptingnonprofits from the act, that employees of nonprofitorganizations, just like their counterparts in for-profitenterprises, are entitled to a fair wage. If that were notthe case, it would be increasingly difficult for nonprofitsto recruit and retain employees.

The Honorable Senator Kim Ward, along with otherpublic commentators, raised the Federal district courtdecision in Texas that invalidated the USDOL’s2016 Federal regulation which promulgated a salarythreshold under the FLSA for EAP employees. The publiccommentators that echoed this concern are listed andaddressed in the comment and response document thataccompanies this final-form regulation. In fact, this final-form rulemaking is distinguishable from the Federalregulation at issue in the Texas case.

The Department’s final-form rulemaking differs fromthe rule struck down by the Texas Federal district courtin a number of material ways. The Department’s increaseis smaller than the 2016 USDOL rulemaking and isphased in over 2 years rather than immediately effective.



The Department’s final-form rulemaking is a comprehen-sive update that also updates the duties test to qualify forthe EAP exemption to align more closely with USDOLregulations. This includes eliminating the long and shorttests. Most significantly, the Department used a differentmethodology to calculate the salary threshold than theFederal government used to calculate its salary threshold,using Pennsylvania-specific data for exempt workersrather than a Nationwide lowest common denominatorbased on the region of the United States with lowestwages.

Additionally, the decision of the Texas Federal districtcourt is inherently flawed. The standard imposed by thecourt in that case created a standard that would invali-date nearly any regulation that relied on a salary thresh-old. An examination of the decision shows that the judgenot only misunderstood the operation of the rule at issue,he based his decision on the fact that fact that theregulation gave new overtime protections to workerswhose jobs had not changed. The decision ignored the factthat the 2004 amendment to the Federal rule similarlyextended overtime protections to workers whose jobs hadnot changed. There is no precedent for deciding that arule is invalid based solely on its impact.

The Honorable Senator Ward also questions whetherincreasing the threshold will result in less flexibility foremployees. There is nothing in this final-form rulemakingthat would prohibit employers from offering employeesflexibility of hours. Employers can choose to provideflexible shifts to employees previously classified as ex-empt. The only difference would be that employers wouldbe required to make sure employees understand that theycannot work past 40 hours per week or pay overtimewhen it is necessary for employees to work more than40 hours per week. Employers opting to provide lessflexibility to employees may find themselves at a competi-tive disadvantage in attracting and retaining employees.

The Honorable Senator Ward further commented thatshe was concerned with the impact to nonprofit organiza-tions, as well as local and State government. As explainedpreviously, local and State governments are excluded fromcoverage under the act and therefore this final-formrulemaking does not increase labor costs for public sectoremployers. State and local governments would not berequired to raise taxes or cut programs due to higherlabor costs. The Department has no authority to exemptnonprofits from the scope of the act, as that basic policydecision has already been made by the General Assemblyby not exempting them from the act’s definition in section3(g) for ‘‘employer.’’ Employees of nonprofits should enjoythe same right to a fair wage as other employees. And asdiscussed herein, employers will have a range of optionsto achieve compliance. They will not automatically berequired to increase labor costs.

Members of the House State Government Committee(the Honorable Representatives Daryl Metcalfe, MattDowling, Cris Dush, Seth Grove, Kristin Hill, JerryKnowles, Brett Miller, Brad Roae, Frank Ryan, RickSaccone, Tommy Sankey, Craig Staats, Justin Walsh,Judy Ward and Jeff Wheeland) expressed concern thatthe final-form rulemaking will require employers to en-gage in additional timekeeping and other recordkeepingto comply. In fact, employers are already obligated to keepsuch records. Section 8 of the act (43 P.S. § 333.108)specifically directs that employers keep ‘‘a true andaccurate record of the hours worked by each employeeand the wages paid to each.’’ The act does not requirethat such records be kept only for hourly employees.

There should be no impact on recordkeeping require-ments, as those requirements already exist.

The Honorable Senator Lisa Baker urged the Depart-ment to support legislation that she has proposed ratherthan promulgate regulations. However, the bill proposedby the Honorable Senator Baker, which was significantlydifferent from the Department’s proposed rulemaking, didnot move out of committee last session and, although ithas been reintroduced, it remains in committee. TheHonorable Senator Baker indicated in her comments thatshe sought closer alignment with the Federal regulations.As discussed in detail previously, this final-form rule-making represents significantly closer alignment with theFederal regulations.

The Department also received comments supportive ofthe proposed rulemaking from a number of legislators.The Honorable Representative John Galloway noted thatthe rulemaking was consistent with the intent of the actand would benefit workers and communities in thisCommonwealth. He noted that wages have been stagnant,despite low unemployment and increased demand forlabor and that wealth disparities between upper-income,lower-income and middle-income families have been in-creasing.

The Honorable Senator Christine Tartaglione expressedher ‘‘ardent’’ support for the proposed regulations, point-ing out that in the mid-1970s, more than 60% of salariedworkers qualified for overtime, but that currently, theratio is less than 1 in 10. She stated that approval of theregulations would benefit not only workers but theeconomy, as workers are also consumers and fair payincreases spending power.

Members of the House Labor and Industry Committee(the Honorable Representatives John Galloway, LeanneKrueger, Morgan Cephas, Daniel Deasy, Maria Donatucci,Jeanne McNeill, Dan Miller, Gerald Mullery, Ed Neilson,Adam Ravenstahl and Pam Snyder) expressed support forthe proposed rulemaking, noting that simplifying theduties test would facilitate compliance and reduce inqui-ries. They also noted that modernizing the salary thresh-old would provide meaningful and tangible wage protec-tions for low-wage and middle-class workers.

Other significant public comments

The Department received a large number of publiccomments, which were fairly divided. Public commentswere considered and, due to the volume, are addressed inthe comment and response document that accompaniesthis final-form rulemaking. However, some of the commoncomments are addressed here.

Geographic considerations

A number of commentators expressed concern over theuse of the 30th percentile of weekly earnings for full-timesalaried employees in the Northeast. As discussed atlength herein, the Department has revised its methodol-ogy to use Pennsylvania-specific data. However, therewere also comments that expressed concern over thedifferences between urban and rural areas within theState. Several commentators asserted that an increase tothe salary threshold would impact rural areas dispropor-tionately.

County-level data demonstrates that the exempt salarythreshold of $45,500 is below most other county’s medianhousehold income, including those in high-population andrural areas. Counties with some of the State’s mostsignificant populations—Allegheny, Dauphin, Erie, Lacka-wanna, Lancaster and Lehigh—have median household



income levels of 6% to 35% above $45,500. Only Philadel-phia had a median household income that was lower(-11%). Counties with some of the State’s sparsest popula-tions in rural areas—Elk, Fulton and Mercer—have me-dian household income levels of 4% to 10% above theproposed overtime threshold.

Furthermore, when drilling down to the average annualoccupational wages by county, certain occupations, regard-less of county, will be lower or higher than the proposedovertime threshold. Occupations that we expect to be themost impacted by the proposed overtime threshold byvolume alone include management, business and financialoperations, and office and administrative support.

The average annual wage for management; businessand financial operations; construction and extraction; andinstallation, maintenance, and repair occupations wasgenerally significantly higher than $45,500 across theState, including rural areas. For example, average wagelevels for the management occupation, included those inrural regions that were above 45% (Cameron), 140%(Fulton), 127% (Elk), 83% (Forest), 147% (Fayette) and144% (Mercer). Occupations under the office and adminis-trative support; sales and related; production; and trans-portation and material moving categories typically hadlower average wages than the proposed overtime thresh-old. Other categories, such as Community and SocialServices were more mixed, depending on the county.Employee morale/flexibility

Commentators expressed that implementation of thisfinal-form rulemaking would be bad for employee morale,stating that it would cause organizations to shift employ-ees from salaried to hourly, would require workers topunch a clock and track hours, and that employeeflexibility would be reduced.

However, organizations have several ways in which tobecome compliant with this final-form rulemaking. Theshift from salary to hourly is entirely an organizationaldecision.

Several commentators stated the loss of flexibility isbad for worker morale. Examples included that exemptworkers can currently work longer hours on certain daysto work fewer hours on other days, allowing them toattend their children’s extracurricular activities or attendappointments. Commentators asserted that this flexibilitywould end once an employee becomes nonexempt andmust be paid overtime for hours worked over 40. How-ever, the regulation specifies only the number of hoursthat may be worked in a week before overtime must bepaid; each organization still has flexibility as to how andwhen an employee fulfills their 40-hour workweek.

This comment seems to assume that employees musthave a set schedule or that they must be on theemployer’s premises. The act does not contain any suchrestrictions. This final-form rulemaking will not preventemployers from providing flexibility to their employees.An employee that needs to be out of the office for a coupleof hours on a Monday can be given the option to make upthe hours on other days, or to work from home thatevening. There is no requirement that employees beforced to punch a time clock.

Likewise, there is no requirement that employees beconverted to hourly positions. Even if an employerchooses to convert an employee to an hourly position, anyconcerns about morale should be offset by the fact thatthe employee will be paid fairly for hours worked.

Some businesses stated that capping employee hours at40 does not allow an employee to pursue advancement

opportunities. However, by promoting employees intolow-paying managerial jobs, but then taking advantage ofexempt status and forcing unpaid overtime, workers aretrapped in a position where they have very little time toindependently improve their economic situation by pursu-ing education goals or working a second job to supple-ment income while ‘‘working their way up the ladder.’’Indeed, these workers become beholden to their currentemployer, with minimal time outside of work to pursueother opportunities. They must hope that their hard workat their current employer is noticed and that internaladvancement is available, as that is the only feasible waythey will improve their current situation.

The fact is, regardless of how an employer chooses tocomply, workers will benefit from this final-form rule-making. Perhaps this is the reason that the Departmentreceived no comments from or on behalf of workersraising these concerns. Some employees will have theirsalary raised above the threshold, so that they continueto be exempt. Some employees will become hourly andwill begin being compensated for hours worked in excessof 40 hours per week. Other employees will no longer berequired to work in excess of 40 hours per week withoutcompensation. Employers that take the step of reducingwages will have difficulty retaining their employees,especially given a tight labor market.

Impact on small business

A number of commentators opined that the proposedrulemaking would be detrimental to the interests of smallbusinesses in this Commonwealth. These comments donot recognize the flexibility that employers will have indetermining how to implement this final-form rule-making.

Affected businesses will likely adapt to the regulationin the least costly way possible. Business response to theregulation will vary depending on the characteristics ofthe business’s operations, current staffing structure andcurrent scheduling practices. Each affected employermust consider the regulation, including both the dutiestest and the salary threshold, and consider if they willadjust operations to make the regulation cost neutral, orif they wish to maintain several options for operations,including requiring employees to work beyond 40 hours aweek, and therefore respond to the regulation in a waythat may increase payroll costs.

To adjust for this final-form rulemaking, employers maypursue one or a combination of several options:

• Pay nonexempt employees overtime;

• Limit nonexempt employee hours to 40 hours a weekto avoid overtime costs;

• Allow for some overtime but reducing base pay orbenefits;

• Raise nonexempt employee salaries to above thethreshold.

The Department estimates the total direct cost to theregulated community in this Commonwealth to complywith this regulation to be an average of $78.42 peremployer per year across the current and next 5 fiscalyears:

FY 2019-2020 Total Employer Cost: $6,961,025

FY 2020-2021 Total Employer Cost: $ 14,315,133—$14,734,347







This takes into consideration that all employers in theState will review the new regulation and that some willthen realize they are exempt from the regulation due tobeing certain municipal, public or limited nonprofit em-ployers. It also considers that, given that the salarythreshold will be phased in to $45,500 over time, thenumber of newly nonexempt workers will be lower ini-tially than the number of newly nonexempt workers uponfull implementation of the new salary threshold. Again,costs to employers will depend not only on if the employeeis exempt and if the employer has any nonexemptworkers currently on staff, but how the employer choosesto respond to the regulation.

Comments in favor of rulemaking

The Department also received comments supportive ofthe proposed rulemaking. In addition to the commentsthat are more fully addressed in the comment andresponse document that accompanies this final-form rule-making, the Department received extensive commentsfrom the following entities.

Community Legal Services, Inc (CLS) submitted bothextensive legal and policy comments on behalf of theirlow wage clients in support of the Department’s proposedrulemaking for amending and clarifying the overtimeexemptions for EAP employees under the act. CLS alsosubmitted a separate comment in support of the proposedrulemaking on behalf of itself as a nonprofit employer.

CLS explained that it supports the proposed changesbecause they would update the salary threshold to reflectcurrent wage levels and keep pace with the cost of livingin this Commonwealth and clarify the duties test toreduce misclassification and unnecessary litigation thatare a burden on both employers and employees. Moreover,CLS noted that the regulation complies with the Regula-tory Review Act since the Department has the authorityto make the proposed changes, it aligns with the intent ofthe act and the proposal will be a net gain to theCommonwealth providing a positive effect on publichealth and welfare and clarity and reasonableness toexisting regulations. CLS commented that the proposedrulemaking would benefit over 37,000 workers in Phila-delphia alone and reduce costly litigation, for business,especially small business, by making the overtime regula-tions less complex and vague and more straightforwardand precise.

The Women’s Law Project (WLP) pointed out thatclarifying the definition of EAP employees and ‘‘raisingthe minimum salary to reflect current wage levels’’ wouldmean that the number of misclassified workers woulddecrease, and that employers would find it much moredifficult to improperly ‘‘get around’’ the overtime require-ments and ‘‘workers on the lower end of the wagespectrum are paid correctly.’’ WLP explained that ‘‘em-ployers who do not want to pay overtime will simplychoose to hire more people to work extra hours that arecurrently worked for free.’’

The Pennsylvania AFL-CIO submitted comments insupport of the proposed rulemaking, commenting that theproposed regulations, which would clarify the definition ofEAP employees and raise the minimum salary to reflect

current wage levels, are long overdue after 40 years andwould make it difficult for employers to misclassifyemployees to get around the overtime requirements. Inthe end, the AFL-CIO noted that the regulations wouldprovide much needed relief to workers who have fallenbehind the cost of living but at the same time, even withthe necessary changes, would not impose much of ahardship on employers since 465,000 workers who cur-rently fall into the EAP exemption would still remainexempt from overtime under proposed regulation.

The Philadelphia Unemployment Project (PUP), a non-profit employer, submitted comments strongly supportingthe Department’s proposed changes to the overtime regu-lations. PUP viewed the overtime regulations as one wayto provide workers with a much-needed increase in wageswhile employers remain reluctant to raise wages despitegenerous corporate tax cuts, tight labor markets and arobust economic expansion. More significantly, PUPstated that ‘‘as a small non-profit,’’ it is ‘‘willing to livewith these increases on overtime pay’’ for its staff andurged adoption of these regulations.

Pennsylvania Council of Churches (PCofC), a nonprofitentity, submitted comments in support of the Depart-ment’s regulation regarding EAP salaried worker exemp-tions noting that the prior regulation has been in placesince 1977 and ‘‘has not kept pace with the cost of livingand housing in Pennsylvania, or with the realities of ourworkplace.’’ PCofC viewed the proposed rulemaking aseffectively addressing the fundamental question of workerfairness.

The International Brotherhood of Electrical Workers(IBEW) commented that employers have constantly takenadvantage of the 40-year-old obsolete regulations tomisclassify workers and pay sub-standard wages. IBEWgoes on to note that by updating the regulations, asproposed by the Department, employers would be discour-aged from misclassifying workers and job classificationsand as a result, numerous Pennsylvania workers wouldbenefit by bringing them overtime protection and addi-tional income which would multiply into benefits through-out the Commonwealth.

The National Employment Law Project (NELP), sub-mitted extensive comments in support of the Depart-ment’s proposed rulemaking. NELP noted that the De-partment’s proposed regulation defining EAP exemptionsreinforces and advances the purposes of the act’s overtimeprovisions and the bright-line salary test creates aneffective, efficient and predictable means to define anddelimit the EAP exemptions. NELP commented that theDepartment’s salary threshold proposal is within the lowrange for today’s labor market and its proposal forindexing the salary threshold is sound since it is a fair,predictable and efficient way to ensure that the scope ofexemptions continues to keep pace with the act’s intendedreach. NELP supported the proposed rulemaking becauseit is in the public interest, complies with the agency’sstatutory authority and legislative intent, and will have apositive economic impact on the Commonwealth, whichNELP noted is all accomplished with a clear, feasible andreasonable regulatory provisions.Summary of Amendments

In response to IRRC’s comment asking for a moredetailed explanation as to why amendments are neededand why they are in the public interest, the Departmentprovides the following explanations regarding its amend-ments.

Many of the Department’s amendments are based uponthe Department’s stated goal of more closely aligning the



duties test with Federal regulations. The Departmentrecognizes that discrepancies between the Common-wealth’s regulations and Federal regulations make itdifficult for employers to know if they are in compliancewith the duties test. This was expressed by businessesduring the ten roundtable discussions the Departmentorganized in Spring of 2019 and in various formalcomments submitted. Commentators suggest, and theDepartment agrees that aligning the duties test moreclosely to the Federal duties test will provide increasedclarity to both employers and employees as to who is andis not an exempt employee, reduce misclassification, willdecrease litigation arising from misclassification issues.

§ 231.1 Definitions

In the proposed rulemaking, the Department amended§ 231.1 to add a definition of ‘‘general operation.’’ TheDepartment proposed this definition to align with theFederal regulations. See 29 CFR 541.201(b) (relating todirectly related to management or general business op-erations). As suggested by IRRC and many commentators,adopting definitions that align with Federal regulationswill assist the Department, employers and employees inproperly and consistently determining whether employeesare exempt under the administrative exemption. In thisfinal-form rulemaking, the Department removes the term‘‘general operation’’ from the definitional section and addsit to § 231.83 since that term exclusively applies to thesection. In addition, the Department revises the term‘‘general operation’’ to ‘‘directly related to management orgeneral business operations’’ so that the term is consis-tent with Federal regulatory language. Changing thedefinitional term does not substantively impact the defini-tion or the application of the definition. Further, theLegislative Reference Bureau (LRB) edited the definitionto conform with the Pennsylvania Code & Bulletin StyleManual. However, the Department has determined thatto the extent practicable, mirroring the Federal regula-tory language is of the utmost importance to limitconfusion and create consistency. Therefore, the Depart-ment includes the following amendments in this final-form rulemaking: at the beginning of the definition, theaddition of the phrase, ‘‘To include, but is not limited to;’’replaced the commas with semi-colons; and used lowercase for the term ‘‘internet.’’ The Department alsoamended the proposed definition by deleting the phrase‘‘and similar activities,’’ which is located at the end of thedefinition. The Department deletes this phrase because itis redundant given the inclusion of the language ‘‘includesbut is not limited to’’ within the definition of ‘‘directlyrelated to management or general business operations.’’As such, the Department added the word ‘‘and’’ before‘‘legal and regulatory compliance’’ since that is now thelast item in the list of duties. The amendments in thisfinal-form rulemaking do not substantively impact thedefinition of directly related to general business opera-tions or the application of the definition.

The Department also proposed adding a definition forthe term ‘‘management.’’ The Department proposed add-ing this definition to align with the Federal regulations.See 29 CFR 541.102 (relating to management). As sug-gested by IRRC and many commentators, adopting defini-tions that align with Federal regulations will assist theDepartment, employers, and employees in properly andconsistently determining whether employees are exempt.In this final-form rulemaking, the Department removesthe term ‘‘management’’ from the definitional section andadds it to § 231.82 since that term exclusively applies tothe section. In addition, the Department amended theproposed definition by deleting the phrase ‘‘and similar

activities,’’ which is located at the end of the definition.The Department deletes this phrase because it is not aphrase used in the Federal definition. The Departmentalso amends this final-form rulemaking to add thephrase, ‘‘to include, but is not limited to,’’ which the LRBdeleted. The Department amends the regulation in thisway to mirror the Federal regulatory language. TheDepartment submits that the phrase ‘‘including, but isnot limited to’’ might be construed as being broader than‘‘and similar activities.’’ The Department makes a minorgrammatical edit to conform to the Federal regulation byadding a comma in the phrase, ‘‘interviewing, selecting,and training of employees.’’ The Department also changesthe word ‘‘and’’ to ‘‘or’’ in the phrase ‘‘providing for thesafety and security of the employees or the property’’ tomirror the Federal regulatory definition of management.Id.

The Department adds a definition for ‘‘Minimum WageAdvisory Board’’ to add clarity given the reference to theBoard at §§ 231.82(4), 231.83(3) and 231.84(2).

The Department removes the defined term ‘‘Handi-capped Worker’’ and replaces it with the defined term‘‘Worker with a disability’’ at the suggestion of IRRC andto update outdated language. While the defined term haschanged, the substance of the definition remains thesame. The Department further made this terminologychange in §§ 231.71, 231.72, 231.73 and 231.74.

§ 231.82 Executive

Duties test

In the proposed rulemaking, the Department amended§ 231.82(1) by replacing the phrase ‘‘consists of ’’ with ‘‘is.’’The Department proposed this amendment to improve thereadability of the section. Additionally, the definition inthe proposed rulemaking is the verbatim language fromthe Federal regulation. See 29 CFR 541.100 (relating togeneral rule for executive employees). Therefore, consis-tent with the Department’s overall goal to align itsregulations with Federal regulations where practicable,the Department’s final-form rulemaking includes thisamendment. As noted earlier, the Department createsnew subparagraph (1)(i) to define the term ‘‘manage-ment.’’

The Department proposed deleting § 231.82(5) in theproposed rulemaking. Section 231.82(5) includes differentwage requirements for individuals whose primary dutiesare executive and individuals who spend up to 20%performing nonexecutive duties. This duty requirement isinconsistent with Federal regulations with regard toexecutive employees. See 29 CFR 541.100. The Depart-ment’s final-form rulemaking includes this amendment toalign with the correlating Federal regulation.

The Department received numerous comments support-ing the Department’s efforts to more closely align withcorrelating Federal regulations, but commentators under-scored the importance of amending other inconsistenciesto align with Federal regulations. In response to thisconcern, the Department reviewed the Executive exemp-tion to determine if it should make other amendments tofurther align the Department’s regulations to the correlat-ing Federal regulation. The Department therefore in-cludes in its final-form amendment changes to§ 231.82(3) which adds a comma after ‘‘hiring,’’ deletesthe word ‘‘or’’ before firing; adds a comma after the word‘‘firing’’; deletes the phrase ‘‘and as to the’’ before ‘‘ad-vancement’’; deletes the word ‘‘and’’ before ‘‘promotion’’;and replaces the phrase ‘‘will be’’ with ‘‘are.’’ Thesechanges mirror the language in Federal regulation.



In addition, the Department includes in its final-formrulemaking the deletion of § 231.82(4), which includes arequirement that the individual ‘‘customarily and regu-larly exercises discretionary powers.’’ In deleting thisprovision, the Department aligns the executive duties testwith the correlating Federal regulations. The Departmentdoes not believe the deletion of this provision will have asubstantive impact on the implementation of the execu-tive exemption because the concept of customarily andregularly exercising discretionary powers is captured inthe definition of management as adopted in this final-form rulemaking.

As a result of the deletion of paragraph (4) of § 231.82,the Department renumbers paragraph (5) to paragraph(4) and paragraph (6) to paragraph (5).

§ 231.83 Administrative

Duties test

In the proposed rulemaking, the Department amended§ 231.83(1) by replacing the phrase ‘‘consists of ’’ with ‘‘is.’’The Department proposed this amendment to improve thereadability of the section. Additionally, the definition inthe proposed rulemaking is the verbatim language fromthe Federal regulation. See 29 CFR 541.200. Therefore,consistent with the Department’s overall goal to align itsregulations with Federal regulations where practicable,the Department’s final-form rulemaking includes thisamendment to align with the correlating Federal regula-tion. In this final-form rulemaking at § 231.83(1), theDepartment also amends the term from ‘‘general opera-tion’’ to ‘‘directly related to management or generalbusiness operations’’ to align with the terminology used inFederal regulations. See 29 CFR 541.201. As notedearlier, the Department creates a new subparagraph231.83(1)(i) to define the term ‘‘directly related to man-agement or general business operations.’’

In the proposed rulemaking, the Department amended§ 231.83(2) by including the phrase, ‘‘with respect tomatters of significance.’’ The Department proposed thisamendment to clarify that administrative personnel mustregularly exercise judgment and discretion in matters ofsignificance and to also align with the Federal regula-tions. See 29 CFR 541.200(a)(3). The phrase ‘‘with respectto matters of significance’’ is the verbatim language fromthe Federal regulation. Id. Consistent with the Depart-ment’s overall goal to more closely align with Federalregulations, the Department makes one further amend-ment in this final-form rulemaking. The Departmentamends § 231.82(2) to mirror the Federal regulatorylanguage in 29 CFR 541.200(a)(3) by replacing ‘‘whocustomarily and regularly exercises’’ with ‘‘whose primaryduty includes the exercise of ’’ discretion and independentjudgment with respect of matters of significance. Thischange will provide greater clarity to employers thatemployees are not exempt under the administrative ex-emption unless they have the ability to exercise discretionon important matters.

In the proposed rulemaking, the Department deleted§ 231.83(3) to ensure that employees who only assistother executives and administrative personnel or whoonly perform work requiring specialized training, experi-ence or knowledge or who only perform specialized tasksor assignments are no longer classified as exempt. TheDepartment deleted § 231.83(4), which contains wagerequirements for individuals whose primary duties areadministrative and individuals who spend up to 20%performing nonadministrative duties. These amendmentswere adopted in the proposed rulemaking to align the

Commonwealth’s regulation with Federal regulations at29 CFR 541.200. The Department includes these amend-ments in its final-form rulemaking to align with thecorrelating Federal regulation. Aligning the regulatorylanguage with the correlating Federal regulation willprovide employers in this Commonwealth with only oneduties test to determine whether an employee is exemptfrom the minimum wage and overtime under the adminis-trative exemption.

§ 231.84 Professional

Duties test

In the proposed rulemaking, the Department amended§ 231.84(1) by replacing the phrase ‘‘consists of ’’ with ‘‘is.’’The Department proposed this amendment to improve thereadability of the section. Additionally, the definition inthe proposed rulemaking is the verbatim language fromthe Federal regulation. See 29 CFR 541.300 (relating togeneral rule for professional employees). The Departmentalso made minor clarifications in the proposed rule-making to conform to proper regulatory style under thePennsylvania Code & Bulletin Style Manual. Therefore,consistent with the Department’s overall goal to align itsregulations with Federal regulations where practicable,the Department’s final-form rulemaking includes the pro-posed amendments to align with the correlating Federalregulation.

In addition, the Department replaces the language ‘‘theperformance of work that is original and creative incharacter in a recognized field of artistic endeavor’’ with‘‘invention, imagination, originality or talent in a recog-nized field of artistic or creative endeavor.’’ This languagemirrors the language in the Federal regulation.

In the proposed rulemaking, the Department deleted§ 231.84(4), which contains wage requirements for indi-viduals whose primary duties are professional and indi-viduals who spend up to 20% performing nonprofessionalduties. This amendment was proposed in the proposedrulemaking to align the Commonwealth’s regulation withFederal regulations at 29 CFR 541.300. The Departmentincludes this amendment in this final-form rulemaking toalign with the correlating Federal regulation. Aligning theregulatory language with the correlating Federal regula-tion will provide employers in this Commonwealth withonly one duties test to determine whether an employee isexempt from the minimum wage and overtime under theprofessional exemption.

In the final-form rulemaking, the Department deletes§ 231.84(2) and (3). These changes align the Depart-ment’s final-form regulation with the correlating Federalregulation. Aligning the regulatory language with thecorrelating Federal regulation will provide employers inthis Commonwealth with only one duties test to deter-mine whether an employee is exempt from the minimumwage and overtime under the professional exemption.

As a result of the deletion of paragraphs (2) and (3) of§ 231.84, the Department renumbers paragraph (4) toparagraph (2) and paragraph (5) to paragraph (3).

Short and Long Duties Tests and Salary Threshold forExecutive, Administrative and Professional Exemptions

The Commonwealth’s existing regulations align withthe Federal law as it existed in 1977, which included thelong and short duties test. See §§ 231.82(6) (renumberedin this final-form rulemaking as § 231.82(4)), 231.83(5)(renumbered in this final-form rulemaking as§ 231.83(3)) and 231.84(5) (renumbered in this final-formrulemaking as § 231.84(3)). The long test includes a more



restrictive duties test and a lower salary threshold, andthe short test includes a less stringent duties require-ments and a higher salary threshold. Id.

In 2004, Federal regulations eliminated the short andlong duties test and adopted less stringent duties in theshort test. See 69 FR 22122. However, the Departmentdid not make a change to its regulations. As such, thediscrepancies between the Department’s regulations andUSDOL’s regulations make it difficult for employers inthis Commonwealth to know if white-collar salaried em-ployees are entitled to receive overtime. This was ex-pressed by businesses during the ten roundtable discus-sions the Department organized in Spring 2019 and invarious formal comments submitted. Aligning the dutiestest in this final-form rulemaking to the duties test in theFederal regulations will eliminate this burden, making iteasier for employers to comply with the law and foremployees to know if they should be classified as anexempt or nonexempt EAP employee. Accordingly, theDepartment’s proposed amendments eliminated the longduties test found in §§ 231.82(6) (renumbered in thisfinal-form rulemaking as 231.82(4)) and 231.83(5) (re-numbered in this final-form rulemaking as 231.83(3)) and231.84(5) (renumbered in this final-form rulemaking as231.84(2)). The Department includes this amendment inthis final-form rulemaking to align with the correlatingFederal regulation.

In the proposed rulemaking, at §§ 231.82(5)(i)—(iv) (re-numbered in this final-form rulemaking as 231.82(4)(i)—(iv)); 231.83(3)(i)—(iv) (renumbered in this final-formrulemaking as 231.83(3)(i)—(iv)); and 231.84(4)(i)—(iv)(renumbered in this final-form rulemaking as231.84(2)(i)—(iv)), the Department’s salary thresholds in-creased the minimum salary amount to $610 per weekeffective the date of publication of this final-form rule-making; to $766 per week effective 1 year after the dateof publication of this final-form rulemaking; to $921 perweek effective 2 years after the date of publication of thisfinal-form rulemaking. In proposing these figures, theDepartment reviewed data regarding salaried workers inthe Northeast region. The Department also proposed,effective 3 years after the date of publication of thisfinal-form rulemaking and January 1st of every 3rd yearthereafter, an increase at a rate equal to the 30thpercentile of weekly earnings of full-time nonhourly work-ers in the Northeast Census region in the second quarterof the prior year as published by the USDOL, Bureau ofLabor Statistics. As more fully discussed earlier in thispreamble, the Department amends the salary thresholdsin this final-form rulemaking to $684 per week effectivethe date of publication of this final-form rulemaking; to$780 per week effective 1 year after the date of publica-tion of this final-form rulemaking; and to $875 per weekeffective 2 years after the date of publication of thisfinal-form rulemaking. The Department also modified itsmethodology for subsequent 3-year adjustments as morefully discussed elsewhere in this preamble. These adjust-ments will be published 3 years after the date thisfinal-form rulemaking is published in the PennsylvaniaBulletin and every 3 years thereafter.

Finally, in this final-form rulemaking, the Departmentamends the editor notes at §§ 231.82(4)(i)—(iv);231.83(3)(i)—(iv); and 231.84(2)(i)—(iv) to ensure the ef-fective dates of the salary thresholds are clear. The LRBmodified the editor notes to read, ‘‘The blank refers to theeffective date of the adoption of this proposed rule-making.’’ The Department intends for the effective date tobegin as of the date of the publication of this final-formrulemaking. To avoid confusions regarding effective dates,

the Department amends the editor notes to reference thedate of publication of this final-form rulemaking insteadof the proposed rulemaking. The Department also amendsthe number of days to numbers of years to allow foreasier comprehension.

In addition, in this final-form rulemaking the Depart-ment adds a role for the Board. At least 90 days prior tothe publication required by §§ 231.82(4)(iv), 231.83(3)(iv)and 231.84(2)(iv), the Department shall present the ad-justed weekly salary rate and supporting information tothe Board. At a meeting to be held no later than 60 daysprior to the effective date, the Board will have theopportunity to advise and consult the Secretary regardingthe adjusted weekly salary rate. At least 30 days prior tothe effective date for the adjusted weekly salary rate, theDepartment will be required to publish this figure on itsweb site and in the Pennsylvania Bulletin. The Boardconsists of three representatives of established recognizedassociations of labor organizations, three representativesof established recognized associations of employers andthree members from the general public. See section 6(b)of the act (43 P.S. § 333.106(b)). The Department makesthis change because the Board is representative of thecommunities affected by the adjusted weekly salary rate.As such, it is able to advise the Department on whetherthe data the Department will use to set the adjustedweekly salary rate is complete and accurate.

Bonuses, Incentives, and Commissions or Executive, Ad-ministrative and Professional Exemptions

Finally, in the proposed rulemaking, the Departmentadded additional provisions at §§ 231.82(6) (renumberedin this final-form rulemaking as 231.82(5)), 231.83(4) and231.84(2) (renumbered in this final-form rulemaking as231.84(4)), which allows up to 10% of the salary amountto be paid by nondiscretionary bonuses, incentives orcommissions. Under the proposed regulations, bonuses,incentives or commissions must be paid on at least aquarterly basis. If by the last quarter, the salary andbonuses, incentives or commissions do not equal at least13 times the weekly salary threshold, then the employermust make a one-time payment equal to the amount ofthe underpayment by the end of the next pay period ofthe next quarter. This one-time payment only countstowards the payment requirements of the previous quar-ter. The Department proposed this regulation to alignwith Federal regulations that were published in 2016 andlater enjoined.

The USDOL recently published a new final rule updat-ing and revising the regulations issued under the FLSAimplementing the exemptions from minimum wage andovertime pay requirements for executive, administrative,professional, outside sales, and computer employees. See84 FR 51230, 51235 (September 27, 2019). The newFederal regulations became effective on January 1, 2020,and include an updated approach to considering bonuses,incentives or commissions. Under the new Federal regula-tions, up to 10% of the salary amount may be satisfied bythe payment of nondiscretionary bonuses, incentives andcommission payments, that are paid annually or morefrequently. Id. at 51307. Additionally, the employer mayutilize any 52-week period as the year, such as a calendaryear, a fiscal year or an anniversary of hire year. If theemployer does not identify some other year period inadvance, the calendar year will apply. If by the last payperiod of the 52-week period the sum of the employee’sweekly salary plus nondiscretionary bonus, incentive andcommission payments received is less than 52 times theweekly salary amount required by the applicable Federal



regulation, the employer may make one final paymentsufficient to achieve the required level no later than thenext pay period after the end of the year. Any such finalpayment made after the end of the 52-week period maycount only toward the prior year’s salary amount and nottoward the salary amount in the year it was paid. Id.

In an effort to align the Department’s regulations withthe Federal regulations, the Department adopted thestandards as promulgated by the USDOL as set forth inthe Federal Register. Id. While quarterly payments arethe most beneficial to employees while still allowing theuse of bonus/incentive payments to be counted towardsthe salary threshold, this creates an unnecessary admin-istrative burden for employers and may not take intoaccount certain sales occupations that rely on ‘‘busyseasons’’ for a majority of earnings. As such, allowingbonus to count for a salary as they are paid on a yearlybasis is more appropriate. It is also more appropriate toallow the employer to choose whether a year is acalendar, fiscal or work anniversary year to provideemployers with more flexibility.

Miscellaneous Clarity

In this final-form rulemaking, the Department alsoamends the regulations to delete the use of the word ‘‘his’’and insert a gender-neutral reference. None of theamendments are substantive in nature. See §§ 231.1,231.82(4), 231.83(1) and (3) and 231.84(2).

Fiscal Impact

There is minimal impact to the Department in enforc-ing the changes in this final-form rulemaking. The poten-tial fiscal impact to employers is detailed more fully inresponse to comments from IRRC about economic andfiscal impact, as well as in response to comments regard-ing costs to small business. This potential impact islargely dependent on which of the multitude of availableoptions an employer chooses in response to this final-formrulemaking.

Affected Persons

This final-form rulemaking will affect all employers inthis Commonwealth covered by the act and all individualswho are employed by these entities.

Reporting, Recordkeeping and Paperwork Requirements

This final-form rulemaking will not require the creationof new forms and reporting requirements.

Sunset Date

A sunset date is not appropriate for this final-formrulemaking because the Department believes that theregulation is necessary to carry out the Departmant’sstatutory duty under the act. However, the Departmentwill continue to monitor the impact and effectiveness ofthe regulation.

Effective Date

This final-form rulemaking will take effect upon publi-cation in the Pennsylvania Bulletin.

Contact Person

The contact person for this final-form rulemaking isJennifer Berrier, Deputy Secretary for Safety and Labor-Management Relations, 651 Boas Street, Room 1701,Harrisburg, PA 17121, (717) 787-8665, or by e-mail [email protected] within 30 days of publication in thePennsylvania Bulletin.

Regulatory ReviewUnder section 5(a) of the Regulatory Review Act

(71 P.S. § 745.5(a)), on June 12, 2018, the Departmentsubmitted a copy of the notice of proposed rulemaking,published at 48 Pa.B. 3731, to IRRC and the Chairper-sons of the House and Senate Labor and IndustryCommittees for review and comment. Under section 5(c)of the Regulatory Review Act, IRRC and the Committeeswere provided with copies of the comments receivedduring the public comment period, as well as otherdocuments when requested. In preparing the final-formrulemaking, the Department has considered all commentsfrom IRRC, the House and Senate Committees and thepublic.

On October 17, 2019, the Department delivered thefinal-form rulemaking to IRRC, and the Chairpersons ofthe House and Senate Labor and Industry Committees.The Department withdrew this regulation on November21, 2019, to add clarifying language to §§ 231.82(4)(iv),231.83(3)(iv) and 231.84(2)(iv) and to fix typographicaland spelling errors.

On December 9, 2019, the Department re-delivered thefinal-form rulemaking to IRRC, and the Chairpersons ofthe House and Senate Labor and Industry Committees.Under section 5.1(e) of the Regulatory Review Act, IRRCmet on January 31, 2020, and approved the final-formrulemaking. Under section 7(d) of the Regulatory ReviewAct, the final-form rulemaking was deemed approved bythe House and Senate Committees.Findings

The Department finds that:(1) Public notice of proposed rulemaking was given

under sections 201 and 202 of the act of July 31, 1968(P.L. 769, No. 240) (45 P.S. §§ 1201 and 1202), known asthe Commonwealth Documents Law and regulations pro-mulgated thereunder, 1 Pa. Code §§ 7.1 and 7.2 (relatingto notice of proposed rulemaking required; and adoptionof regulations).

(2) A public comment period was provided as requiredby law, and all comments received were considered.

(3) This final form rulemaking is necessary and suit-able for the administration of the act.Order

The Department, acting under its authorizing statute,orders that:

(a) The regulations of the Department, 34 Pa. CodeChapter 231, are amended by amending §§ 231.1,231.71—231.74 and 231.82—231.84 to read as set forth inAnnex A.

(Editor’s Note: Amended §§ 231.71—231.74 did not ap-pear in the proposed rulemaking published at 48 Pa.B.3731.)

(b) The Department shall submit this order, and AnnexA to the Office of Attorney General and the Office ofGeneral Counsel for approval, as required by law.

(c) The Department shall certify this order and AnnexA and deposit them with the Legislative Reference Bu-reau, as required by law.

(d) The regulations shall take effect upon publicationin the Pennsylvania Bulletin.

W. GERARD OLEKSIAK,Secretary

Fiscal Note: Fiscal Note 12-106 remains valid for thefinal adoption of the subject regulations.



Annex A

TITLE 34. LABOR AND INDUSTRY

PART XII. BUREAU OF LABOR LAW COMPLIANCE

CHAPTER 231. MINIMUM WAGE

GENERAL PROVISIONS

§ 231.1. Definitions.

* * * * *(b) In addition to the provisions of subsection (a), the

following words and terms, when used in this chapter,have the following meanings, unless the context clearlyindicates otherwise:

* * * * *Department—The Department of Labor and Industry of

the Commonwealth.

Domestic services—Work in or about a private dwellingfor an employer in the capacity as a householder, asdistinguished from work in or about a private dwelling forsuch employer in the employer’s pursuit of a trade,occupation, profession, enterprise or vocation.

Hotel or motel—An establishment which as a whole orpart of its business activities offers lodging accommoda-tions for hire to the public, and services in connectiontherewith or incidental thereto.

* * * * *Lodging—A housing facility available for the personal

use of the employee at all hours.

Minimum Wage Advisory Board—A Board created inthe Department of Labor and Industry under section 6 ofthe act (43 P.S. § 333.106) regarding the Minimum WageAdvisory Board.

Nonprofit organization—A corporation, unincorporatedassociation, community chest, fund or foundation organ-ized and operated exclusively for religious, charitable oreducational purposes, no part of the net earnings of whichinures to the benefit of any private shareholder orindividual.

* * * * *Week—A period of 7 consecutive days starting on any

day selected by the employer.

Worker with a disability—An individual whose earningcapacity for the work to be performed is impaired byphysical or mental deficiency or injury.

EMPLOYMENT OF WORKERS WITH A DISABILITY

§ 231.71. Procedure.

(a) An employer who wishes to employ workers with adisability at less than the prescribed minimum wage shallcomplete an application on forms furnished by the Secre-tary.

(b) The application shall set forth the following infor-mation:

(1) The nature of the disability in detail.

(2) A description of the occupation at which the workerwith a disability is to be employed.

(3) The wage the employer proposes to pay the workerwith a disability per hour.

(4) Other information as may be required by theSecretary.

(c) The application shall be signed jointly by the em-ployer and the worker with a disability for whom suchapplication is being made, except as otherwise authorizedby the Secretary.§ 231.72. Conditions for granting certificate.

A certificate may be issued if the application is inproper form and sets forth facts showing that:

(1) The disability impairs the earning capacity of theworker for the work the employee is to perform.

(2) The proposed minimum wage is commensurate withthe production capacity of the employee.§ 231.73. Special certificate.

If the application and other available information indi-cate that the requirements of these §§ 231.71—231.76(relating to employment of workers with a disability) aresatisfied, the Secretary will issue a certificate. If issued,copies of the certificate will be mailed to the employerand the worker with a disability, and if the certificate isnot issued, the employer and the worker with a disabilitywill be given written notice of the denial.§ 231.74. Specifications of the certificate.

(a) A certificate will specify, among other things, thename of the worker with a disability, the name of theemployer, the occupation in which the worker with adisability is to be employed, the authorized subminimumwage rate and the period of time during which such wagerate may be paid.

(b) A certificate shall be effective for a period to bedesignated by the Secretary. The worker with a disabilityemployed under the certificate may be paid subminimumwages only during the effective period of the certificate.

(c) The wage rate set in the certificate will be fixed at afigure designated to reflect adequately the earning capac-ity of the worker with a disability.

(d) A money received by a worker with a disability byreason of a state or Federal pension or compensationprogram for persons with a disability may not be consid-ered as offsetting any part of the wage due the workerwith a disability by the employer.

(e) Except as otherwise provided in section 5(a)—(c) ofthe act (43 P.S. § 333.105(a)—(c)), the worker with adisability shall be paid not less than 1 1/2 times theregular rate for hours worked in excess of 40 in theworkweek.

(f) The terms of a certificate, including the submini-mum wage rate specified therein, may be amended by theSecretary upon written notice to the parties concerned ifthe facts justify the amendment.

SPECIAL DEFINITIONS

§ 231.82. Executive.

Employment in a bona fide executive capacity meanswork by an individual:

(1) Whose primary duty is the management of theenterprise in which he is employed or of a customarilyrecognized department or subdivision.

(i) For this section the term ‘‘management’’ is definedas follows: to include, but is not limited to, activities suchas interviewing, selecting, and training of employees;setting and adjusting employees’ rates of pay and hours ofwork; directing the work of employees; maintaining pro-duction or sales records for use in supervision or control;appraising employees’ productivity and efficiency for the



purpose of recommending promotions or other changes instatus; handling employee complaints and grievances;disciplining employees; planning the work; determiningthe techniques to be used to perform work; apportioningthe work among the employees; determining the type ofmaterials, supplies, machinery, equipment or tools to beused or merchandise to be bought, stocked and sold;controlling the flow and distribution of materials ormerchandise and supplies; providing for the safety andsecurity of the employees or the property; planning andcontrolling the budget, and monitoring or implementinglegal compliance measures.

(2) Who customarily and regularly directs the work oftwo or more other employees.

(3) Who has the authority to hire or fire other employ-ees or whose suggestions and recommendations as to thehiring, firing, advancement, promotion or any otherchange of status of other employees are given particularweight.

(4) Who is compensated for services on a salary basisat a rate of not less than:

(i) $684 per week exclusive of board, lodging or otherfacilities, effective October 3, 2020.

(ii) $780 per week exclusive of board, lodging or otherfacilities, effective October 3, 2021.

(iii) $875 per week exclusive of board, lodging or otherfacilities, effective October 3, 2022.

(iv) Effective October 3, 2023, and each 3rd yearthereafter, and at a rate equal to the weighted average10th percentile wages for Pennsylvania workers whowork in exempt executive, administrative or professionalclassifications as determined by the Department withadvice and consultation by the Minimum Wage AdvisoryBoard and based on an annual wage survey of all workerclassifications conducted by the Department.

(A) At least 90 days prior to the effective date of each3-year period in subparagraph (iv), the Department willsubmit to the Minimum Wage Advisory Board, the ad-justed weekly salary rate under subparagraph (iv) andthe information supporting the adjusted salary rate.

(B) Upon review of the information submitted by theDepartment and at a meeting to be held no later than 60days before the effective date of the adjusted weeklysalary rate, the Minimum Wage Advisory Board mayprovide advice and consultation to the Secretary regard-ing the adjusted weekly salary rate.

(C) At least 30 days prior to the effective date of each3-year period in subparagraph (iv), the Department willpublish the adjusted weekly salary rate on its web siteand in the Pennsylvania Bulletin.

(5) Up to 10% of the salary amount required underparagraph (4) may be satisfied by the payment of nondis-cretionary bonuses, incentives and commissions that arepaid annually or more frequently. The employer may useany 52-week period as the year, such as a calendar year,fiscal year or anniversary of hire year. If the employerdoes not identify some other year period in advance, thecalendar year will apply. If by the last pay period of theyear the sum of the employee’s weekly salary plusnondiscretionary bonus, incentive and commission pay-ments received does not equal 52 times the weekly salaryamount required under this section, the employer maymake 1 final payment sufficient to achieve the requiredlevel no later than the next pay period after the end ofthe year. A final payment made after the end of the year

may count only toward the prior year’s salary amountand not toward the salary amount in the year it was paid.§ 231.83. Administrative.

Employment in a bona fide administrative capacitymeans work by an individual:

(1) Whose primary duty is the performance of office ornonmanual work directly related to management or gen-eral business operations of the employer or the customersof the employer.

(i) For the purpose of this section the term ‘‘directlyrelated to management or general business operations’’ isdefined as follows: to include, but is not limited to, workin functional areas such as tax; finance; accounting;budgeting; auditing; insurance; quality control; purchas-ing; procurement; advertising; marketing; research; safetyand health; personnel management; human resources;employee benefits; labor relations; public relations, gov-ernment relations; computer network, internet and data-base administration; legal and regulatory compliance.

(2) Whose primary duty includes the exercise of discre-tion and independent judgment with respect to matters ofsignificance.

(3) Who is compensated for services on a salary basisat a rate of not less than:




(iv) Effective October 3, 2023, and each 3rd yearthereafter, at a rate equal to the weighted average 10thpercentile wages for Pennsylvania workers who work inexempt executive, administrative or professional classifi-cations as determined by the Department with advice andconsultation by the Minimum Wage Advisory Board andbased on an annual wage survey of all worker classifica-tions conducted by the Department.


(B) Upon review of the information submitted by theDepartment and a meeting to be held no later than60 days before the effective date, the Minimum WageAdvisory Board may provide advice and consultation tothe secretary regarding the weekly salary rate.

(c) At least 30 days prior to the effective date of each3-year period, the Department will publish this figure onits web site and in the Pennsylvania Bulletin.

(4) Up to 10% of the salary amount required underparagraph (3) may be satisfied by the payment of nondis-cretionary bonuses, incentives and commissions that arepaid yearly or more frequently. The employer may useany 52-week period as the year, such as a calendar year,fiscal year or anniversary of hire year. If the employerdoes not identify some other year period in advance, thecalendar year will apply. If by the last pay period of theyear the sum of the employee’s weekly salary plusnondiscretionary bonus, incentive and commission pay-ments received does not equal 52 times the weekly salaryamount required by this section, the employer may make1 final payment sufficient to achieve the required level no



later than the next pay period after the end of the year. Afinal payment made after the end of the year may countonly toward the prior year’s salary amount and nottoward the salary amount in the year it was paid.

§ 231.84. Professional.

Employment in a bona fide professional capacity meanswork by an individual:

(1) Whose primary duty is the performance of workrequiring either of the following:

(i) Knowledge of an advanced type in a field of scienceor learning customarily acquired by a prolonged course ofspecialized instruction and study.

(ii) Invention, imagination, originality or talent in arecognized field of artistic or creative endeavor.

(2) Who is compensated for services on a salary or feebasis at a rate of not less than:




(iv) Effective October 3, 2023 and each 3rd year there-after, at a rate equal to the weighted average 10thpercentile wages for Pennsylvania workers who work inexempt executive, administrative or professional classifi-cations as determined by the Department with advice andconsultation by the Minimum Wage Advisory Board andbased on an annual wage survey of all worker classifica-tions conducted by the Department.


(B) Upon review of the information submitted by theDepartment and a meeting to be held no later than60 days before the effective date, the Minimum WageAdvisory Board may provide advice and consultation tothe secretary regarding the weekly salary rate.

(C) At least 30 days prior to the effective date of each3-year period, the Department will publish this figure onits web site and in the Pennsylvania Bulletin.

(3) Up to 10% of the salary or fee amount requiredunder paragraph (2) may be satisfied by the payment ofnondiscretionary bonuses, incentives and commissionsthat are paid yearly or more frequently. The employermay use any 52-week period as the year, such as acalendar year, fiscal year or anniversary of hire year. ifthe employer does not identify some other year period inadvance, the calendar year will apply. If by the last payperiod of the year the sum of the employee’s weeklysalary plus nondiscretionary bonus, incentive and com-mission payments received does not equal 52 times theweekly salary amount required by this section, the em-ployer may make 1 final payment sufficient to achieve therequired level no later than the next pay period after theend of the year. A final payment made after the end of theyear may count only toward the prior year’s salaryamount and not toward the salary amount in the year itwas paid.

[Pa.B. Doc. No. 20-1343. Filed for public inspection October 2, 2020, 9:00 a.m.]



5459 RULES AND REGULATIONS...amends the regulations to delete the use of the word ‘‘his’’...

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Transcript of 5459 RULES AND REGULATIONS...amends the regulations to delete the use of the word ‘‘his’’...