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Prepare for a significant change in Pennsylvania’s labor landscape as the exempt salary threshold for overtime pay is set to undergo a substantial adjustment in 2025. This long-awaited revision will have far-reaching implications for both employers and employees, prompting businesses to reassess their compensation strategies and workers to anticipate potential shifts in their pay structure.

The current exempt salary threshold in Pennsylvania stands at $25,632, meaning that any salaried employee earning above this amount is exempt from overtime pay. However, the new threshold, effective January 1, 2025, will be set at $45,500, a significant increase of nearly 78%. This adjustment aims to align Pennsylvania’s threshold with the federal minimum threshold of $684 per week, which was last updated in 2004. The move is expected to bring thousands of currently exempt employees under the umbrella of overtime eligibility, transforming the compensation landscape for many Pennsylvanian workers.

The impending threshold adjustment underscores the evolving nature of the labor market and the increasing importance of fair compensation practices. As the cost of living continues to rise, employees expect to be justly compensated for their time and effort. The revised threshold will help ensure that more workers receive overtime pay for hours worked beyond the standard 40-hour workweek, promoting a more equitable and balanced work environment. Employers, on the other hand, will need to carefully evaluate their compensation structures and adjust salaries to comply with the new regulations. Failure to do so could result in substantial financial penalties and potential legal challenges.

Pennsylvania’s Exempt Salary Threshold

In Pennsylvania, employers must adhere to the federal Fair Labor Standards Act (FLSA) and Pennsylvania’s Minimum Wage Act when classifying employees as exempt or non-exempt from overtime pay.

Pennsylvania’s Department of Labor & Industry has established a minimum salary threshold for employees to qualify for the overtime exemption. This threshold is updated periodically to reflect changes in the cost of living.

The current exempt salary threshold in Pennsylvania is $45,500 per year. This means that employees who earn less than $45,500 per year must be paid overtime at a rate of one and one-half times their regular hourly rate for any hours worked over 40 in a workweek.

The Purpose of the Exempt Salary Threshold

The exempt salary threshold serves several purposes:

It helps employers comply with FLSA and state labor laws.
It ensures that employees are fairly compensated for their overtime work.
It prevents employers from misclassifying employees as exempt to avoid paying overtime.

Calculating the Exempt Salary Threshold

The exempt salary threshold is calculated using a formula that considers the cost of living in Pennsylvania. The formula is updated every three years by the Pennsylvania Department of Labor & Industry.

Year

Threshold

2025

$45,500

2028

$47,892

2031

$50,448

Compliance Considerations for Pennsylvania Employers

1. Conducting Salary Audits

Pennsylvania employers are advised to conduct thorough salary audits to ensure compliance with the new exempt salary threshold. This involves reviewing the salaries of all employees classified as exempt under the Fair Labor Standards Act (FLSA). Any employees earning less than the revised threshold of $84,000 per year must be reclassified as non-exempt and eligible for overtime pay.

2. Reclassifying Exempt Employees

If a salary audit reveals that certain exempt employees fall below the new threshold, employers must reclassify them as non-exempt. This process may involve:

– Notifying affected employees of their reclassification.
– Revising job duties to ensure compliance with federal overtime regulations.
– Adjusting payroll systems to accurately calculate overtime hours worked.
– Providing training to managers and supervisors on the new overtime requirements.

To ensure a smooth transition, employers should provide clear communication to employees regarding their reclassification and the reasons behind it. They should also work closely with legal counsel to ensure that all actions taken are in compliance with applicable laws and regulations.

3. Other Considerations

In addition to conducting salary audits and reclassifying exempt employees, Pennsylvania employers should consider the following compliance measures:

– Revisiting employee classification criteria to ensure accuracy.
– Reviewing job descriptions to ensure they align with actual job duties.
– Establishing clear overtime policies and procedures.
– Providing training to employees on overtime expectations and how to track hours worked.
– Maintaining accurate payroll records and timekeeping systems.

Historical Evolution of the Exempt Salary Threshold in Pennsylvania

Federal Fair Labor Standards Act (FLSA) Exemption Threshold

The FLSA is the primary federal law governing overtime pay. It requires employers to pay overtime to non-exempt employees who work more than 40 hours per week. The FLSA exemption threshold is the annual salary level below which employees are automatically considered non-exempt and entitled to overtime pay.

Pennsylvania Minimum Wage Act (PMWA) Exemption Threshold

The PMWA is a state law that sets minimum wage and overtime pay requirements for employees in Pennsylvania. The PMWA exemption threshold is the annual salary level below which employees are automatically considered non-exempt and entitled to overtime pay under state law.

Comparison of Federal and State Exemption Thresholds

Prior to 2023, the federal FLSA exemption threshold was significantly lower than the state PMWA exemption threshold. This created a situation where an employee could be considered exempt from overtime under federal law but non-exempt under state law, leading to potential confusion and legal liability for employers.

Year	FLSA Exemption Threshold	PMWA Exemption Threshold
2021-2022	$35,568	$47,892
2023	$60,000	$47,892
2024	$65,500	$47,892
2025	$71,500	$47,892

Implications for Employees

The increased salary threshold means that more employees will be eligible for overtime pay. This could lead to increased earnings for those employees, as well as greater financial stability. Additionally, the change could reduce the number of hours that employees are required to work, leading to a better work-life balance.

Implications for Businesses

The increased salary threshold will likely have a significant impact on businesses. Businesses may need to adjust their budgets to account for the increased cost of labor. Additionally, businesses may need to review their overtime policies and procedures to ensure that they are in compliance with the new law.

Impact on Small Businesses

The increased salary threshold is likely to have a particularly significant impact on small businesses. Small businesses may have difficulty absorbing the increased cost of labor, and they may be forced to reduce their workforce or cut back on hours. Additionally, small businesses may be less likely to have the resources to comply with the new law, which could lead to legal penalties.

Impact on Non-Profit Organizations

Non-profit organizations may also be affected by the increased salary threshold. Non-profit organizations often rely on low-paid workers, and they may have difficulty finding and retaining employees if the salary threshold is increased. Additionally, non-profit organizations may be less able to provide services to their communities if they are forced to cut back on staff.

Impact on State and Local Governments

State and local governments may also be affected by the increased salary threshold. State and local governments employ a large number of low-paid workers, and they may have difficulty finding and retaining employees if the salary threshold is increased. Additionally, state and local governments may be forced to cut back on services if they are unable to find and retain enough employees.

Impact on Wage and Hour Laws

The Pennsylvania exempt salary threshold for 2025 will have a significant impact on the state’s wage and hour laws. The threshold will increase to $80,258, which is substantially higher than the current threshold of $68,440. This increase will have a number of implications for employers and employees in Pennsylvania.

Minimum Wage

The increase in the exempt salary threshold will not affect the state’s minimum wage, which is currently $7.25 per hour. However, it may make it more difficult for employers to find workers who are willing to work for less than the exempt salary threshold.

Overtime Pay

The increase in the exempt salary threshold will also affect the state’s overtime pay laws. Currently, employees who earn less than the exempt salary threshold are entitled to overtime pay for any hours worked over 40 in a week. However, employees who earn more than the exempt salary threshold are not entitled to overtime pay.

Exemptions

The increase in the exempt salary threshold will also affect the state’s exemptions from the overtime pay requirements. Currently, there are a number of exemptions to the overtime pay requirements, including the executive, administrative, and professional exemptions. These exemptions will still apply to employees who earn more than the exempt salary threshold, but they will not apply to employees who earn less than the exempt salary threshold.

Enforcement

The Pennsylvania Department of Labor and Industry is responsible for enforcing the state’s wage and hour laws. The department will likely increase its enforcement efforts to ensure that employers are complying with the new exempt salary threshold.

Year	Threshold
2022	$68,440
2023	$72,640
2024	$76,240
2025	$80,258

Federal and State Overlap on Exempt Salary Thresholds

Pennsylvania’s Threshold: A Gradual Increase

Pennsylvania’s minimum salary threshold for overtime-exempt employees is gradually increasing over a five-year period.

Federal Threshold: A 2004 Freeze

At the federal level, the exempt salary threshold has been frozen at $23,660 per year since 2004. This means that any employee who earns less than this amount per year must be paid overtime for hours worked over 40 per week.

Overlapping thresholds

Before 2026

Until January 1, 2026, employees in Pennsylvania who earn at least the federal threshold of $23,660 per year are considered exempt from overtime pay.

After 2026

Year	Pennsylvania Threshold	Federal Threshold
2026	$850 per week	$23,660 per year
2027	$925 per week	$23,660 per year
2028	$1,000 per week	$23,660 per year
2029	$1,100 per week	$23,660 per year
2030 and beyond	$1,200 per week	$23,660 per year

As you can see, starting in 2026, Pennsylvania’s threshold will be higher than the federal threshold, which means that more employees in Pennsylvania will be eligible for overtime pay.

Best Practices for Setting Exempt Salary Thresholds

To ensure compliance and prevent costly legal disputes, employers should consider the following best practices when setting exempt salary thresholds:

7. Conduct Regular Reviews and Adjustments

The salary threshold is not a static figure and should be reviewed and adjusted periodically to reflect changes in the cost of living, labor market conditions, and legal requirements. Conduct formal reviews at least every two years, but be prepared to make adjustments more frequently if significant changes occur. Consider using surveys, market data, and economic indicators to inform your decisions.

The following table summarizes the key takeaways for conducting regular reviews:

Key Takeaway
Review the salary threshold every two years or more frequently if significant changes occur.
Consider using surveys, market data, and economic indicators to inform your decisions.

Legal Challenges and Case Law Related to the Threshold

The Pennsylvania exempt salary threshold has been the subject of several legal challenges, including:

Challenges to the 2019 Threshold

In 2019, the Pennsylvania Department of Labor & Industry (DOLI) adopted a new threshold of $780 per week. This threshold was challenged by several business groups, which argued that it was too high and would harm businesses.

Case Law

In 2020, the Commonwealth Court of Pennsylvania upheld the DOLI’s 2019 threshold. The court found that the DOLI had followed the proper procedures in setting the threshold and that the threshold was reasonable.

Challenges to the 2022 Threshold

In 2022, the DOLI adopted a new threshold of $975 per week. This threshold was again challenged by several business groups, which argued that it was too high and would harm businesses. The Pennsylvania Supreme Court has agreed to hear this case.

Impact of Legal Challenges

The legal challenges to the Pennsylvania exempt salary threshold have created uncertainty for both employers and employees. Employers are unsure about how to classify their employees, and employees are unsure about whether they are entitled to overtime pay.

Pending Litigation

The case challenging the 2022 threshold is still pending before the Pennsylvania Supreme Court. It is unclear when the court will issue a decision.

Table of Legal Challenges

Year	Threshold	Case	Outcome
2019	$780 per week	PA Business Council v. DOLI	Threshold upheld
2022	$975 per week	PA Chamber of Business and Industry v. DOLI	Case pending

Future Trends and Potential Changes

Current Trends

The current trend in Pennsylvania is for the exempt salary threshold to increase gradually. This is in line with the federal trend, as well as the trend in other states. The increase in the threshold is due to several factors, including the rising cost of living and the increasing demand for skilled workers.

Potential Changes

Several potential changes could impact the exempt salary threshold in Pennsylvania in the future. These changes include:

1. Federal law changes

Changes to federal law could impact the exempt salary threshold in Pennsylvania. For example, if the federal government raises the minimum wage, Pennsylvania may follow suit and raise the exempt salary threshold.

2. State law changes

The Pennsylvania legislature could pass a law to raise the exempt salary threshold. This is unlikely in the short term, but it is possible in the long term.

3. Court decisions

Pennsylvania courts could make decisions that impact the exempt salary threshold. For example, a court could rule that a particular job classification does not meet the exemption criteria.

4. Economic conditions

The economic conditions in Pennsylvania could impact the exempt salary threshold. If the economy is strong and there is a high demand for workers, the threshold may increase. Conversely, if the economy is weak and there is a low demand for workers, the threshold may decrease.

5. Political factors

Political factors could also impact the exempt salary threshold. For example, a change in the political landscape could lead to a change in the threshold.

9. Increase in Remote Work

As remote work becomes more prevalent, employers may need to reassess the exempt salary threshold for employees who work from home. The threshold may need to be adjusted to account for the different cost of living in different areas where remote employees may reside.

Tips for Employers

1. Review Current Exempt Classifications

Determine which employees currently classified as exempt may fall below the new salary threshold. Consider their job duties and responsibilities to ensure appropriate classification.

2. Adjust Salaries for Impacted Employees

Increase salaries for employees below the new threshold to maintain exempt status or explore alternative compensation arrangements.

3. Utilize Overtime Pay

Ensure that employees working overtime are compensated appropriately and in accordance with applicable laws.

4. Consider Alternative Compensation Structures

Explore options such as bonuses, commissions, or equity to supplement salaries and maintain employee motivation.

5. Communicate Clearly with Employees

Inform employees about the upcoming salary threshold change, explain its potential impact on their exempt status, and provide opportunities for questions and clarifications.

Tips for Employees

6. Review Your Job Responsibilities

Determine the primary duties and responsibilities of your position to assess your potential exempt status under the new threshold.

7. Understand Your Pay Structure

Confirm your current salary and any additional compensation elements that may affect your exempt status, such as bonuses or commissions.

8. Discuss with Your Employer

Engage in open communication with your employer to clarify your exempt status and discuss potential changes to your compensation or job duties.

9. Explore Alternative Employment Options

If your current salary falls below the new threshold and you desire to remain exempt, consider exploring job opportunities with higher salaries or different compensation structures.

10. Know Your Rights

Understand your rights under the Fair Labor Standards Act and state laws regarding overtime pay and exempt status. If you believe you have been misclassified, seek advice from appropriate legal or labor organizations.

Pennsylvania Exempt Salary Threshold 2025

The Pennsylvania Department of Labor & Industry (DLI) has proposed increasing the salary threshold for exempt employees in 2025. The proposed threshold is $78,259, which would be a significant increase from the current threshold of $45,500. The DLI is seeking public comment on the proposed change, which would take effect on January 1, 2025.

The exempt salary threshold is the minimum salary that an employee must be paid in order to be considered exempt from overtime pay. Employees who are exempt from overtime pay are not entitled to overtime pay even if they work more than 40 hours in a week. The proposed increase to the exempt salary threshold would mean that more employees would be eligible for overtime pay.

The DLI is seeking public comment on the proposed change until August 15, 2023. After the public comment period ends, the DLI will make a final decision on whether or not to increase the exempt salary threshold.