On December 22, 2017, the Pennsylvania Superior Court held that, for purposes of calculating overtime under Pennsylvania’s Minimum Wage Act (“PMWA”), an employer may calculate the employee’s “regular rate” by dividing the employee’s salary in a given week by the number of hours the employee actually worked in that week; however, the employee must receive an additional one and one-half times the regular rate for any hours worked over forty in the week. The Superior Court’s opinion establishes a more expensive method for calculating overtime for non-exempt employees who receive a fixed weekly salary than the federal standard, which authorizes an employer to only pay an additional “one-half” of the regular rate for each hour worked over forty. [Chevalier v. General Nutrition Centers, Inc., No. 92 WDA 2017 (PA.Super. 2017)].
General Nutrition Centers, Inc. (“GNC”) paid its store managers a weekly salary. The amount of the salary stayed the same no matter the number of hours worked. However, when a salaried employee worked more than forty hours in a workweek, GNC also paid the employee overtime for the hours worked over forty in a workweek. GNC calculated the employee’s overtime by dividing his/her weekly salary by the total number of hours worked in the week in order to obtain the employee’s “regular rate.” GNC then paid the employee an additional amount equal to half the regular rate as the overtime premium. For example, if the employee received a weekly salary of $1,000 and worked 50 hours, GNC determined that the employee’s regular rate was $20. GNC then divided the $20 by two, which produces the $10 amount. This represents 50% of the employee’s regular rate.
GNC argued that the above method for calculating overtime pay was proper under Pennsylvania law because the salary covered the first 100% of the employee’s regular pay for all hours worked; thus, the employee is only owed an additional 50% of the regular rate as an overtime premium. GNC’s methodology is a permissible means of calculating overtime under the federal Fair Labor Standards Act and is commonly referred to as the “Fluctuating Work Week” method.
The Pennsylvania Superior Court, on an issue of first impression, held that GNC’s method for calculating overtime pay is inconsistent with Section 4(c) of the PMWA, which provides in relevant part: “Employees shall be paid for overtime not less than one and one-half times the employee’s regular rate as prescribed in regulations promulgated by the Secretary.”
The Court noted that PMWA regulation 34 Pa. Code §231.41 provides that “each employee shall be paid for overtime not less than 1 – ½ times the employee’s regular rate of pay for all hours in excess of 40 hours in a workweek.” The Court then compared that regulatory language with PMWA regulation 34 Pa. Code §231.43(b), which authorizes overtime pay to a particular class of employees at one-half the regular rate. The Court explained that the General Assembly and Department of Labor and Industry understood how to direct overtime payment at a rate of one-half the regular rate, and its decision to generally require employers to pay employees at one and one-half the regular rate must be intentional. As a result, the Court held that GNC should have paid its store managers an additional one and one-half their regular rate (or based on the illustration above, an additional $30 an hour) in order to be compliant with the PMWA.
The Court’s decision highlights a common pitfall for Pennsylvania employers who believe they are compliant with all wage and hour laws as long as they satisfy the requirements of the federal Fair Labor Standards Act. Employers should routinely consult with experienced labor and employment attorneys and conduct audits of their current pay practices to ensure compliance with both federal and state wage and hour laws.