State Law Overtime Calculation Prevails Over Established Federal Method

By Alyssa L. Levy and Amy Knapp

In November 2019, the Pennsylvania Supreme Court looked at the conflict between federal and state law concerning the calculation of overtime compensation for non-exempt salaried workers. The Court ruled that although federal law explicitly adopted the fluctuating workweek (FWW) method for employees paid a set amount each week, despite the hours worked fluctuating, Pennsylvania law necessitated a different, more employee-friendly overtime calculation method.

Both the Pennsylvania Minimum Wage Act of 1968 (PMWA) and the federal Fair Labor Standards Act (FLSA) require payment of at least “one and one-half” of the employee’s “regular rate” for each hour worked in excess of 40 hours. This calculation is straightforward for employees who earn a set hourly wage, but it is more complicated for employees who are paid a set weekly amount for fluctuating hours.  In these cases, the “regular rate” is calculated under the FLSA by dividing the employee’s weekly compensation by the actual hours worked in the week. With this calculation, the employees receive their “straight” time for hours over forty as part of the set weekly amount, and employers only owe an additional half of the regular rate for overtime hours.  

The PMWA, however, does not address how to calculate overtime for these workers. The employer in this suit argued Pennsylvania should use the federal FWW method.  The employees argued that the PMWA had not specifically incorporated the FWW method’s 0.5 multiplier, and if Pennsylvania wanted to adopt the federal method for salaried employees, it would have.

The Court ultimately agreed with the employees.  Based on a mechanical application of the PMWA’s statutory and regulatory language, the Court concluded that use of the federal calculation method violated the PMWA, and Pennsylvania salaried, non-exempt employees are entitled to a 1.5 overtime multiplier.

The effect is retroactive liability for an employer that used recognized federal pay practices.  Employers in many states might find themselves in the same situation. The legality of the FWW method is not fully resolved in Connecticut, Delaware, Hawaii, Idaho, Indiana, Maine, Maryland, Nevada, New Hampshire, New Jersey, New York, North Dakota, Rhode Island, Vermont, Virginia, Washington, West Virginia, Wisconsin, or Wyoming. See Wage & Hour Defense Institute, State-By-State Wage and Hour Law Summary (2017).

Chevalier v. General Nutrition Centers, Inc., No. 22 WAP 2018, No. 23 WAP 2018 (Pa. Nov. 20, 2019)