The Washington Department of Labor & Industries (L&I) recently filed a proposed rule that would dramatically increase the minimum salary required for employees to qualify for the “white collar” (executive, administrative, and professional) overtime exemptions.
If and when it is fully implemented by 2026, the rule will directly affect 250,000 Washington workers, according to L&I estimates. In the first year alone, increases in payroll due to overtime, minimum wage, and paid sick leave coverage would total $61.82 million.
Washington’s Existing Overtime Rule
Under the Fair Labor Standards Act and the Washington Minimum Wage Act, employers are required to pay overtime of 1.5 times an employee’s regular rate of pay for all hours worked beyond 40 during a workweek, unless the employee falls into an enumerated exemption. The most common exemptions—for executive, administrative, and professional employees—require employees to meet two criteria: (1) be paid a minimum salary that does not change based on the quality or quantity of the employee’s work, and (2) perform certain job duties, which vary depending on whether the executive, administrative, or professional exemption applies.
Washington’s minimum salary to qualify for these overtime exemptions, which was set in 1976, is only $250 per week ($13,000 per year). However, because employers must also comply with federal law, Washington employers are bound by the higher federal minimum salary, which is currently $455 per week ($23,660 per year).
Proposed Changes to Overtime
Last spring, L&I announced a plan to overhaul the white collar overtime exemptions, most notably raising the salary basis. After an initial round of public comments, L&I published its proposed rule on June 5, 2019.
The rule would increase the salary basis to 2.5 times the state minimum wage over a six-year period. From July 1, 2020, until the end of 2020, businesses with 50 or fewer Washington-based employees would have to pay employees $675 per week ($35,000 per year) for the overtime exemption to apply; businesses with over 50 Washington-based employees would have to pay about $945 per week ($49,000 per year) during the same period. The salary basis would increase every year thereafter until Jan. 1, 2026, when it would reach 2.5 times the state minimum wage for all businesses, regardless of size. The minimum pay is higher for “computer professionals” such as systems analysts, programmers, and software engineers. The new rule would also bring the job duties requirements for the overtime exemptions in line with federal law.
The changes in the rule would mean drastic changes for employees and employers. Employees who are no longer exempt would be required to track all hours worked, including work performed at home and/or outside regular business hours. Employers, of course, would be required to pay these employees overtime.
Proponents say the rule would provide much-needed protection for lower-income workers who may be classified as exempt even though they earn less than minimum wage. Opponents criticize the proposed salary threshold as too high, stating that it would force employees out of pursuing a career and into working a job, and that it would burden employers with significant unintended costs.
What Lawyers Should Know About the Overtime Rule
Lawyers who advise businesses should let their clients know about the proposed changes and monitor the rule’s progress. Businesses that fail to pay overtime can face costly claims for unpaid overtime, which may include double damages, attorney fees, 12 percent interest, and/or civil penalties.
If the rule becomes effective, many businesses will need to increase salaries or restructure positions to stay in compliance and avoid these costly consequences. However, employers should be cautious about making changes too soon. L&I’s rulemaking process is not complete and the proposed rule may change. Additionally, a lawsuit recently led to a court decision which prohibited a planned increase to the federal salary basis (detailed below), and similar arguments may be used for a legal challenge to L&I’s proposed rule.
Pending Changes to Federal Overtime Law
The federal white collar overtime exemptions are also in the midst of an overhaul. In 2016, the U.S. Department of Labor finalized a rule that would have raised the salary basis to $913 per week ($47,476 per year). The Eastern District of Texas, however, enjoined that increase, so it never went into effect. The Department of Labor began the rule-making process again, and this past March announced a new proposed rule that would set the federal salary basis at $679 per week ($35,408 per year). The comment period for the federal rule has now ended, and the final rule is expected to be released around the end of 2019.
How to Weigh In
L&I will hold several public hearings in July and August; comments may also be submitted online. More information can be found on L&I’s rulemaking engagement page.