Washington State Increases Minimum Salary, Fee and Hourly Rates for White Collar Overtime Exemptions The Washington Department of Labor & Industries announced its final rule amending Washington States’ white-collar overtime exemption regulations on 11th December 2019. If not overridden by the legislature or successfully challenged in court, the rule will thoroughly increase the pay rates necessary to qualify for the white-collar exemptions in Washington State. The first major impact on salaries for the executive, administrative and professional exemptions will occur on 1st January 2021. That is when the new minimum Washington salary will first exceed the new 2020 minimum salaries under the federal Fair Labor Standard Act (FLSA). The rate will then ramp up to a projected $83,356 per year in 2028 (including estimated consumer price index (CPI) adjustments), after which annual CPI adjustments will be applied. The hourly paid computer professional exemption will change on 1st July 2020. The minimum pay rate will jump from $26.63-hour to $37.13-hour for employers with more than 50 employees in Washington. This will rise to $47.25-hour, plus CPI adjustments, for all employers by 2022, after which annual CPI adjustments will be applied. The regulation also amends the white-collar duties tests to confirm to the FLSA duties tests, but with some differences remaining. The amended duties tests will be effective on 1 st July 2020.
Salary, Fee Rates for the Executive, Administrative and Professional Exemptions For the executive, administrative and professional exemptions, the new minimum salary basis and fee basis rates are: Date 1st July 2020
1st January 2021
1st January 2022
Minimum Salary/ Fee Rate (More from 50 Washington Employees) 1.25 X Washington Minimum Wage ($35,100/year) ($675/week) {The new rate under the FLSA effective 1st January 2020, is $35,568/year, or $684/week) 1.75 X Washington Minimum Wage ($49,140/year + CPI) ($945/week + CPI) 1.75 X Washington Minimum Wage ($49,140/year + CPI)
Minimum Salary/ Fee Rate (50 or Fewer Washington Employees) Same implies for larger employers
1.5 X Washington Minimum Wage ($42,120/year + CPI) ($810/week + CPI) Same as for larger employers
1st January 2023
1st January 2024
1st January 2025
1st January 2026
1st January 2027
1st January 2028
($945/week + CPI) 2.0 X Washington Minimum Wage ($56.150/year + CPI) ($1,080/week + CPI) 2.0 X Washington Minimum Wage ($56,160/year + CPI) ($1,080/week + CPI) 2.25 X Washington Minimum Wage ($63,180/year + CPI) ($1,215/week + CPI) 2.25 X Washington Minimum Wage ($63,180/year + CPI) ($1,215/week + CPI) 2.5 X Washington Minimum Wage ($70,220/year + CPI) ($1,350/week + CPI) 2.5 X Washington Minimum Wage ($70,220/year + CPI) ($1,350/week + CPI)
1.75 X Washington Minimum Wage ($49,140/year + CPI) ($945/week + CPI) Same as for larger employers
2.0 X Washington Minimum Wage ($56,150/year + CPI) ($1,080/week + CPI) Same as for larger employers
2.25 X Washington Minimum Wage ($63,180/year + CPI) ($1,215/week + CPI) same as for larger employers
The new salary rates are defined in the rule as a multiple (e.g., 1.25 X) of Washington’s minimum wage rate for 40 hours of work per week. For 2020, Washington’s minimum wage is $13.50 per hour. For 2021 and thereafter, it will automatically be adjusted upward each January 1, if there has been an increase in the CPI. The new FLSA salary minimum for 2020 and thereafter permits employers to satisfy up to 10% of the minimum level with non-discretionary variable pay. Washington did not adopt this rule. As such, employers that plan to pay salaries in 2020 of less than $35,100/year in reliance on the credit for non-discretionary variable pay will have to raise salaries in Washington State to $35,100 by 1st July 2020 if they wish to maintain exempt status. The Washington rule’s text states that the highest salary rate of 2.5 X minimum wage is effective for all employers in 2026, not in 2027 and 2028, as this has been stated by the Department of Labor and Industries in multiple publications and announcements.
Hourly Rates for the Hourly Computer Professional Exemption For the hourly computer professional exemption, the new minimum hourly rates are:
Date 1st July 2020 1st January 2021 1st January 2022
Minimum Hourly Rate (More from 50 Washington Employees) $37.13/hour (vs. the FLSA rate of $27.63/hour) 3.5 X Washington Minimum Wage ($47.25/hour + CPI) 3.5 X Washington Minimum Wage ($47.25/hour + CPI)
Minimum Hourly Rate (50 or Fewer Washington Employees) $27.63/hour (matched the current WA and FLSA rates) 2.75 X Washington Minimum Wage ($37.13/hour + CPI) Same as for larger employers
Teachers & Academic Administrators The professional exemption for teachers will now require payment on a salary or fee basis, but without mandating a minimum pay rate. The FLSA does not specify a form or minimum amount of payment for exempt teachers. The administrative exemption for academic administrators will permit a salary that is at least equal to the entrance salary for teachers in the particular educational establishment involved. The FLSA does not include this provision, so the FLSA salary minimum pay will also have to meet the criteria to obtain an exemption from overtime under federal law.
Changes to the White-Collar Exemption Duties Tests The new rule brings the Washington State duties tests for the white-collar exemptions (executive, administrative, professional, and outside sales) generally into conformity with the FLSA duties tests, but subject to a few differences. Washington has no highly compensated exemption. This is a continuation of existing Washington law. For the outside sales exemption, Washington is retaining its unique requirement that the employee be advised of their status as an outside salesperson. For the outside sales exemption, the text of the final Washington rule continues the Washington requirement that the outside salesperson’s nonexempt work must not exceed 20% of a normal nonexempt workweek (typically 8 hours per week). This appears to be an error in the final rule, as this provision was shown as deleted in the proposed rule (for conformity with FLSA), and the Department’s explanatory statement does not mention any change on this score from the proposed rule. The Department did not expressly incorporate into the Washington rule of the guidance that exists in the FLSA duties test regulations. As to the portions not incorporated, the Department’s explanatory statement says, “this guidance was not included in the text of the adopted state
rule. The Department intends to rely on the interpretations of the current federal regulations, where terms are identical”.
Outside Salespeople Washington’s outside sales exemption retains key features different than federal law. Currently, Washington’s new rule keeps the current requirement that the outside salesperson’s nonexempt work must not exceed 20% of a normal nonexempt workweek (typically eight hours per week), although it was initially deleted in the draft rule. This may change. Employers must also continue to advise employees under the exemption of their status as an outside salesperson as well as meet other requirements of the test. Regarding pay rates, Washington’s law still does not require a minimum pay rate for this exemption. It does, however, continue to require that employers pay outside salespeople on a guaranteed salary, commission or fee basis.
Few Other Differences Washington still does not recognize an overtime exemption for “highly compensated” individuals. This is consistent with existing law. So-called highly compensated individuals must still meet the duties tests for one of Washington’s overtime exemptions. The teacher’s professional exemption for teachers will now require payment on a salary or fee basis, although there is no required minimum pay rate. For academic administrators, the exemption now permits a salary that is at least equal to any teachers’ entrance salary at the same education establishment where they work.
Plan in Advance Washington employers should begin planning to avoid legal liability for misclassification and to ameliorate significant financial impacts of these changes. Some steps to consider: Take this opportunity to make sure that each employee is classified properly. Make a list of all employees, noting each employee’s classification as either “exempt” or “nonexempt”. This will involve analysis of both the weekly salary paid as well whether the employee meets the duties test for the relevant exemption. Identify employees who will need to be reclassified from the “exempt” to “non-exempt”, because they are or will be are paid less than the requisite amount or no longer meet the relevant “duties test”. Calculate the financial feasibility and costs of raising these employees’ pay to the new threshold level to make them “exempt” versus reclassifying them as “non-exempt” and paying overtime. If a reclassification is necessary, prepare meaningful employee communications. This includes management training, sharing necessary changes in company policies, presenting a unified message on how and why changes are going to be implemented,
and positive individual communications to reclassified employees who will now need to keep track of their hours worked, take required breaks and may have a chance to their benefits. Cooperating with an employee background verification team will be added advantage. ďƒ˜ Seek legal advice. The new rules are complex, and the employers who do not adhere to them strictly may be liable for serious financial penalties, including an unpaid overtime claim under Washington law. Securecheck360 will monitor further developments to keep our clients with up to date knowledge of changing laws and implementations, so employers should ensure you are subscribed to Securecheck360 to gather the most relevant business information. This Legal Alert provides an overview of a specific state law. It is not intended to be, and should not be constructed as legal advice for any particular fact situation, because Securecheck360 is not law firm.