Changes in Overtime Rules are on the Horizon

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Washington businesses have experienced many changes in employment laws over the past several years.  Paid sick leave became effective in January 2018.  Paid family and medical leave will be fully effective in January 2020, when eligible employees may begin applying for benefits under that law.  And changes to equal pay laws have limited a business’s ability to use pay history to set employee compensation. 

It now appears that more changes are looming on the horizon as updates to Washington and federal overtime rules are being considered.  If the proposed changes go into effect, the salary threshold for exempt employees in Washington may increase by more than 200%, resulting in a significant increase in the number of employees eligible for overtime pay in Washington. 

An employee in Washington must be paid overtime for hours worked in excess of 40 hours in a workweek, unless the employee is exempt from overtime requirements.  The most common overtime exemptions are the so-called “white collar” exemptions for professional, administrative, executive, and outside sales employees.  To qualify for an exemption, an employee must perform certain job duties and be paid a salary that meets a salary-specific threshold.  The current salary threshold applicable to most businesses is $455 per week ($23,660 per year.) 

The most significant potential change in overtime rules looming is an increase in the salary threshold.  The Washington Department of Labor & Industries has proposed raising the salary threshold to between two and two and one-half times the state minimum wage for a 40-hour workweek.  This would result in a salary threshold of $960 to $1,200 per week ($49,920 to $62,400 per year), which is a significant increase over the current salary threshold applicable to most Washington businesses.  If a multiplier tied to the state minimum wage is used, each increase in the state’s minimum wage would result in automatic increases in the salary threshold.  This would necessitate businesses having to adjust exempt employee salaries following each minimum wage increase to continue to meet the salary threshold. 

The Department of Labor & Industries also proposed updates to the job duties requirements for white collar exemptions.  The proposed updates seek to bring Washington’s job duties requirements in line with the federal rules.  This is good news for most businesses because the proposed updates to job duties requirements would simplify compliance for most businesses by eliminating the current differences between Washington and federal law on job duties requirements.  Although these proposed updates are not yet final, businesses should monitor rule-making developments as the year progresses.  An effective date of January 1, 2020 is currently being targeted for these Washington updates.      

Washington is not alone in seeking to update overtime rules.  The U.S. Department of Labor recently released proposed updates to the overtime rules under the FLSA.  The proposed updates seek to increase the federal FLSA salary threshold from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).  If it goes into effect, the new federal threshold will likely take effect in early 2020.  The proposed federal increase is significantly less than Washington’s proposal.  This means that exempt employees’ salaries in Washington will need to reach the Washington threshold, assuming the final rules are similar to those proposed.  The U.S. Department of Labor has not proposed changes to the job duties requirement. 

While the details of the final rules in Washington and at the federal level won’t be revealed for several months, businesses should know that change is coming and begin preparing accordingly.  Businesses can start evaluating current salaries of exempt employees in anticipation of a meaningful increase in the salary threshold level.  For those employees whose salaries are at or close to the current salary threshold of $455 per week or $23,660 per year, reclassifying those employees as non-exempt is one option to keep wage costs in check.  Implementation of strict overtime policies and the shifting of work to exempt employees are additional options.  But businesses should be cognizant of the potential downstream impact of these options, including potential loss of benefits as a result of reclassification and decreased employee morale caused by restrictive policies and work shifting.  In contrast, for those exempt employees with higher salaries, increasing salaries above the updated threshold will allow businesses to maintain the exempt classification.  Increasing salaries may also be a good option when an employee regularly works significantly more than 40 hours per week.   

These updates also present a good opportunity to complete a comprehensive audit of exempt classifications, including assessing whether exempt employees also satisfy the job duties requirements.  It is important to remember that exempt employees must satisfy both the job duties and salary requirements of the exemptions.  Proactive planning should help businesses adjust to these forthcoming changes in overtime rules.

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney