On July 1, 2020, the Washington State Department of Labor & Industries (“L&I”) updated the criteria for an exempt employee. These workers may include executive, administrative, and professional employees, as well as outside salespeople and computer professionals. Washington’s overtime exemption rules generally require these “white-collar” employees to meet a three-part test to be exempt: the employees must (1) be paid a fixed salary, (2) perform certain types of job duties, and (3) be compensated at or above the minimum salary threshold. Employers should note approved changes to the job duties test and the incremental increase of state minimum wage (see below). If the rising salary thresholds go unaddressed in your business, there may be applicable effects. It is possible that employees previously considered exempt employees may now be non-exempt from overtime, paid sick leave, and other requirements under the Minimum Wage Act. Employers may need to increase employee pay to maintain their exempt status.
Exempt Employee Changes in Minimum Salary Level
Under the approved changes, the minimum payment that a salaried employee must receive to be considered overtime-exempt will increase incrementally to 2.5 times the state minimum wage by 2028. Small businesses (1–50 Washington-based employees) will have a more gradual phase-in schedule to give them additional time to comply with the new rules versus large companies (51 or more Washington-based employees).
When state and federal thresholds conflict, employers must meet the threshold most favorable to employees. On January 1, 2021, Washington’s minimum wage will increase from $13.50 to $13.69. Washington employers should begin following the new Washington rules because the state threshold will become more favorable to employees at $821.40 a week (1.5x the state minimum wage) for small businesses and approximately $958.30 per week (1.75x the state minimum wage) for large businesses. The following is a summary of the salary threshold implementation schedule:
Changes to Exempt Employee Job Duties Tests
The approved rules also updated the job duties test, which describes the duties an employee must perform to classify as exempt. For an employer to determine if an employee is exempt from the Minimum Wage Act requirements, the employer must ensure the employee meets each job duties test element.
Changes Regarding Computer Professionals
For computer professionals in Washington, the new rules provide a separate job duties test to determine an exempt employee. This exemption includes computer system analysts, computer programmers, software engineers, or other similarly skilled workers who meet the job duties test. The exemption does not include employees engaged in the manufacture, repair, or maintenance of computer hardware and related equipment.
The computer professional exemption is also the only exemption category that allows employers to choose to pay their exempt employees either on an hourly basis or on a salary basis. Salaried computer professionals must receive payment at the same rate as other white-collar workers provided in the implementation scheduled above to qualify as an exempt employee. However, for computer professionals compensated on an hourly basis to qualify as exempt, they must be paid at a rate of at least 3.5 times the state minimum wage beginning in 2022, after a phase-in period depending on employer size. The following is a summary of the hourly computer professional implementation schedule:
Washington Employers Should Act Now
These changes significantly impact both large and small businesses. More employees will continually become eligible for overtime pay, and employers should act now to decrease legal risk and avoid future penalties.
Employers should audit their workforce to assess their employees’ current classifications and minimum salaries. This will help determine which employees are impacted when the salary threshold increases on January 1, 2021. To maintain an employee’s exempt status, employers must pay the employee the requisite salary and ensure that the employee’s job duties meet the state’s requirements. Remember, job titles and job descriptions do not determine exempt status. For an exemption to apply, an employee’s actual job duties and salary or hourly pay level must meet all of the state regulations’ requirements.
Wage and hour law compliance can be tricky, and it is essential to your business’ health to make sure you understand how these rules will impact your workforce. The Equinox team can help you remain compliant and stay current on any changes that might affect your business. Contact us today.