To: Chief Executive Officers, Chief Financial Officers, Human Resources staff, and Government Affairs
From: Jaclyn Greenberg, Policy Director, Legal Affairs
David Streeter, Policy Director, Clinical and Data
Chelene Whiteaker, Senior Vice President, Government Affairs
Staff Contact: Jaclyn Greenberg at email@example.com or 206-216-2506
Subject: Washington’s Department of Labor Finalizes Overtime Rules
The purpose of this bulletin is to advise members that Washington State’s Department of Labor & Industries (L&I) has finalized its overtime pay rules for Executive, Administrative and Professional workers (EAP). Effective July 1, 2020, the final rule establishes an overtime pay threshold of 2.5 times the state’s minimum wage with a phased-in implementation over 8 years (until 2028). For an employee to be exempt from overtime pay obligations, they will need to make more than the threshold specified by L&I and satisfy the relevant duties test. Meanwhile, effective January 1, 2020, the U.S. Department of Labor (DOL) is raising its overtime pay threshold to $35,568.
In the near term, there will be significant salary threshold increases for employees to be considered exempt from overtime pay obligations. In 2020, the threshold will be $35,568 and in 2021 it will be $50,180. The threshold then increases gradually every year until it reaches the 2.5x threshold in 2027 for large employers (51+ employees) to $81,588. Please see below for the full implementation schedule.
WSHA has been actively engaged with this rulemaking, raising concerns about the salary threshold here and here. We testified to these concerns in July. We will continue to follow the implementation of the rule closely.
All hospitals and health systems, as employers in Washington, are subject to these rules.
- Review this bulletin to learn more about the new rules and the phased-in implementation schedule.
- Evaluate how your workforce will be impacted. Hospitals should be mindful of the rule’s application to its professional workers, in addition to those who meet the definitions of an executive or administrative employee. Under current administrative guidance, the professional worker category may capture a potentially large swath of a hospital’s workforce, depending on their job duties, including people employed in fields of nursing, accounting, actuarial computation, and various types of physical, chemical, and biological sciences, including pharmacy and registered or certified medical technology. Even if these workers are exempt according to their job duties, this proposed rule would require them to make more than the salary threshold to be considered exempt. For the administrative guidance, see here.
- Consider compliance with federal and state rules. L&I’s final rule aligns the Washington EAP duties tests with the DOL duties tests. However, the two sets of duties tests are not identical. Hospitals are encouraged to analyze where the duties tests may diverge for purposes of evaluating whether an employee may be exempt. For assistance, see L&I’s comparison of the two sets of duties tests.
- Create a plan for ensuring employees are properly categorized as exempt or non-exempt workers. Hospitals will need to ensure that employees are properly classified under the new salary threshold(s) by January 1, 2020.
Context for the current proposed changes. Since virtually all employers must comply with the Federal Labor Standards Act (FLSA) EAP rules, Washington state has not had a strong basis for updating its own EAP rules. Where differences exist between state and federal rules, employers are required to follow the regulation that is most favorable to the worker. L&I had not meaningfully updated its EAP exemptions since 1976, including salary thresholds. In March 2018, L&I initiated rulemaking on the basis that the federal salary threshold failed to be raised. The Obama administration attempted to raise the FLSA salary threshold in 2016 to $970/week ($50,440/year) but that change never went into effect. Currently, the federal EAP exempt salary threshold is $455/week in earnings ($23,660 year).
However, DOL recently issued its own final EAP rules, raising the federal salary threshold to $679/week or $35,568, effective January 1, 2020. This standard applies to all employers in the United States and it will apply in Washington state until January 1, 2021 when the Washington salary threshold overtakes DOL’s salary threshold.
|Federal overtime threshold||Weekly Pay Threshold||Annual Salary Threshold|
|January 1, 2020||$684||$35,568|
L&I’s Final Rule. Effective July 1, 2020, L&I’s final rule make two major changes:
(1) It creates a “salary test” of 2.5 times the state minimum wage. Under state and federal EAP rules, an employee needs to satisfy a duties test and meet a salary threshold to qualify for exempt status. Under L&I’s final rule, the salary threshold is tied to the state minimum wage. It will rise as the minimum wage rises. Ultimately, the salary threshold will be 2.5 times the state minimum wage. When that salary threshold goes into effect for large employers (51+ employees) on January 1, 2027, it will mean an EAP worker may only be exempt if he or she makes more than $81,588.
Below is the implementation schedule for large employers beginning January 1, 2020.
|Effective Date||Multiplier of WA Min. Wage||Weekly Pay Threshold||Annual Salary Threshold|
|July 1, 2020||1.25x||$675 (less than federal threshold; federal standard applies)||$35,100 (less than federal threshold; federal standard applies)|
|January 1, 2021||1.75x||$965||$50,180|
|January 1, 2022||1.75x||$986||$51,272|
|January 1, 2023||2x||$1,152||$59,904|
|January 1, 2024||2x||$1,177||$61,204|
|January 1, 2025||2.25x||$1,353||$70,356|
|January 1, 2026||2.25X||$1,382||$71,864|
|January 1, 2027||2.5x||$1,569||$81,588|
|January 1, 2028||2.5x||$1,603||$83,356|
(2) It aligns Washington State’s EAP duties tests with the U.S. Department of Labor’s (DOL) duties tests. The duties tests for executive, administrative, and professional workers, as well as outside salespeople and computer professionals, have all been revised under L&I’s final rule. The alignment does not mean Washington’s duties tests are identical to DOL’s duties tests. L&I has prepared a comparison chart between the two sets of tests, identifying the similarities and differences between them. A copy is available here and is also contained as Appendix A in the Concise Explanatory Statement. Beyond the salary threshold, the main difference between the two sets of tests appears to relate largely to DOL providing additional guidance on certain terms used in each of the categories’ duties tests, such as providing examples on the definitions of “primary duty” under each category. In those cases, L&I has indicated that it “intends to rely on the interpretations of the current federal regulations, where terms are identical.”
Background and References
- CR 103 Final Rule Filing
- Adopted Rule Language
- Fact Sheet on the Final Rules
- Implementation Schedule
- L&I Overtime Rules Website
- Concise Explanatory Statement
- Final Cost Benefit and Least-Burdensome Analysis from L&I
- Final Small Business Economic Impact Statement
- WSHA bulletins on EAP rulemaking