The purpose of this bulletin is to advise members that the Washington State Department of Labor and Industries (L&I) is engaged in a rulemaking process that could expand the class of workers who qualify for overtime pay. This bulletin outlines the proposed changes, ways to participate and WSHA’s activity with this rulemaking.
Executive, Administrative and Professional (EAP) workers are exempt from the overtime pay requirement, but the proposed changes would narrow the universe of workers who meet the exemption criteria.
Among the proposed changes is the introduction of a minimum salary threshold that is 1.5 to 3 times the state minimum wage, as set out in the Washington Minimum Wage Act, RCW 49.46 (MWA). This rulemaking applies to all businesses in Washington State. There are also proposed changes to the duties defining each category of exempt worker, among other changes.
L&I is in the latter stages of the pre-proposal phase, and is seeking feedback on its pre-proposal draft rule, available here. Comments are due by October 26, 2018. The next phase is a more formal rulemaking period. We encourage your hospital to engage now if you feel strongly about the new proposal.
As discussed further below, the potential impact of these changes is difficult to measure given the large variance in salary thresholds, as well as the potential to interpret the changes in the EAP categories differently. Nevertheless, broad concerns are immediately apparent, including compliance issues, administrative and operational burden, increased litigation risk, and of course, financial stress.
The proposed rulemaking applies to WAC 296-128-500 to 540, which define the categories of employees who are exempt from the provisions of the MWA for being “employed in a bona fide executive, administrative or professional capacity or in the capacity of outside salespersons.”
Among the provisions that do not apply to EAP workers is the requirement that employers pay employees overtime pay at time and a half, if they work beyond a 40-hour workweek.
Under WAC 296-128-500 to 540 each category of exempt worker is defined by duties they perform, a percentage cap on time spent on non-exempt work, a minimum salary threshold, and the exercise of independent judgment and discretion.
- Review this bulletin and consider the pre-proposal draft rule’s impact on your hospital, particularly the financial ramifications of introducing any and all of the proposed minimum salary thresholds;
- Consider submitting a comment by October 26, 2018; and,
- Schedule permitting, consider attending this feedback session hosted by L&I:
October 18, Spokane, from 9:00-11:30 AM
9 a.m. – Overview
9:30-11:30 a.m. – Feedback session
Center Place Event Center – Large Meeting Room
2426 N. Discovery Place
Spokane, WA 99216
More information on the feedback sessions and the rulemaking timeline is available here.
WSHA is monitoring this rulemaking process closely and will provide members with information on how to engage. We are considering whether to comment on the pre-draft proposed rule, bearing in mind that hospitals/health systems may be impacted very differently and our comments may not be able to fairly capture every hospital’s concerns.
As such, we request your feedback about how the pre-draft proposed rule changes could impact your hospital. Please consider the following:
- The comprehensibility of the revised EAP definitions. Whether you are able to assess the impact on your hospital based on the revised definitions of EAP workers including, if applicable, outside sales persons and computer professionals.
- The size of your workforce potentially impacted. Assuming a conservative interpretation of the revised EAP definitions, how many staff do you expect could be excluded from exempt status according to the revised definitions?
- The financial repercussions of implementing a salary threshold tied to the state minimum wage. What are your projections for the financial impact arising from a 1.5 to 3 times multiplier on the state minimum wage for 2019, 2020 and beyond. Please break these numbers out in each category if providing information to WSHA.
- The administrative and operational burdens of implementation. Assuming the pre-draft proposal is adopted, how long do you estimate it would take your hospital to put systems and processes in place to address the new requirements? This includes evaluating the size of the effected workforce, and implementing changes to address changes in workers’ compensation structures.
In the meantime, WSHA is engaged with and stands firmly behind the Association of Washington Business (AWB) in its ongoing efforts to ensure that L&I’s rulemaking is consistent with federal standards and thoughtful to the business and community impacts that will result from revision to these rules.
Context for the current proposed changes. Since 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. Indeed, L&I has not meaningfully updated its EAP exemptions since 1976, including salary thresholds. However, 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).
The Pre-Proposal Draft Rule. The pre-draft version of the proposed rule is available here. Three key concepts in the draft rule include:
- The creation of a salary exemption threshold 1.5 to 3 times Washington State’s minimum wage. The figures are as follows:
|2021 and beyond
|$720/wk – $37,440/annum
|$810/wk – $42,120/annum
|Adjust using the consumer price index for urban wage earners and clerical workers, CPI-W.
|$960/wk – $49,920/annum
|$1080/wk – $56,160/annum
|$1200/wk – $62,400/annum
|$1350/wk – $72,200/annum
|$1440/wk – $74,880/annum
|$1620/wk – $84,240/annum
- Changes in the criteria for each EAP category. Highlights of those changes include:
These employees’ primary duty involves managing the overall operations of the business or a customarily recognized department or subdivision. They must also customarily and regularly direct the work of at least two full-time workers, as well have authority with respect to hiring or firing, or other status changes, of other employees. In addition, their work must concern “significant” management rather than supervising or carrying out day-to-day business operations or production activities.
o Removes reference to “customarily and regularly exercises discretionary powers”; and,
o Defines “customarily recognized department or subdivision” to be one that is permanent and has continuing function.*
*Tracks with the federal exemptions
These employees’ primary duty involves office or nonmanual field work directly related to management policies or general business operations of the employer or the employer’s customers, which may include assisting a bona fide executive, other administrator or proprietor, work alongside specialized or technical lines of work, or special assignments or tasks.
o Imports a primary duty test on the exercise of discretion and independent judgment, and adds that they apply “with respect to matters of significance”*; and,
o Inclusion of a definition for “discretion and independent judgment” that excludes “clerical or secretarial work, recording or tabulating data, or performing other mechanical, repetitive, recurrent or routine work.”
*Tracks with the federal exemptions
These employees’ primary duty involves applying “advanced” knowledge in a recognized field of science or learning customarily acquired by prolonged course of specialized intellectual instruction and study, such as law, medicine, engineering, architecture, teaching, accounting. This work is predominantly intellectual and varied in character, and output or the result accomplished cannot be standardized in relation to a period of time.
o Use of the phrase “whose work requires the consistent exercise of discretion and judgment in its performance;”
o Excludes those practicing medicine or law, including those in internships and residency programs, in the salary thresholds above; and,
o Includes in the definition of “customarily acquired by a prolong course of specialized intellectual instruction” employees who attain the same advanced knowledge through a combination of work experience and intellectual instruction.
A ‘professional computer employee’ will fall under this category if the employee is a computer system analyst, computer programmer, software engineer, software developer or other similarly skilled worker whose primary duty involves any number of computer-based skills defined by WAC 296-128-535, and is considered highly skilled in computer programming and software engineering by the qualities set out in the WAC 296-128-535.
o Use of a salary threshold that is 2.5 to 6.5 times the hourly minimum wage set out in RCW 49.46.020; and,
o Excludes employees manufacturing, repairing or maintaining hardware or related equipment, or those whose work is highly dependent upon, or facilitated by the use of computers and software programs.*
* Tracks with federal exemptions.
- Defining “primary duty” to mean the “principal, main, major or most important duty that the employee performs.” The draft definition further provides that employees who spend more than 50% of their time performing exempt work would generally satisfy the primary duty requirement.
As stated above, the potential impact of the proposed changes is difficult to measure given the large variance in salary thresholds, as well as the potential to interpret the changes in the EAP criteria differently. Nevertheless, broad concerns are immediately apparent including:
- Compliance issues, if L&I proceeds without reverence to federal EAP rulemaking plans;
- Administrative and operational burden, arising from reevaluating EAP exempt workers under the new state EAP rules;
- Increased litigation risk, if employees and employers interpret the EAP exemption changes differently; and,
- Financial stress, owing to increased overtime pay obligations and/or increased salary obligations.
One aspect worth emphasizing is L&I’s potential disconnect from the federal standards. It is widely expected that the federal Department of Labor will publish revised regulations on its EAP exemptions in early 2019. If L&I were to advance changes ahead of the federal rulemaking process, hospitals could face discordant obligations, to say nothing of the need to review their practices around EAP exempt employees twice.
As well, depending on which salary threshold is adopted, an increased minimum salary threshold could result in salaried employees in rural communities becoming ineligible for exemption—regardless of whether their duties meet the substantive definitions. Theoretically, these employees could be negatively impacted by the proposed salary thresholds.
Finally, there is concern that salary thresholds are not a fair proxy for job duties (nor would applying a time clock to the exercise of those duties). In other words, some workers may meet the definition (as revised) of a bona fide executive, administrative or professional worker, but be excluded from the exemption due to the more mechanistic criteria, particularly the salary threshold.