Changes to Overtime Rules Q&A

    What are these rules?

    These rules determine which employees in Washington can be considered overtime-exempt, which means they are not required to be paid overtime for working more than 40 hours. Employers are also not required to pay overtime exempt people an hourly minimum wage, or provide paid sick leave and other benefits.

    When will the new rules take effect?

    The new state rules will be implemented beginning July 1, 2020.

    What are the key elements of the changes in the rules?

    Overtime exemption rules generally require “white collar” -- management and professional level -- employees to meet a three-part test to be exempt: the worker must be paid a fixed salary, they must perform certain types of job duties, and the salary must meet or exceed a minimum salary threshold. These adopted rules changes update the duties tests and the required salary level.
    The minimum salary threshold for overtime exempt workers will increase incrementally until 2028 when the change will be fully implemented at 2.5 times the state minimum wage. After that, annual updates will be based on adjustments to the state minimum wage due to inflation. The salary threshold increase for computer professionals paid on an hourly basis is calculated differently. It will be higher in some cases and occur at a faster pace.
    Right now, businesses in Washington must meet the federal salary threshold of $455 a week ($23,660 a year) because it is more favorable than the outdated state threshold of $250 a week ($13,000 a year). It should be noted the federal threshold will rise to $684 a week ($35,568 a year) on Jan. 1, 2020.
    The changes in the rules also eliminate the current long and short job duties tests used in our state, and replace them with a standard test that brings Washington into close alignment with the federal guidelines. This will make it easier for employers to understand and comply with the rules, and will provide greater consistency across jurisdictions for employers and workers alike.

    Who is impacted by these rule changes?

    These changes have the potential to impact all workers. It strengthens the protections of the Minimum Wage Act for non-exempt employees. For exempt employees, it raises the minimum salary threshold that must be met for them to remain exempt.
    The department estimates 259,000 employees will be eligible for overtime by the time the rule is fully implemented in 2028, while another 235,000 workers will have their overtime protections strengthened.

    What is meant by an "overtime-exempt" white collar employee, and what makes someone exempt?

    Historically, state and federal overtime exemption rules have generally required that overtime exempt employees meet the following three-part test to be exempt:

    • The salary basis test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
    • The salary level test: The amount of salary paid must meet a minimum specified amount.
    • The duties test: The employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

    An exempt white-collar worker is not entitled to overtime pay for working additional hours in a pay period, while a non-exempt employee must be paid overtime for each hour over 40 worked in a workweek. Non-exempt workers must also receive paid sick leave and other protections under the state Minimum Wage Act.

    What is a job duties test?

    A job duties test determines whether a job primarily has duties that are generally exempt in nature as defined by the rules. Employers are responsible for determining whether a worker's job duties, not job title or job description, meet the requirements to be an overtime exempt employee. The rules update combines the two tests the state previously used into one test that more closely aligns with the duties test used at the federal level. This will make it simpler to classify workers and increase the likelihood that they are correctly classified.

    Why did the department change the salary threshold?

    The current salary threshold, last updated in 1976, is outdated and obsolete. Under existing rules, it is possible for a salaried exempt employee to be paid less than the current state minimum wage and be denied overtime, paid sick leave, and other Minimum Wage Act protections. In the new rules, L&I is using a multiplier of the state minimum wage to determine the minimum salary threshold to prevent that from happening again.

    Why did L&I decide to use 2.5 times the state minimum wage to determine the salary threshold for exempt workers?

    The salary threshold was determined after consideration of stakeholder input and historic data. The department considered the following factors in arriving at a final multiplier of 2.5 times the minimum wage:

    • The new multiplier sets a fair salary level to account for the less stringent job duties tests in the new rules.
    • The 2.5 multiplier falls in the middle of what the minimum wage was compared to the salary thresholds when the thresholds were updated in the past.
    • The multiplier is close to the midpoint of weekly earnings for salary workers in the U.S. Census region that includes Washington state.
    • The multiplier is comparable to what the federal short test salary threshold was when it was set in 1970, if that level was updated to current dollars.
    • Using the minimum wage multiplier ensures that as the average wage in the state goes up over time, the salary threshold will keep up.

    For more information about how the department arrived at a final multiplier of 2.5 times the minimum wage, see the final cost-befit analysis.

    Once the minimum salary threshold reaches 2.5 times the state minimum wage, how will future increases in the threshold be calculated?

    Ultimately the threshold will reach 2.5 times the state minimum wage in 2028, regardless of how many employees a business has. From that point on, the salary threshold will change as the minimum wage is adjusted for inflation. This will prevent us from ever slipping back to the unfair levels we were at before these changes were approved. After reaching $13.50 an hour on Jan. 1, 2020, the state’s minimum wage will be adjusted annually using a formula based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, also referred to as CPI-W. The index is adjusted annually to account for inflation. Basing the salary threshold on a multiplier of the minimum wage allows for a predictable calculation, based on information that is readily available to the public.

    How did you settle on this timeline to fully implement the proposal?

    Following extensive stakeholder and public input, L&I extended the phase-in schedule from six to eight years to allow the department time to inform and educate employers and workers, and to give businesses adequate time to plan for the changes, while still giving workers the protections they deserve. The extended timeline also allows for a more gradual phase-in for small businesses.

    Why didn’t the department follow the rule changes made by the U.S. Department of Labor?

    The U.S. Department of Labor announced its updated rules during the state’s rulemaking process. L&I reviewed and considered the new federal rules prior to adopting the state rules. The new state rules increase consistency with the federal rules in many areas including more closely aligning the state duties tests with federal regulations.
    While the state and federal regulations are aligned in many ways, it is within the department’s statutory authority to adopt labor standards that are more favorable to employees than the federal regulations. Where differences between state and federal regulations exist, Labor & Industries (L&I) determined, based on stakeholder feedback and cost-benefit analysis, that preserving some differences from the federal standards was necessary to uphold important protections for employees in Washington.

    Are there differences between the state and federal rules?

    L&I has strived to make the state rules consistent with federal rules in many areas.
    One key difference is the minimum salary threshold. The new federal threshold, which takes effect Jan. 1, 2020, will be $684 a week ($35,568 a year). Starting in 2021, the state salary threshold will exceed the federal threshold.
    When state and federal thresholds conflict, businesses must meet the threshold most favorable to employees. Another difference is the state rules include a mechanism for automatically updating the threshold, based on a multiplier of the state minimum wage. The new federal rule includes no mechanism other than the rule-making process for increasing the federal salary threshold.

    How will L&I assist businesses with implementation once the rule is approved?

    L&I is developing and implementing a robust outreach and education program to explain the new standards, particularly where there are differences between the federal and state rules. These efforts include creating plain language implementation guides, providing an eLearning module, offering outreach presentations and webinars, updating relevant administrative policies, and working with associations and others to get the word out.

    As an employer, does this mean I need to give raises to all my salaried exempt employees so they meet the new threshold?

    No, employers have several options to comply with the adopted rules. Some of those do not involve adjusting salary levels. The available options are:

    • Converting current exempt salaried employees to non-exempt, salaried employees and paying overtime
      • Track hours of work for non-exempt, salaried employees
      • Pay overtime for hours worked over 40 per week
      • Provide other protections associated with the Minimum Wage Act
    • Limiting hours worked by employees to 40 per workweek
      • Convert current salaried, exempt employees to salaried non-exempt or hourly non-exempt
      • Track hours of work and limit hours of work to 40 per week, or less
      • Provide other protections associated with the Minimum Wage Act
    • Converting current salaried exempt employees to hourly non-exempt employees
      • Pay formerly salaried employees on an hourly basis
      • Pay overtime (time and a half the employee’s regular rate of pay) for hours worked over 40 per week
      • Provide other protections associated with the Minimum Wage Act
    • Maintaining exempt status
      • Meet salary threshold requirements under state law (WAC 296-128-545) for salaried, exempt workers
      • Ensure employees meet the duties test requirements, so employees would appropriately remain exempt from overtime and other Minimum Wage Act provisions
    How will employers count the number of people they employ so they can determine whether they are a small or large business?

    The size of the employer is based solely on the number of Washington-based workers it employs at the time of the effective date of each step of the implementation schedule. Each Washington-based employee counts as an employee whether that person works full time or part time.
    Employers can also use the size determination provided by the state Employment Security Department for Paid Family and Medical Leave purposes. This approach looks back over four previous quarters to determine the employee count. This has the added advantage of reducing administrative burdens for employers since they will be able to use Employment Security Department’s calculation to comply with both Minimum Wage Act requirements and administration of Paid Family and Medical Leave by that department.
    Employers may choose the calculation methods that is most consistent with their business practices.

    What are the changes regarding computer professionals?

    The new rules changes update the job duties tests used to determine if a computer professional meets the requirements to be overtime exempt. For exempt computer professionals compensated on an hourly basis, the new rules state they must be compensated at a rate of at least 3.5 times the state minimum wage beginning in 2022, after a phase-in period. The rules also require exempt computer professionals paid on a salary or fee basis to be paid at a rate of at least 2.5 times the state minimum wage for a 40-hour workweek starting in 2028, after an eight-year phase in.

    How can people stay informed?

    L&I will hold a series of webinars to inform people about the rule changes, and answer questions. The webinar schedule, as well as other information related to the new rules, will be posted at https://www.Lni.wa.gov/overtimerulemaking. You can also sign up to receive email updates on the overtime employment rule changes and other wage matters at Lni.wa.gov/wagenews.

    Do bonuses or benefits count towards the salary threshold?

    There are no changes to the state requirements for what payments count towards a salary threshold. Bonuses, commissions, and benefits are not salaries and therefore do not count towards the salary thresholds.

    The new federal rules have different requirements for what payments can count towards the federal salary threshold. The U.S. Department of Labor now allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the federal salary level.