Changes to Overtime Rules Q&A
- 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.
- 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.
- 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
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.
The new state rules went into effect July 1, 2020.
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.
As of Jan. 1, 2023, businesses in Washington must meet the state salary thresholds because they are more favorable than the federal threshold of $684 a week ($35,568 a year). The state's thresholds in 2023 will be $1,101.80 a week ($57,295.60 a year) for small employers and $1,259.20 a week ($65,478.40 a year) for large employers.
The changes also eliminate the previous 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.
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.
L&I estimates tens of thousands of employees will be eligible for overtime by the time the rule is fully implemented in 2028, while a nearly equal number will have their overtime protections strengthened.
Historically, state and federal overtime exemption rules have generally required that overtime exempt employees meet the following three-part test to be exempt:
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.
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.
The previous salary threshold, updated in 1976, was outdated and obsolete. Under previous rules, it was possible for a salaried exempt employee to be paid less than the applicable 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.
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:
For more information about how the department arrived at a final multiplier of 2.5 times the minimum wage, see the final cost-benefit analysis.
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.
Following extensive stakeholder and public input, L&I extended the phase-in schedule from 6 to 8 years to allow 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.
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, 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.
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 took effect Jan. 1, 2020, is $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.
L&I has developed and implemented 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 plain language implementation guides, an online course, offering outreach presentations and webinars, updating relevant administrative policies, and working with associations and others to get the word out.
No, employers have several options to comply with the adopted rules. Some of those do not involve adjusting salary levels. The available options are:
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. Workers not meeting the definition of "employee" under the Minimum Wage Act or are exempt from the act do not count towards the employer size calculation. See Administrative Policy ES.A.13 for more guidance on Washington-based employees.
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.
The new rules update the job duties test used to determine if a computer professional meets the requirements to be exempt from the Minimum Wage Act. The new rules also update the minimum amount a computer professional must earn to be exempt. The computer professional exemption is the only exemption category that allows employers to choose to pay their exempt employees either on an hourly basis or on a salary or fee basis.
For exempt computer professionals compensated on an hourly basis, the new rules state they must earn a rate of at least 3.5 times the state minimum wage by 2022, after a phase-in period. For exempt computer professionals paid on a salary or fee basis, the new rules state they must be compensated at a rate of at least 2.5 times the state minimum wage for a 40-hour workweek by 2028, after an eight-year phase in.
The computer professional exemption is the only exemption that allows employers to choose to pay their exempt employees on an hourly basis, instead of on a salary or fee basis. Exempt employees paid a salary will always meet the required weekly salary threshold (2.5 times the state minimum wage) because their salary is a predetermined, fixed amount they are paid regardless of the number of hours they work. Exempt computer professionals paid on an hourly basis, on the other hand, are not guaranteed to earn any minimum weekly amount, since the amount they earn fluctuates based on the number of hours worked. This substantial uncertainty in hours and income distinguishes hourly computer professionals from most other, exempt professionals. The higher hourly threshold (3.5 times the state minimum wage) ensures that computer professionals paid on an hourly basis earn an amount appropriate to exempt them from the protections of the Minimum Wage Act, taking into consideration that lack of consistent income compared to other exempt professionals. Both state and federal law have always set the hourly rate for computer professionals at an amount higher than the salary equivalent for this reason.
L&I is holding a series of webinars to inform people about the rule changes, and answer questions. You can register at L&I's calendar of workshops, events and webinars. Look for "Overtime Exemptions Training Sessions (Webinar) in the "Event Title" pull down menu.
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.
No. If an employer chooses to classify an employee as nonexempt, the employee must earn at least minimum wage and receive paid sick leave and all of the other protections under the Minimum Wage Act. The employer must also track the hours worked by the employee and pay overtime for hours worked over 40 in a work week.
No. A salary is a form of payment and does not determine exemption status. Both exempt and nonexempt employees can be paid on a salary basis.
In order for employees to be exempt from the Minimum Wage Act as executive, administrative or professional employees under RCW 49.46.010(3)(c), they generally must meet each of the salary basis, salary level, and duties tests.
Employers must provide their nonexempt, salaried employees the protections outlined in the Minimum Wage Act.
L&I has created a fact sheet to further explain the differences.
Employees can be classified as “exempt” from the protections of the Minimum Wage Act (MWA) if they meet the requirements in one of the exemption categories outlined in the law. Most exemption categories require exempt employees to be paid on a salary basis. Employees who meet the requirements for exemption and are paid on a salary basis are considered “salaried exempt”.
Employees who do not meet the requirements to be classified as exempt from the MWA are considered “nonexempt.” Nonexempt employees may be paid on a salary, hourly or other basis. Employees who do not qualify for an exemption but are paid on a salary basis are considered “salaried nonexempt”.
The rules specify that the salary threshold for exemption is based on a multiplier of the state minimum wage, not on any city or county ordinance.
No. The salary threshold is a set amount and cannot be prorated or adjusted based on hours worked. Therefore, a part-time employee must still meet the duties test requirements and the specified weekly minimum salary threshold to qualify as exempt.