More Employees Will Soon Be Eligible for Overtime Pay

Many workers are eligible for the payment of overtime if they work for more than 40 hours in a work week. Overtime pay is typically one and a half that of regular pay, although some policies or collective bargaining agreements may provide for double pay under certain circumstances. Not all workers, however, are subject to overtime pay; some are exempt.

Exempt Employees

Employees who work in executive, administrative, professional, or computer-related jobs may be exempt from overtime pay if certain tests are met, and there are three that determine eligibility:

• the “salary basis test” (Does the employee earn a fixed salary that is not reduced regardless of the quality and quantity of work performed?);
• the “salary level test” (Does the salary meet a certain minimum specified amount?); and
• the “duties test” (Are the job’s duties primarily executive, administrative, or professional in nature?).

Potential Changes

The federal Department of Labor has adopted final rules amending the salary basis test and these amendments go into effect January 1, 2020. The state Department of Labor and Industries has approved similar rules, which go into effect July 1, 2020.

At the federal level

The federal salary basis test, which determines the salary required to be paid for an employee to be exempt from overtime, is currently set at $455 per week or $23,660 per year. Effective January 1, 2020, the salary basis is set to increase to $684 per week or $35,568 per year.

As result of the increase in the salary level, many more employees will become eligible for overtime pay. It is anticipated that at the federal level the change will result in an additional 1.2 million employees no longer being exempt — thus becoming eligible for overtime pay.

At the state level

Washington State is also changing its overtime rules, and the Department of Labor and Industries (L&I) has adopted changes in the state’s salary basis test. These amended rules go into effect July 1, 2020.

The current salary amount to be exempt for all employers — regardless of number of employees — is $455 per week or $23,660 per year. This amount hasn’t been updated since 1976. In discussing the proposed update on its website, L&I offered this reasoning:

The current salary threshold…is outdated and obsolete.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.

Under the proposed rules, the salary test for both small and large employers starts at $675 per week or $35,100 per year, and these rules would go into effect beginning July 1, 2020. With these rules L&I has done away with a single salary amount and instead has created two tiers based on the total number of employees: (1) 50 employees or fewer; or (2) 51 employees or more. The salary level would be adjusted annually based on cost of living increases, with a more gradual increase for smaller businesses (e.g., 50 employees or fewer). L&I’s New salary threshold implementation schedule offers a schedule of increases in the salary threshold up to 2028, which shows specific thresholds applicable to the two tiers. 

One thing to note is that Washington State has been using the federal threshold because the state’s threshold is so low. Washington will continue to use the federal threshold until the state threshold exceeds the federal threshold. In 2020, the federal threshold will be higher than the state’s, at $684 per week or $35,569 per year compared to $675 per week or $35,100 per year. The state’s level should exceed the federal level in 2021. The main driver of this is due to the increase in Washington’s minimum wage from $12.00 to $13.50 an hour (effective January 1, 2020). The way L&I has formulated the new salary threshold is dependent on minimum wage: According to L&I:

On Jan. 1, 2021, the state threshold will be the more favorable because small businesses will have to pay at least 1.5 times the state minimum wage (about $827 a week), and large businesses will have to pay at least 1.75 times the minimum wage (about $965 a week).

Resources

For additional information on the changes to the federal overtime changes, see Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.

For information on the proposed changes to the Washington regulations see Proposed Changes to Washington Overtime Rules.