On December 11, 2019, the Washington Department of Labor & Industries announced its final rule amending Washington State’s white collar overtime exemption regulations.  If not overridden by the Legislature or successfully challenged in court, the rule will radically increase the pay rates necessary to qualify for the white collar exemptions in Washington State.

The first major impact on salaries for the executive, administrative and professional exemptions will occur on January 1, 2021.  That is when the new minimum Washington salary will first exceed the new 2020 minimum under the federal Fair Labor Standards Act (FLSA).  The rate will then ramp up to a projected $83,356 per year in 2028 (including estimated consumer price index (CPI) adjustments), after which annual CPI adjustments will be applied.

The hourly paid computer professional exemption will change on July 1, 2020.  The minimum pay rate will jump from $27.63/hour to $37.13/hour for employers with more than 50 employees in Washington.  This will rise to $47.25/hour, plus CPI adjustments, for all employers by 2022, after which annual CPI adjustments will be applied.

The regulation also amends the white collar duties tests to conform to the FLSA duties tests, but with some differences remaining.  The amended duties tests will be effective July 1, 2020.

Salary/Fee Rates for the Executive, Administrative and Professional Exemptions

For the executive, administrative and professional exemptions, the new minimum salary basis and fee basis rates are:

The new salary rates are defined in the rule as a multiple (e.g., 1.25 x ) of Washington’s minimum wage rate for 40 hours of work per week.  For 2020, Washington’s minimum wage is $13.50 per hour.  For 2021 and thereafter, it will automatically be adjusted upward each January 1 if there has been any increase in the CPI.

The new FLSA salary minimum for 2020 and thereafter permits employers to satisfy up to 10% of the minimum level with nondiscretionary variable pay.  Washington did not adopt this rule.  As such, employers that plan to pay salaries in 2020 of less than $35,100/year in reliance on the credit for nondiscretionary variable pay will have to raise salaries in Washington State to $35,100 by July 1, 2020 if they wish to maintain exempt status.

The Washington rule’s text states that the highest salary rate of 2.5 x minimum wage is effective for all employers in 2026, not in 2027 and 2028, as has been stated by the Department of Labor & Industries in multiple publications and announcements.  Littler has brought this to the attention of the Department, which has acknowledged the error.  We expect the Department will issue a technical corrections amendment, and the information in our chart above assumes this will occur.

Hourly Rates for the Hourly Computer Professional Exemption

For the hourly computer professional exemption, the new minimum hourly rates are:

Teachers, Academic Administrators, and Outside Salespeople

The professional exemption for teachers will now require payment on a salary or fee basis, but without mandating a minimum pay rate.  The FLSA does not specify a form or minimum amount of payment for exempt teachers.

The administrative exemption for academic administrators will permit a salary that is at least equal to the entrance salary for teachers in the particular educational establishment involved.  The FLSA does not include this provision, so the FLSA salary minimum will also have to be met to obtain exemption from overtime under federal law.

The outside sales exemption will continue not to require a minimum pay rate.  Washington, however, will retain its unique requirement that outside salespeople be compensated on a guaranteed salary, commission or fee basis.

Changes to the White Collar Exemption Duties Tests

The new rule brings the Washington State duties tests for the white collar exemptions (executive, administrative, professional, and outside sales) generally into conformity with the FLSA duties tests, but subject to a few differences.

Washington has no highly compensated exemption.  This is a continuation of existing Washington law.

For the outside sales exemption, Washington is retaining its unique requirement that the employee be advised of their status as an outside salesperson.

For the outside sales exemption, the text of the final Washington rule continues the Washington requirement that the outside salesperson’s nonexempt work must not exceed 20% of a normal nonexempt workweek (typically 8 hours per week).  This appears to be an error in the final rule, as this provision was shown as deleted in the proposed rule (for conformity with the FLSA), and the Department’s explanatory statement does not mention any change on this score from the proposed rule.  Littler has brought this issue to the Department’s attention and is awaiting its comment.

The Department did not expressly incorporate into the Washington rule all of the guidance that exists in the FLSA duties test regulations.  As to the portions not incorporated, the Department’s explanatory statement says, “This guidance was not included in the text of the adopted state rule.  The department intends to rely on the interpretations of the current federal regulations, where terms are identical.”