Remember the surprise and dismay when the U.S. Department of Labor (USDOL) announced in May 2016 it had adopted a rule (later invalidated by a federal court) setting the salary threshold for white-collar exempt employees at $47,476 per year with automatic annual inflation increases thereafter. Well, it appears that Washington employers need to brace for even more stunning news. Representatives of employer associations, in regular communication with the Washington Department of Labor & Industries (L&I) as to status of L&I’s previously announced intention to increase the exempt salary threshold under the Washington Minimum Wage Act (WMWA), are forecasting L&I is on the verge of proposing to set the salary threshold for white-collar exempt employees in Washington between $55,000 and $70,000 per year starting sometime in 2020 with automatic annual increases thereafter. Once the proposed rule is announced, the public, including employers, will have a limited period to comment before L&I decides whether to implement the proposed rule change.
Although L&I hasn’t stated the exact threshold it will propose, we know from numerous written statements and “listening sessions” that L&I has been seriously contemplating using a formula based on 2 to 2.5 times the state minimum wage (this formula has never been used before and is not part of the WMWA). In 2020, the WA minimum wage will be $13.50 per hour. Based on a multiple of 2, the salary threshold would be set at $56,160 for 2020. Based on a multiple of 2.5, the salary threshold would be set at $70,200 for 2020. Either one is well beyond the USDOL’s pending proposal (expected to be adopted as a final rule effective in 2020) setting the FLSA salary threshold at $35,308 per year.
Rumored Increase Would Be Unprecedented Change from Washington’s FLSA-Identical Salary Threshold
The current Washington threshold is $250.00 per week, which is what the FLSA salary threshold was prior to 2004. In 2004, the U.S. Department of Labor raised the FLSA salary threshold for exempt employees to $455.00 per week, which is the current federal salary threshold.
Washington did not increase its salary threshold in 2004 because, a practical matter, it was not necessary to do so to ensure that Washington remain FLSA-identical. Nearly all exempt employees in Washington are covered by the FLSA and, therefore, Washington employers had to comply with the salary threshold of at least $455.00 a week to avoid being in violation of the FLSA and eliminating the need for Washington to do anything to adjust its threshold.
Similarly, in 2016 when the USDOL announced that it was increasing the FLSA salary threshold to $931.00 per week (or $47,476 per year) Washington took no action to increase its salary threshold. Nor did it need to, because, again, nearly all Washington exempt employees are covered by the FLSA and Washington employers would have had to comply with the federal threshold of $931.00 per week to be in compliance with the FLSA.
Proposed USDOL Increase to FLSA Salary Threshold for 2020
After a federal court invalidated USDOL’s 2016 rule, USDOL published a proposed rule to raise the FLSA salary threshold from $455.00 per week to $679.00 per week ($35,308 per year) effective January 1, 2020. USDOL abandoned the 2016 higher threshold that the federal court determined was illegal. Instead, USDOL returned to its traditional formula for adjusting the FLSA salary threshold. We reported on this proposed rule here. The public comment period regarding the USDOL proposed rule ends on May 21, 2019. It is widely expected that, after examining the comments as required by law, the final rule will set the threshold at $679.00 per week ($35,308 per year) effective January 1, 2020.
Why Would L&I Take the Unprecedented Step of Proposing a Salary Threshold That Is Far in Excess of the FLSA?
Good question. A wide array of individuals in sectors such as retail, small business, hospitality, non-profits, education, state and local government, and from geographic areas that are less affluent or less populous (as well as those in communities along the Idaho and Oregon borders) repeatedly advised L&I that the anticipated increase in the federal salary threshold to $35,308, while understandable to reflect salary inflation since the last adjustment in 2004, will nonetheless create significant hardship for many businesses and organizations. Thus, they urged that Washington’s state law threshold not go beyond the anticipated new federal level.
USDOL estimates that direct employer costs, including regulatory familiarization costs, adjustment costs, and managerial costs, caused by its 2019 proposed rule will be $464.2 million nationwide in the first year alone and that 1.3 million workers will be effected. USDOL also concedes that its new FLSA salary threshold “may impose additional costs that have not been quantified,” including reduced scheduling flexibility, reduced quality of services, dissatisfaction of workers who prefer salaried status and resent government mandated reclassification, increased prices, reduced profitability, and increased hiring costs.
Plainly, all of these direct and indirect costs, will be significantly greater for Washington employers and employees if L&I proposes and adopts a rule that would set the Washington salary threshold significantly higher than the FLSA threshold.
Consequently a large cross-section of the employer community has urged L&I to follow past precedent and either take no action on the Washington salary threshold (because no action is necessary once the federal threshold is increased) or to formally adopt the federal threshold (thus eliminating potential confusion for anyone who thinks that complying with Washington’s current $250.00 a week salary threshold is a legal safe harbor).
What Can Concerned Employers, Employees, and Members of the Public Do?
Once L&I formally proposes its new salary threshold, employers, employees, and members of the public will have an opportunity to submit written comments. The comment period is limited, but generally not less than 60 days. Once the comment period ends, L&I has the authority to issue a final rule. Consequently, anyone with concerns about the proposed rule once it is made public, needs to submit them to L&I during the comment period window.
This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.