Washington labor costs are about to increase for Washington employers with minimum wage employees and, more significantly, for exempt employees currently in the salary range of $35,000 to $40,000 annually.

Minimum Wage Increase

For 2021, the Washington minimum wage will be $13.69 per hour (an increase from the current $13.50 per hour). Washington's minimum wage statute has an annual cost of living adjustment (based on the CPI-U) that is calculated at the end of September and announced in October for the coming year.

The Washington minimum wage applies to workers age 16 and older. Under the state law, however, employers can pay 85% of the minimum wage to workers aged 14 to 15. For 2021, that will be $11.64 per hour.

There are higher minimum wages in the City of Seattle and, for hospitality and transportation employers, in the City of SeaTac.

In the City of Seattle, the minimum wage in 2020 increases to $16.69 per hour. For employers with 500 or fewer employees, the employer may pay $15 per hour if the employer pays $1.69 an hour (or more) toward medical benefits and/or the employee earns $1.69 per hour (or more) in tips. The City of Seattle does not have a separate salary threshold for exempt employees.

For employers in the hospitality and transportation industries, the minimum wage in the City of SeaTac increases to $16.57 per hour. The City of SeaTac does not have a separate salary threshold for exempt employees.

Minimum Salary Threshold for Exempt Employees

More significantly, for many employers, the state salary threshold for exempt employees in Washington will be set at a level higher than the federal threshold for the first time in state history because of a rule change adopted a year ago that ties the salary threshold under the Washington Minimum Wage Act to a multiple of the state minimum wage. The increase in 2021 is significant.

The 2021 salary threshold for executive, professional, and administrator exempts for businesses in Washington with 50 or fewer employees will be 1.5 times minimum wage, which is $821.40 per week (or $42,712.80 annually). For Washington businesses with 51 or more employees, the new threshold is 1.75 times minimum wage, which is $958.30 per week (or $49,831.60 annually).

For purposes of determining the salary threshold, the size of the employer is based solely on the number of Washington-based employees it employs at the time of the effective date of the salary threshold (usually January 1 of the calendar year).

The federal salary threshold remains at $684 per week (or $35,568 annually). But that doesn't help the vast majority of Washington employers since they must comply with the law most favorable to the employee. Welcome to Washington!

The salary threshold requirements do not apply to outside sales persons.

For computer professional employees, there are further complexities. Computer professional employees can be compensated either at the salary threshold or on a fee basis the same as other exempt employees. But they can also be paid hourly. If they are paid on an hourly basis, the 2021 hourly rate for employees who work for an employer with 50 of fewer employees must be at least minimum wage times 2.75, which is $37.65 per hour. For computer professionals who work for an employer with 51 or more employees, the hourly rate must be at least minimum wage times 3.5, which is $47.92 per hour. This is a significant increase from the current 2020 minimum hourly rate for such employees.

Future Increases

The Washington minimum wage will continue to rise annually based on the consumer price index. The minimum wage does not go down if the consumer price index goes into the negative. Rather, the minimum wage remains the same (this happened in 2010).

Meanwhile, the salary threshold, which is tied to the minimum wage, will not only increase as the minimum wage increases, but until 2028, the multiplier times the minimum wage will continue to gradually increase annually 2028 when an exempt worker will need to be paid a salary at least 2.5 times the minimum wage to be exempt from overtime pay requirements. At that point, the salary threshold will meet or exceed $83,400 a year.

Business Impact

Small businesses, retail, and nonprofits will be particularly impacted. It may lead to a reduction in services or it may force employers to reclassify employees from exempt salary to non-exempt positions.

Employers will also see the need to increase wages for more experienced workers who make more than minimum wage. To avoid "wage compression," employers will have to raise wages for higher-paid employees to ensure they aren't paid the same as those who are just starting or are at the lower end of the wage scale.