For individual workers, the change may or may not result in a pay cut. In some cases, employees might end up making about the same amount or even more money once overtime pay is added to their base pay.
But there’s no guarantee employers could afford to pay overtime, especially small businesses. And the rule change could trigger a number of unintended consequences, including a loss of flexible schedules, fewer opportunities for advancement and — for nonprofits in particular — a major impact to the bottom line that could force a reduction in service.
The issue came to the surface last month when officials from the state Department of Labor & Industries announced a proposed update to the state’s Executive, Administrative and Professional (EAP) rule.
Among other things, the rule establishes a salary threshold that serves as a sort of minimum wage for exempt, salaried employees. In order to be exempt from overtime, an employee must make at least that threshold amount. Anyone who makes less must be paid overtime for working more than 40 hours per week.
By all accounts, Washington’s current salary threshold is outdated and needs updating. In fact, it’s so outdated that Washington is currently governed by the federal overtime threshold, which is also in the process of being updated.
But the new rule laid out by L&I officials is an astonishing increase over the current rule and will likely catch many small businesses and nonprofits by surprise. Officials are recommending that Washington’s overtime threshold become a percentage of the state’s minimum wage — specifically 2.5 times the minimum wage.
This means the overtime threshold would rise annually with the cost of living, just like the minimum wage. And it means that by 2026, when the rule would be fully implemented, the new threshold would be nearly $80,000 per year, more than triple the current threshold.
L&I officials are holding public hearings on the proposed change in July and August. They expect to adopt the rule late this year, with it taking effect in July 2020, phasing in over six years.
If it’s approved, any employer with salaried workers making less than that amount will be faced with the difficult decision to either raise their employees’ salary to nearly $80,000 or convert the worker to hourly status. For employers who can’t afford to give out big raises, they may have little or no choice but to switch employees to hourly status.
In theory, this could lead to increased pay for some workers, but that’s only if their employer can afford to pay overtime. Small businesses, nonprofits and other employers that can’t absorb the cost increase will likely cut services.
Even for workers who don’t take a step backward financially, the change could feel like a demotion. Increasingly, employees value flexibility in work hours, particularly younger workers. Making the transition from a salaried job — with the flexibility to duck out for a couple hours in the middle of the day to take care of family obligation — to an hourly worker who is required to be in the office a full eight hours, without the option of working from home, will be jarring.
No one is disputing that Washington’s overtime rule needs updating. But the state’s proposal simply goes too far, too fast and risks harming the employees it’s intended to help.
Kris Johnson is president of the Association of Washington Business, the state’s chamber of commerce and manufacturers association.