Proposed overtime rule would create “a new super minimum wage,” says business leader, warning of unintended effects.

The Department of Labor and Industries has proposed a major change to the state’s overtime pay regulations. The department says,

The proposed changes would significantly increase the minimum amount employees must earn before they can be exempt from receiving overtime pay.

As explained by the Washington Research Council:

Currently, workers must be paid overtime if they work more than 40 hours a week, but there are some exemptions—including for EAP workers. To be exempt, these workers must perform certain duties and earn more than $455 per week ($23,660 per year). (This is the current federal salary threshold; the current state threshold is $250 per week.)

Under the proposal, the salary threshold would be increased by steps (depending on employer size) until it is 2.5 times the state minimum wage for all employers beginning Jan. 1, 2026.

There’s more to it, but the excerpt captures the essence. 

The Association of Washington Business responded to the proposal with a statement for AWB president Kris Johnson in a press release.

“Requiring employers to pay salaried workers at least $79,872 per year by the time this rule is fully implemented and linking future pay increases to the state minimum wage is an astonishing increase over the current overtime rule and will likely catch many small businesses and nonprofits by surprise. If adopted, this rule will create a new super minimum wage that will impact every business in the state, even those that don’t employ exempt workers.

“The current rule needed updating, but this proposal simply goes too far and risks a variety of unintended consequences including a reduction in program offerings at nonprofits, fewer opportunities for employees to advance into salaried management positions, and reclassification of employees from salaried to hourly positions. We encourage state officials to slow down, reconsider the number and match the federal requirements, which are in the process of being updated. This will prevent a patchwork of regulations in different states and minimize the unintended consequences, both for employers and employees.”

The Associated Press reports,

More than 250,000 workers in Washington state would be newly eligible for overtime pay by 2026 under a rule proposed Wednesday by the state’s Department of Labor and Industries.

The state agency announced that it had formally filed the proposed rule, which would ultimately more than triple the salary threshold under which employers must pay overtime to their workers. Under the proposed rule, the higher salary threshold will be set as a percentage of the state’s minimum wage, which is currently $12.50, but will rise to $13.50 an hour next year.

In our 2017 report, we discussed business costs, the uneven economic conditions in the state, and effects of regulation. Some excerpts:

Although Washington’s diverse economy offers employment opportunities in a wide variety of sectors, it is also true that employment and investment conditions outside metropolitan Seattle vary significantly. The robust Seattle economy may be able to withstand a $15 minimum wage (and results have been mixed on the effects of the city’s higher minimum wage)…

To expand opportunities for those living and working throughout our state, policymakers must take steps to foster an investment climate that encourages and rewards innovation and risk-taking. Predictable and efficient fiscal, regulatory, and employment policies offer key tools for hastening that expansion.

For many employers, especially those just starting out, comparatively high business costs (state and local taxes, worker’s compensation, unemployment insurance costs, etc.) can outweigh the advantages of operating here.

The proposed overtime rule would substantially increase business costs, with the host of unintended consequences predicted by AWB. 

The L&I announcement closes by saying,

With the release of the draft rules, L&I will now begin gathering more feedback from stakeholders through a formal rulemaking process, including public meetings and a public comment period beginning June 5 and ending September 6, 2019. L&I will consider all input we receive in preparing a final rule.

“We know we’re proposing a significant change, and it’s important to have a serious discussion and hear all views,” said [L&I Director Joel] Sacks.

The hearing schedule is posted with the press release. We anticipate vigorous debate and, ideally, a move to a workable modification.