Seyfarth Synopsis: On January 1, 2021, Washington's minimum wage will increase and will trigger the first in a series of increased salary thresholds for exempt employees, which will continue through 2028. These upcoming changes will significantly impact both large and small businesses as more and more employees will become eligible for overtime, meal and rest breaks, and paid sick leave.
New Minimum Wage in 2021
On January 1, 2021, Washington's minimum wage will increase from $13.50 to $13.69. Workers ages 14-15 may be compensated at 85 percent of the minimum wage ($11.64 per hour in 2021). Localities with higher minimum wages, such as the City of Seattle and Sea-Tac, will be unaffected.
The minimum wage adjustment amounts to a 1.39 percent increase and is based on the federal Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Prior increases (which were in place due to voter-approved Initiative 1433) end in 2020.
Salary Thresholds for Exempt Employees
On July 1, 2020, Washington tied salary thresholds for exempt employees to the state's minimum wage. Small businesses (1-50 employees) and large businesses (51 or more employees) were subject to a 1.25 minimum wage multiplier. At an hourly rate of $13.50, the salary threshold amounted to $675 per week (or $35,100 annually), which was lower than the federal salary threshold of $684 per week (or $35,568 annually).
However, on January 1, 2021, the 1.25 minimum wage multiplier will increase to 1.5 for small businesses and 1.75 for large businesses. As the state's minimum wage will also increase, beginning in 2021, to maintain their exempt status, salaried executive, administrative, and professional workers, along with computer professionals paid on a salary or fee basis, will have to earn the minimum threshold amounts outlined below:
- Small Businesses (1-50 employees): Employees must earn 1.5 times the minimum wage to maintain exempt status ($821.40 a week, or $42,712.80 per year)
- Large Businesses (51 or more employees): Employees must earn 1.75 times the minimum wage to maintain exempt status ($958.30 a week, or $49,831.60 per year)
This change will bump Washington's minimum salary requirement for exempt employees above its federal counterpart under the FLSA. The minimum wage multiplier will continue to grow incrementally over the course of the next several years. By 2028, the multiplier will rise to 2.5, meaning that many more employees will become eligible for overtime, meal and rest periods, and paid sick leave.
These salary thresholds do not apply to outside sales workers or computer professionals who are paid hourly and who must earn a rate of at least 3.5 times the minimum wage by 2022.
What Employers Should Do
In order to decrease legal risk and avoid serious future headaches, Washington employers should act now. Ensure that exempt employees' current salaries will meet the new minimum requirements, communicate clearly with employees who may need to be reclassified, plan for financial changes as more overtime may be required, and prepare for more employees who will be eligible for paid sick leave.
Originally Published by Seyfarth Shaw, November 2020
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