Official comments on overtime rulemaking

Working Washington submitted the following comments to the Washington State Department of Labor & Industries as part of their official rulemaking process.

September 5, 2018

Re: Executive, Administrative, Professional (“EAP”) Overtime Rule - Feedback on Policy Options

Dear Director Sacks and Deputy Director Smith,

Since the beginning of the department’s overtime rulemaking process earlier this year, we have heard from thousands of workers in offices, restaurants, retail sales, nonprofits, and other industries about the various ways employers take advantage of our state’s wildly out-of-date overtime rules. Many employers simply use “overtime exempt” status as a trick that lets them get away with requiring people to work long hours for little pay, regardless of whether or not they have any bona fide executive, administrative, or professional status. Others go so far as to identify any hourly workers whose jobs might require them to put in more than 40 hours a week, and then give them a title promotion and declare them exempt in order to avoid paying overtime. And almost all simply fail to treat workers’ time with respect, since employers can take extra time from workers without any extra compensation.

It’s well past time for Washington state to act to restore the right to overtime, and we are thankful that a process is underway to do just that.

Restoring overtime protections will boost productivity, expand opportunity, and help Washington workers bring their jobs, lives, and families back into balance. To the extent that restoring overtime rights raises the take-home pay of salaried workers, we know from experience with minimum wage increases that this money goes right back into the economy, especially because it will be paid out to workers here in Washington instead of being deposited in distant corporate bank accounts. And to the extent that restoring overtime rights means less time at work for salaried workers, that translates to more parents who have time for their children, more neighbors who have time for their communities, and more people who have time to pursue their dreams.

On behalf of our members across the state, we recommend the department pursue the following preferred alternatives from the department’s draft rule concepts.

A. Salary Level – Executive, Administrative, Professional

One of the key reasons that so few salaried employees currently receive overtime is because the threshold for overtime exemption has become functionally non-existent; the state’s outdated rule is laughably low, and the federal threshold of $455/week is below what a full-time minimum wage worker is paid in our state. Because the threshold effectively does not exist, all an employer has to do is decide an employee’s job duties make them “exempt”, and then — poof — they don’t need to pay anything extra for any extra hours over 40 in a week. While misclassifications could still be challenged via the duties test, it is self-evidently not practical for hundreds of thousands of salaried workers in our state to challenge their classifications, job duty by job duty. Nor would it be practical for employers to engage large numbers of such cases. Nor would the department have the bandwidth to consider such a large number of claims.

The threshold for overtime exemption exists precisely to eliminate such classification abuse. In a market economy, employers signal an employee’s bona-fide Executive, Administrative, or Professional status through the amount they pay them, not simply by saying the word “exempt”, and not simply paying someone on a salaried basis. And yet employer groups somehow continue to suggest that they ought to be allowed to make employees work unlimited hours for no additional pay as long as their salary is at least $24,000 a year and their job title sounds fancy enough.

We strongly believe the department should adopt a salary level which is tied to the minimum wage, set at a weekly rate which is three times what a full-time minimum wage worker would be paid.

This is the most appropriate approach to setting the threshold for several reasons:

  • As this rulemaking concerns whether a worker should be exempted from the Minimum Wage Act, it is only logical for the exemption to be related to the minimum wage itself.

  • The minimum wage is a relevant and already-existing statewide baseline standard, already applicable in all counties, and established by the vote of the people.

  • A rate of triple minimum wage is easily calculated and therefore easily enforced, and is directly connected to the wage market across the state.

  • Previous historic thresholds in Washington, including the short test threshold of $250/week in 1975, were set at rates close to triple the then-applicable minimum wage.

  • Other jurisdictions have pursued thresholds at quite similar multipliers, including the 2016 proposed federal threshold, which was more than three times the federal minimum wage; and the currently proposed Pennsylvania threshold, which is set a rate more than three times that state’s minimum wage.

Setting the threshold at triple the minimum wage ensures that overtime exemption remains closely connected to the wage market itself; it is difficult to understand the justification for how it ought to be any cheaper than that for an employer to effectively purchase the right to all of an employee’s time. In fact, it turns out that the range of debate is surprisingly small; at a recent feedback session, several employer groups suggested they would approve of a federal threshold increased to about $35,000/year — a figure that would be almost 2.5 times the federal minimum wage.

B. Automatic updating mechanism for EAP salary level

It is only logical that a threshold set as a function of the minimum wage should rise along with the minimum wage on January 1st of each year. This simple approach will provide employers security and predictability by ensuring the threshold keeps up with the economy without the need for frequent lengthy rulemaking processes. It will also drastically ease compliance and enforcement: employers and employees will only need to know the minimum wage and the 3x multiplier function, rather than a set of out-of-sync reference dates and salary figures.

We ended up in the current situation with a functionally irrelevant threshold precisely because there was no automatic updating mechanism; we should not repeat that error again.

C. Duties Test – Executive; D. Duties Test – Administrative; E. Duties Test – Professional

Under the current rules with a functionally non-existent threshold, many employers maintain a practice of simply declaring that an employee is exempt, and then it is so. While in theory these classifications could be challenged on a case-by-case basis, that is simply not practical for the vast majority of workers in the vast majority of jobs, who in the day-to-day reality of their working lives are simply classified as exempt or non-exempt by their employers.

An updated threshold that reflects economic realities will greatly ease compliance and enforcement for employers and employees. To further aid compliance, clarity, and enforcement, we support a streamlined and clarified duties test, largely aligned with federal rules. More specifically, we support the positions on the duties taken in the letters from Fair Work Center & the Washington State Labor Council.

F. Highly Compensated Employees Exemption

No party has presented any reason whatsoever to create a special exemption for highly-compensated employees. Many of the relevant employees command a high wage rate because of their mastery of a trade or other in-demand technical skills, which has nothing to do with their Executive, Administrative, or Professional status. There is no reason to eliminate overtime protections for such workers.

G. Professional Computer Employees Exemption

The exemption for professional computer employees is a historical curiosity which ought to be eliminated. Computer professionals should be treated the same as all other professional employees.

H. Outside Salesperson

In order to streamline enforcement of all exemptions for the benefit of both employees and employers, the Department should adopt a compensation threshold for Outside Salesperson which is in line with the overall threshold for exemption.

I. Effective Date

Our state rules haven’t been updated since the 1970s, and existing federal rules are by now more than a decade out of date. Every day, hundreds of thousands workers in our state lose pay and time because it has been so long since the last rulemaking. Absent a time machine, the idea of “acting quickly” has long since become impossible; however, it remains critical for the state to not create undo additional delay.

Business lobby groups would obviously prefer the rules remain out of step with our economy for as long as possible so they can continue to get away with their current practices. This is why they have consistently urged the department to wait for action from the federal government, even though there is no reason to believe federal rules would be any more relevant to our state’s economy than is the federal minimum wage of $7.25/hour. It is also notable in this context that this  deference to federal rulemaking has hardly been consistent; many of the same groups making this request also joined the federal lawsuit to block overtime rulemaking by the federal government under the previous administration.

However, we do believe that it is reasonable for the department to consider an effective date or dates which allow sufficient time for outreach and education, and which is commensurate with the scale of the increase. For that purpose, however, consider that many employers have already implemented the $47,000 threshold they had expected to become law in 2017, so only the additional increase above that figure would be appropriate to take into account when considering implementation timelines.

Thank you for considering this feedback as you continue the rulemaking process. In addition, we have enclosed a petition urging the department to restore overtime rights to all workers paid less than triple minimum wage, which has already been signed by more than 700 of our members from across the state.