Major legislation that affects payroll and staffing in Washington state has been passed recently. Some of the new laws already rolled on January 1, 2020, while others will go into effect later this year. Legislation that spans changes to the minimum wage and exempt employee criteria, clarification of job duties, and issuance of paid family medical leave will add new complexities to HR functions and payroll calculations. These changes will affect operations across businesses of all sizes and compensation for a significant segment of the working population as well.
Minimum Wage Increase
Washington voters passed Initiative 1433 back in 2017 when the minimum wage was $9.47, which established a minimum wage increase every year until 2020. On January 1st the last increase took effect, bringing the minimum wage from $12.00/hour to $13.50/hour. (Starting in July, handicapped workers must be paid this same minimum wage also.)
This change in payroll rates was not a surprise due to the graduated approach of the legislation that was passed. However, it is still a financial burden that weighs disproportionately heavy on small businesses, requiring business owners and managers to make difficult staffing decisions for the sake of profitability.
The Department of Labor & Industries (L&I) has changed rules around which employees will need to receive minimum wage, be eligible to receive overtime pay, and receive paid sick leave. The changes will affect EAP (executive, administrative, and professional) workers, outside salespeople, and computer professionals in Washington state. Some of these workers were previously give exempt status, but these changes would further affect the way their compensation is viewed by their employers.
Through incremental increases between now and 2028, a salaried employee will need to be paid at least 2.5 times the Washington minimum wage threshold to be categorized as exempt. The first threshold increase will occur on July 1st of this year and progress according to an incremental schedule based on business size. Small businesses (i.e. those with fewer than 51 employees) will be given more time to comply with the payroll law change. View the Schedule
In light of the recent minimum wage increase, it is estimated that this law change makes an additional 259,000 workers eligible for overtime pay by 2028, and gives another 235,000 workers increased protections.
Due to the graduated nature of the exempt employee classification thresholds, when there is a conflict between state and federal thresholds, businesses must adhere to whichever threshold is more favorable to employees, significantly complicating the calculations for payroll managers. As a result of these complexities, more businesses are choosing to outsource their bookkeeping and accounting functions to avoid making potentially costly errors.
Supplementing the exempt worker classification update, the Washington state job duties test has been changed as well. The current job duties tests that employers use have been updated and simplified to better align with the more streamlined federal version. Covered in these duties includes a provision that “learner,” apprentice, and student employees still do not need to be paid minimum wage.
Paid Family Medical Leave
As of the first of the year Paid Family Medical Leave is available to anyone who worked at least 820 hours in the last year (or about 16 hours/week). PFML entitles the worker to take 12-18 weeks of paid leave for a qualifying life event such as the birth or adoption of a child, a serious illness or health condition for the worker or qualifying family member, or a qualifying military event.
The price of insurance premiums to cover the cost of this program are shared between the employer and the employee, with withholdings already coming from employee paychecks to fund the new program. The employer will bear one-third of the cost while the employee will be responsible for the other two-thirds of the cost. This additional withholding adds to the long list of payroll withholdings that payroll managers must oversee to ensure compensation is in keeping with state and federal regulations.
If you find keeping up with payroll laws too difficult or you believe you may be at risk, do not hesitate to contact Eric or Todd. The Accounting Solutions Team is here to help!
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