Tri-City employers balk at state’s overtime proposal

By Andrew Kirk

Several Tri-City employers and nonprofit leaders criticized the state’s proposal to overhaul its worker overtime exemption rule at a recent public hearing, citing concerns about their bottom lines and ability to serve customers and clients.

More than 50 people attended an Aug. 6 hearing in Kennewick—one of seven meetings held across the state—to provide feedback on Labor and Industries’ proposed changes to significantly increase the minimum amount employees must earn before they can be exempt from receiving overtime pay.

The changes, which affect executive, administrative and professional workers, as well as outside salespeople, across all industries, would mean employers will have to provide minimum wage, overtime and paid sick leave, or increase salaries to those who were previously considered exempt.

Joshua Grice, Labor and Industries’ employment standards program director, said employers would have to convert employees to a non-exempt status qualifying for overtime pay and receive sick leave, limit their hours to 40 per week, or convert salaried workers to hourly wages, or give a worker more responsibility and a raise to meet the new criteria.

Many business owners said they were concerned the compensation laws they’ve been following for decades could change drastically in a matter of months. The new rule would take effect next year.

Nolan Lockwood of Harvest Foods, an independent grocery store in Walla Walla, and Cindy Goulet, owner of two Richland restaurants, 3 Eyed Fish and LU LU Craft Bar + Kitchen, both said they use the law to pay low-level managers who appreciate the stability of a salary despite not making significantly more than coworkers. Both grocery stores and restaurants have slow and busy weeks depending on the season, and the exemption allows owners to keep experienced supervisors on site at all times, while hourly workers are called in or sent home—or even terminated—depending on demand.

Carolyn Logue, who spoke on behalf of the state Heating, Ventilation and Air Conditioning Contractors Association, said such an arrangement is necessary in her industry for safety. Supervisors inspecting electrical work need to be free of time constraints. If they were worried about how much overtime they would be billing the company, they couldn’t be relied on to take their time. HVAC technicians are likewise subject to slow and busy months, resulting in hourly workers earning inconsistent paychecks.

After-hour emergencies also mess up 40-hour work-week schedules and/or force a company to lose money on a job after paying the overtime, Logue said.

“We don’t want someone who can do a job quickly advantaged over someone who will take their time and do it right,” she said.

Daniel Aspiri, executive director of Domestic Violence Services of Benton and Franklin Counties, said his office uses the exemption to provide salaries to trained professionals who respond to cases around the clock. Restricting them to 40 hours per week would limit the number of people served and result in paying overtime that would deplete the nonprofit’s operations budget, which relies on grants and donations.

Representatives from several Tri-City area nonprofits—United Way of Benton and Franklin Counties, Mid-Columbia Mastersingers, Boys and Girls Clubs of Benton and Franklin Counties and others—testified about how the exemption allows them to provide salaries to professionals who at times work more than 40 hours a week (such as during fundraising events) and how paying overtime would decrease the number of services they’d be able to provide.

Larger nonprofits would have to follow the same rules as large companies, which could not exempt salaried workers making less than $49,100 next year under the proposal.

Tami LaDoux, executive director of Tri-Cities Residential Services, works with adults with developmental disabilities and said some clients spend months in hospitals because area group homes don’t have enough staff to accept new clients.

Lockwood said his store is not a large company, but during the holidays it sometimes employs more than 50 people. He said if this policy is implemented, he will lay off at least one person and will not renew his lease to stay in business in 2021.

“The Minimum Wage Act already forced me to go from 48 employees to 37… fewer employees means less customer service,” he said.

Arlene’s Flowers owner Barronelle Stutzman said she’ll have to come up with an additional $24,000 to pay her novice florists next year and that much again additionally the following year.

“The minimum wage was not meant to be a living wage,” she said. “If your office had to come up with $48,000 more in two years, how would you do that?”

Joel Bouchey of Inland Northwest chapter of the Associated of General Contractors of America said he knows of several companies that plan to move their offices to Idaho or Oregon to avoid the new rule.

Steve Simmons, founder of CG Public House & Catering in Kennewick, said the rule would make it extremely difficult to hire qualified managers.

Goulet said she would have to eliminate her manager-training program and most current managers will make less as hourly employees.

Kim Shugart of Visit Tri-Cities said those in the tourism industry definitely will raise prices for consumers to pay for the new rule, especially restaurants.

Grice said after the hearing that many employers statewide have expressed concern about losing flexibility. The existing law allows them to offer employees salaries without other protections hourly workers enjoy. The new law will still allow flexibility, he said, but different strategies will have to be employed.

“If someone becomes non-exempt, they may require more time tracking,” he said as an example.

Tim Church, public affairs manager for Labor and Industries, said there are too many workers getting $25,000 per year and expected to work 60 or more hours a week. When the exemption was first implemented, 60 percent of salaried workers received overtime and now almost none do.

The proposal increases the minimum salary to $35,100 next year for companies with 50 or fewer employees, with required increases every year to reach $80,000 by 2026, with updates annually to adjust for inflation.

White-collar exempt workers would need to perform bona fide executive, administrative, professional or outside sales work and be paid 1.25 times the minimum wage by July 1, 2020; 1.75 times by Jan. 1, 2021; 2 times by 2022; 2.25 times by 2023; 2.5 times by 2026.

Companies with 51 or more employees would have to pay exempt employees 1.75 times the minimum wage by July 1, 2020; 2 times by 2021; 2.25 times by 2022, and 2.5 times by 2025.

The proposal also modifies the definition of outside sales, but not the salary threshold since sales wages vary month to month. The computer professionals definition also would be modified and have a separate pay-increase scale.

Advocates applaud change

Not everyone had concerns about the proposal; some employees and worker advocates applauded its intent.

Kenneth Buxton, who said he works in the hospitality sector, spoke in favor of the proposed changes. He said he seeks a promotion, but his supervisors regularly work 60 to 80 hours per week, filling in for staff who don’t show. Instead of hiring or scheduling more people, his employers save money by relying on the salaried workers to do the work they were supposed to be supervising.

Two others commented they found statistics online suggesting the average salaried employee works 49 hours per week. That’s almost 20 percent “free” work employers receive.

Jack Sorensen, who represented worker advocacy group Civic Ventures, said Washington’s booming economy belies claims the minimum wage increases are eliminating jobs. He asserted employers will adjust to the new regulations if they learn to balance their books in ways other than working people overtime while compensating them less than minimum wage.

“Some employers depend on the free overtime,” he said. “The overtime protections fell so far behind we’ve forgotten how they work.”

After the meeting, Sorensen, a member of the nonprofit sector, said he is aware of many large nonprofits finishing each year with millions in excess. And donors to even small ones expect the organizations to pay workers fairly. He said the assertion that nonprofit employees did not want to be paid overtime was audacious.

Simmons said after the meeting that the hospitality and restaurant industries have too often overworked low-salaried employees, but the need to retain good workers counteracts the trend in the marketplace. Each new generation of workers is less willing to accept that arrangement and employers are adjusting on their own without new regulations.

Simmons echoed what nearly every business owner said during the hearing: while the thresholds need to be updated, the state’s proposals are far too high.

The U.S. Department of Labor is debating similar measures with thresholds less than a third of what the state is proposing, Grice said prior to the hearing.

“I have to believe that’s a salary level that’d concern even our friends at the Hanford area,” Simmons said. “This seems like a really big deal to me.”

History of exemption law

Grice provided some background on the nation’s exemption rules prior to listening to public comment.

During the Ford administration, the government decided an employee making at least $13,000 per year ($58,000 adjusted for inflation) did not need a minimum wage guarantee, paid sick leave, overtime pay or tips, he said. It was called the white-collar exemption to wage law, and the U.S. Department of Labor defined it as people making a certain salary for “executive, professional, administrative or outside sales” careers. Office assistants were “secretaries” in 1976 so “administrative” referred to university deans and similar positions. In the 1990s “computer professionals” were added to the list.

In 1976 the state of Washington created a similar policy, with the caveat that businesses would have to follow whichever threshold was higher. When the Department of Labor increased the minimum salary for the exemption in 2004 to $23,600, that became the state’s new threshold as well. But annual salary on minimum wage is now about $25,000 and soon will be $28,000, making the salaried exemption for overtime wages less white collar—and less fair—every year, Grice said.

“There hasn’t been a room that hasn’t been pretty full in five meetings so far. There is passion behind this issue and there are a lot of details to learn,” Church said.

Timelines and deadlines

Work on the proposal began in March 2018. The public comment period ends at 5 p.m. Sept. 6. The new rule would take effect July 1, 2020.

Formal public comments may be submitted by email to EAPrules@Lni.wa.gov; by fax at 360-902-5300; or by mail to: Employment Standards Program, P.O. Box 44510, Olympia, WA 98504-4510.

To learn more about the proposal, go to lni.wa.gov/WorkplaceRights/Wages/Overtime/OvertimeRules/default.asp.

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