Washington and Pennsylvania have introduced new overtime rules going into 2021. Here’s what you need to know.
If you’ve recently finished up your payroll for the end of 2020, you may want to think about adjustments due to minimum wage law updates in 2021.
Outside of the federal standards, many states have their own overtime pay laws. For example, Illinois, New York, and Wisconsin have specific laws to limit overtime. In 2021, 2 states have already instituted salary threshold increases for the next decade, which also makes overtime pay a possibility for thousands of workers.
Washington State and Pennsylvania have introduced new overtime pay rules going into 2021. These new laws come a year after the 2019 federal update to the Fair Labor Standards Act increased standard salary levels across the board, thus making 1.2 million workers eligible for overtime pay.
If well managed, most employers recognize the benefits of overtime, despite the cost:
- Increased flexibility
- The ability to deal with short-term busy periods or bottlenecks without new hires, and
- Reduced work disruptions
Some industries use overtime more than others, with agriculture and transportation leading the trend with over 50% of their workforce clocking in for overtime pay.
Even if you don’t plan to provide many opportunities for overtime, it’s common to include overtime policies in your employee handbook for reference. Having such policies can also be useful during extremely busy seasons, such as during the holidays, when you may not have time to hire help.
On the downside, overtime can also drain the bottom line if not used effectively. For many companies, it makes more sense to pay employees a higher salary to avoid paying higher overtime salaries.
New overtime guidelines for Washington in 2021
Starting January 1st, 2021, the Washington State Department of Labor and Industries (L&I) raised minimum wage for workers to $13.69 an hour. This means that the salary threshold for overtime-exempt employees changed as well. For Washington-based businesses, how quickly you must adapt to the new law depends on your business size.
Starting January 1st, 2021, the Washington State Department of Labor and Industries (L&I) raised minimum wage for workers to $13.69 an hour. This means that the salary threshold for overtime-exempt employees changed as well.
- Small businesses with less than 50 employees must pay employees 1.5x more than the minimum wage to qualify for overtime exemption. This amounts to $821.40 a week.
- Large businesses with over 51 employees must pay employees at least 1.75x more than the minimum wage, or $958.30 a week, for them to be exempt.
The rules differ for computer professionals who are paid by the hour. In order for these employees to be exempt from overtime pay:
- Small businesses should pay computer professionals 2.75x the minimum wage or $37.65/hour.
- Large businesses should pay 3.5x the minimum wage or $47.92/hour.
In addition, dairy workers are now entitled to overtime compensation.
This law intends to gradually increase the exemption threshold over time. Once the salary threshold for exemption reaches 2.5x the minimum wage in 2028, the law will be revisited.
Overtime pay guidelines for Pennsylvania in 2021
In October of 2020, Pennsylvania also updated its minimum wage laws for the first time in 40 years. As a result, more than 143,000 people will now be eligible to receive overtime compensation.
Starting in October of 2021, the minimum salary threshold in Pennsylvania will raise to $780 per week, with another hike in 2022 to $875 per week.
Starting in October of 2021, the minimum salary threshold in Pennsylvania will raise to $780 per week, with another hike in 2022 to $875 per week. Finally, in 2023, the salary threshold will automatically adjust every 3 years.
Salaried workers in executive, administrative, other professions, or other exempted occupations who make more than the minimum salary threshold will not be eligible for overtime. However, both salary and hourly employees will be eligible for overtime pay if they work over 40 hours a week and earn less than the minimum salary threshold.
How to calculate overtime pay
The calculation for overtime pay is fairly simple:
Overtime Pay = Hourly Rate x 1.5 x Overtime hours
This same calculation is generally used whether or not an employee’s wages are based on an hourly schedule or whether they have a full salary. To find the hourly rate for your salaried employee, simply divide their annual salary number of assumed worked hours.
Double time vs. overtime pay
Double time is a compensation type that adds onto overtime pay and includes workers who work extremely long shifts. While the federal government offers no specific requirements, California offers some guidelines. Basically, if an employee works more than 12 hours in a single day or they work 7 consecutive days, they are eligible for double time pay.
This differs widely from overtime pay, which kicks in as soon as an employee works more than 40 hours a week and some professions are exempt.