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Seattle’s New Minimum Wage Ordinance: What You Should Know Now

Seattle’s new minimum wage ordinance has sweeping implications for employers both in and outside of Seattle.  Much remains to be seen—future regulations will give further definition and clarity to the ordinance—but here’s what you should know now.

Q: What is the ordinance about and whom does it affect?

A:  Beginning April 1, 2015, the ordinance will raise the minimum wage over the next several years so that Seattle employees eventually are paid $15/hour (more on this below).  That rate will continue to rise with inflation, so employers should expect yearly increases for the foreseeable future.

The ordinance applies to employees for each hour worked within the geographic boundaries of Seattle.  “Employee” is defined as “any individual employed by an employer,” excluding certain narrow categories of workers already exempt under the State Minimum Wage Act.  This means that even if an employer is not based in Seattle, the employer still will be obligated to compensate employees who perform work within Seattle’s city limits.  Employers will want to carefully track the time and location of their employees performing work in Seattle.

Q:  Does the ordinance treat employers differently depending on the number of their employees?

A:  Yes.  The minimum wage varies during the initial phase-in period depending on the size of the employer.  Eventually, however, all employers will have to pay their employees $15/hour.  A large employer (referred to as Schedule 1 Employers in the ordinance) is one that employs more than 500 employees in the United States, regardless of their location.  Conversely, a small employer (referred to as a Schedule 2 Employer in the ordinance) is one that employs 500 or fewer employees anywhere in the United States.  Both full-time and part-time employees are counted in determining the size of an employer.

Separate legal entities may be considered a single employer.  The factors to consider in making this assessment include: 1) the degree of interrelation between the operations of the multiple entities; 2) the degree to which the entities share common management; 3) whether there is centralized control of labor relations; and 4) the degree of common ownership or financial control over the entities.

Q: What does $15/hour mean?  Does it include tips or bonuses?

A:  “Minimum wage” means money due to an employee by reason of employment, and it includes commissions, piece-rate, and bonuses.  The term does not include tips or other benefits.  Where an employee is paid on a commission or piece-rate basis, the amount earned on such basis in each work-week period may be credited as a part of the total wage for that period, as long as the amount paid to the employee is not less than is required for the minimum wage.

For “small employers” during the phase-in period only, tips may be included as part of determining the employee’s “minimum compensation,” which is distinct from “minimum wage” (see more below).  For the purposes of the ordinance, “tips” are defined as a “verifiable sum to be presented by a customer as a gift or gratuity in recognition of some service performed for the customer by the employee receiving the tip.”  Although it appears that tip-pooling is permissible under this definition, future regulations hopefully will clarify that it is so.

Q:  What are the requirements for large employers?

A:  Starting April 1, 2015, large employers will have to pay each employee a wage of $11/hour.  Effective January 1st of each year thereafter, large employers must pay employees the following minimum wage:

Year Hourly Minimum Wage
2016 $13.00
2017 $15.00

Starting January 1, 2018, the hourly minimum wage will rise with inflation.

Q:  If I’m a large employer, is there any “credit” for providing employees with a medical benefits plan or for tips?

A:  A large employer that provides a qualifying medical benefits plan (discussed below) will have a longer phase-in period starting January 1, 2016:

Year Hourly Minimum Wage
2016 $12.50
2017 $13.50
2018 $15.00

As of January 1, 2019, a large employer may no longer use payments for health benefits to meet its obligation to pay the minimum wage.  Note that there is no tip credit for large employers.

Q:  What are the requirements for small employers?

A:  Small employers have more time to meet the $15/hour minimum.  The ordinance is a bit more complicated for small employers in that it provides a temporary credit for a) tips earned by the employee, and b) money paid by the employer towards an individual’s medical benefits plan.  For small employers, the total amount the employer must pay the employee is referred to as the “minimum wage” and the total amount the employee must receive is referred to as the “minimum compensation.”  The minimum compensation is a combination of the minimum wage and any tips and money paid by the employer for the employee’s medical plan.

Starting April 1, 2015, employees must receive a “minimum compensation” of at least $11/hour (remember, this amount can include tips received by the employee or money paid by the employer for the employee’s medical benefits).  Effective January 1st of each year thereafter, employees of small employers must receive the following minimum compensation:

Year Hourly Minimum Compensation
2016 $12.00
2017 $13.00
2018 $14.00
2019 $15.00
2020 $15.75

From January 1, 2021 through January 1, 2025, the applicable minimum compensation is the minimum wage paid by large employers.  After January 1, 2025, there is no more minimum compensation, just the minimum wage.

Of the minimum compensation due to employees, small employers must still pay employees a minimum wage.  That wage is $10/hr starting April 1, 2015.  This means, for example, that in 2015, employers may take a $1 credit for tips or medical benefits received by the employee (minimum compensation minus minimum wage equals the credit).  Effective January 1st of each year thereafter, small employers must pay employees at least the following minimum wage:

Year Hourly Minimum Wage
2016 $10.50
2017 $11.00
2018 $11.50
2019 $12.00
2020 $13.50
2021 $15.00
2022 $15.75
2023 $16.50
2024 $17.25

In sum, if the employee does not receive tips or medical benefits, the employer must pay the employee the minimum compensation set forth in the first chart in this section.  If the employee does receive tips or medical benefits, the employer must still ensure that it is paying employees the minimum wage listed in the second chart, and that in total, the employee receives the minimum compensation in the first chart.

One final caveat: the employer does not have to pay a minimum wage or minimum compensation rate that is greater than that required of large employers, which will be tied to inflation.

Q: What kind of medical benefits plan is qualified under the ordinance?

A: The ordinance defines “medical benefits plan” as “a silver or higher level essential health benefits package, as defined in [the Affordable Care Act], or an equivalent plan that is designed to provide benefits that are actuarially equivalent to 70 percent of the full actuarial value of the benefits provided under the plan, whichever is greater.”  This language implies that employers can provide plans that are equivalent to the Affordable Care Act’s silver rating, but future regulations may alter the current implications of this language.

Q: What if my employee only performs work in Seattle occasionally?

A:  Employees who perform work in Seattle on an occasional basis will not need to be compensated at the minimum rate unless the employee performs more than two hours of work in Seattle in a two-week period.  Although the ordinance is unclear on this topic, it appears that an employee who is regularly scheduled to perform work in Seattle for less than two hours in a two-week period may still be covered by the new ordinance.  Regulations will hopefully give further definition to when an employee’s work is considered regular or “occasional.”

Employees who merely pass through Seattle without making any employment-related or commercial stops are not covered by the ordinance.

Q:  Is there an exemption for employees covered by a collective bargaining agreement?

A:  No.  There is no exemption in the ordinance for employees covered by a collective bargaining agreement.  By contrast, Seattle’s Sick and Safe Leave Ordinance allows unions that represent employees covered by a CBA to waive their rights under that ordinance, which is not the case here.

Q: What about learners, apprentices, disabled employees, employees under age 18, and individuals on work study plans?

A:  The Director of the Department of Finance and Administrative Services will have the authority to issue a special certificate authorizing an employer to pay less than the minimum wage for learners, apprentices, messengers, and the disabled upon a showing of need.  The Director will also have the power to create rules regarding the minimum wage for employees under the age of eighteen.

The ordinance specifically does not apply to individuals performing services under a work study agreement.

Q:  How are non-profit organizations treated under the ordinance?

A:  The ordinance as written provides no special protection for non-profit organizations.  However, the ordinance’s introductory language indicates that “the City is committed to evaluating options for securing progressive sources of funding to ensure that non-profit human services providers with City-funded contracts can provide both a living wage to their workforce and continue to provide critical services for those in the greatest need.”

Q:  What are the penalties for not following the ordinance? 

A:  The ordinance provides several levels of protections for employees.  Employers are forbidden from retaliating against employees who seek to exercise their rights under the ordinance, and employers are required to post notices in conspicuous places about the ordinance and its protections.  Employers must also retain payroll records for three years documenting minimum wages and minimum compensation paid to each employee.

The Department of Finance and Administrative Services may investigate an employer for any alleged violation of the ordinance.  If the Department finds a first-time violation of the ordinance, the Director may issue a warning and assess a civil penalty of up to $500 for improper payments.  For a second and third violation, the civil penalty rises to $1,000 or $5,000 respectively, per employee, or to an amount equal to ten percent of the total amount of unpaid wages, whichever is greater.  Further violations can be subject to a penalty of up to $20,000 per employee. These penalties are in addition to the unpaid wages due to the employee.

The Mayor and City Council have also convened a committee to recommend approaches for enhancing the City’s enforcement of the City’s labor laws, including but not limited to, the minimum wage ordinance.  The ordinance is expected to have strong teeth, and it may also serve as a catalyst for stronger enforcement of other labor laws.

In conclusion…

Seattle’s new minimum wage ordinance is clear in many respects but uncertain in others.  It will be hard to tell the true shape of the ordinance until future regulations are released.  Karr Tuttle will continue to keep you apprised of issues related to the new ordinance.  Please do not hesitate to contact us with questions about how the ordinance may affect your particular business.

If you have any questions or comments concerning this client alert, call your Karr Tuttle Campbell attorney. All attorneys can be reached at (206) 223-1313.

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Karr Tuttle Campbell

Alerts are published by Karr Tuttle Campbell to present information on legal matters which may be deserving of clients’ immediate attention. The information contained in this Alert should not be regarded as legal advice or opinion, but it is attorney-client privileged.