5352901The City of Seattle’s Minimum Wage Ordinance is set to take effect April 1, 2015.  When it does, Seattle will have the highest minimum wage in the nation, outpacing larger metropolises like San Francisco and New York City. Initially, Seattle workers will see a large increase above the State of Washington’s current $9.47 an hour minimum wage, up to either $10 or $11 an hour, depending on the size of the employer. Thereafter, the Seattle minimum wage will rise under a phased-in approach so that employee wages increase incrementally over the next three to seven years until the $15 per hour minimum is met by all employers. Once the $15 minimum is attained, wages will adjust with inflation. Below is a brief guide to the legislation and how it affects Seattle-area employers.

Draft Regulations Just Issued

On February 19, 2015, Seattle released long-awaited draft regulations interpreting the Ordinance, which will be discussed further below. Seattle is taking comments on the draft regulations through Friday, March 6, 2015. The text of the Ordinance and the draft regulations, the phased-in minimum wage schedules, and other information about the Ordinance can be found here: http://www.seattle.gov/civilrights/labor-standards/minimum-wage.

Employer Choices About How to Comply

Under the Ordinance, employers have some choices about how to meet the minimum wage. The Ordinance defines a “minimum wage” to include all wages, commissions, piece-rate payments, and bonuses received by the employee and reported to the Internal Revenue Service (IRS). In the early years of the Ordinance, employers with 500 or fewer employees can meet its requirements by providing “minimum compensation”. For instance, in the first year, smaller employers have two ways of meeting that minimum compensation: (1) by paying a flat hourly rate of $11 per hour or (2) by paying a reduced rate of $10 per hour with the $1 difference made up in tips (reported to the IRS) and payments to a qualifying medical benefits plan. Even employers with more than 500 employees may use a designated lower wage if they provide a qualifying medical benefits plan during 2016 and 2017.

The City is planning to issue an “app” that will help employers determine a compliant minimum wage under the Ordinance.

Which Employers Are Covered?

All employers with employees working within the Seattle city limits (even for just two hours in a pay period) are subject to the Ordinance. Required incremental wage increases will reach the $15 minimum in a shorter period for employers with more than 500 employees (counting employees both in and outside Seattle) (Schedule 1 Employers) than for employers who have 500 or fewer employees (Schedule 2 Employers).

Under the draft regulations, when an employee performs work that simultaneously benefits two or more employers, the City will presume the existence of a joint employment relationship. In such cases, each employer should count the worker in determining whether it is a Schedule 1 Employer or a Schedule 2 Employer, but the worker’s minimum hourly rate of pay will be based on the employer with the most employees. This likely means that staffing agency employees must receive the minimum wage required of the larger employer, whether the staffing agency or the outside employer. Joint employers are individually and severally responsible for complying with the Ordinance.

Similarly, the Ordinance holds integrated enterprises responsible as a single employer, including for purposes of counting employees. Where entities maintain separate physical sites and “partially different ultimate ownership,” they will be presumed to be separate.

Which Employees Are Covered?

All employees must receive the minimum wage for each hour worked in the City of Seattle. If an employee works in Seattle on an occasional basis, the employee is only owed the minimum wage during any two-week period in which s/he performs more than two hours of work in Seattle. The draft regulations give discretion to the employer to define the “two-week period,” which could be a calendar period or a pay period, so long as the time period is consecutive and consistently applied.

The draft regulations explain that employers may delegate tracking the time worked in Seattle to employees as long as the workplace meets Ordinance notice and posting requirements and provides employees with a “reasonable” method for tracking time. An employee who merely travels through Seattle and stops for meals or refueling is not covered by the Ordinance.

The Franchise Fight and Beyond

The draft regulations do not back down from the City’s position that franchisees are Schedule 1 Employers. However, the plaintiffs in International Franchise Association, Inc. v. Seattle have successfully petitioned to present oral argument on a preliminary injunction to halt application of the Ordinance to these businesses. The hearing is scheduled for March 10, 2015, in front of U.S. District Court Judge Richard Jones. Even if the City of Seattle is successful at the hearing, the Ordinance must face another formidable challenger: the Washington State Legislature. On February 17, 2015, State Senator Mark Miloscia, R-Federal Way, introduced legislation that would extinguish local authority to increase the minimum wage and thereby invalidate the Seattle Ordinance. Miloscia’s bill ties the state minimum wage to urban inflation and the state’s per capita personal income growth. Under this proposal, the wage rate would not fall below the current $9.47 an hour, and according to Miloscia’s estimates could increase by about 45 cents per year – a more moderate approach than the one taken by Seattle.

For now, the Seattle Ordinance will become effective in just five weeks. Employers should take steps now to comply with the law. Stoel Rives’ Labor and Employment practice group can assist employers in developing their plans, which should include a review of recordkeeping requirements under the Ordinance.