A Guide to PEO in Washington

Washington’s unique payroll, benefits, employment, and labor laws differentiate it from other states, specifically when it comes to income tax, workplace safety, and minimum wage. 

Understanding these nuances is essential for businesses operating within the jurisdiction to ensure compliance and effective workforce management. With a professional employer organization (PEO), CFOs and Finance teams can more easily manage compliance alongside core financial duties.

Read on to learn more about the process and benefits of using a PEO in Washington.

The role of PEOs in Washington

A PEO serves as a comprehensive HR outsourcing solution for businesses, allowing them to streamline their operations, manage risks more effectively, and comply with state-specific regulations. PEOs assume responsibility for a range of HR functions, including but not limited to payroll administration, benefits management, regulatory compliance, and employee training and development.

When you partner with a PEO, you enter into a co-employment relationship. In this arrangement, the PEO becomes the employer of record for tax purposes and assumes certain employer responsibilities and risks, while the client company retains control over the day-to-day management and operations of the workforce.

In Washington, all PEOs serving client companies must adhere to specific registration requirements set by the state. This involves submitting a client registration form for each client company, regardless of the PEO’s location or whether it has employees in Washington.

PEOs must register all client companies conducting business in Washington, even those without any employees in the state. This rule applies equally to PEOs based outside of Washington, as long as they have client companies doing business or employing staff within the state.

Benefits of partnering with a Washington PEO

By partnering with a PEO, small and mid-sized companies can better manage complex employment regulations, improve employee satisfaction with top-tier benefits, and ultimately, focus more resources on the business’s growth and success.

Improved HR efficiency

Delegating HR responsibilities to a PEO allows companies to significantly cut down on the time and resources dedicated to HR activities. As a result, opting for a PEO is typically more economical than employing a full-time HR team, with the added benefit of a predictable monthly pricing structure that helps minimize unexpected expenses.

PEOs also offer advanced HR technology platforms, streamlining payroll processing, monitoring payroll expenditures, and delivering immediate analytics. This arrangement enables CFOs to concentrate on enhancing growth and profitability, assured that HR operations are managed by professionals.

Expert support

For HR teams, CFOs, and finance departments, partnering with a PEO means decisions can be based on solid, expert insights rather than guesswork or fragmented information. 

Small businesses often operate with lean teams, and the complexity of HR management—especially in a state with as many specific regulations as Washington—can be overwhelming. The relevant employment laws, benefits administration requirements, and payroll regulations are not only vast but also continuously evolving. 

A PEO brings a dedicated team of experts who are up-to-date on the latest in state and federal regulations, labor laws, tax requirements, and best practices in HR management. This external team effectively becomes an extension of the business, offering tailored advice and strategic insights that are otherwise beyond the reach of many small businesses.

Affordable employee benefits plans

Partnering with a PEO enables Washington businesses to offer comprehensive and cost-effective employee benefits. This is possible because PEOs aggregate employees from several companies, gaining leverage to negotiate better rates on health, life, and disability insurance, along with retirement plans.

In a competitive job market, having an attractive benefits package is key to attracting and retaining top talent. PEOs enable smaller businesses to offer benefits competitive with larger corporations, making them more appealing to potential employees and helping level the competitive field.

Stronger compliance protection

Non-compliance in areas such as payroll, employee benefits, and labor laws can lead to significant financial penalties, legal challenges, and damage to a company’s reputation. PEOs help mitigate these risks by ensuring that businesses are fully compliant with local, state, and federal laws and regulations.

For example, a 2023 federal investigation revealed that Allied Universal Security Services (operating as Universal Protection Service LP) improperly deducted meal breaks from the workdays of 778 employees, violating overtime and recordkeeping rules under the Fair Labor Standards Act (FLSA). 

These employees, tasked with securing Amazon’s Seattle headquarters, often worked through their meal breaks without compensation. The US Department of Labor recovered nearly $1.1 million USD in back wages and damages for the affected workers and imposed a $50,000 civil penalty on Allied Universal.

By leveraging the specialized knowledge and services of a PEO, Washington employers can navigate the state’s challenging regulatory environment more confidently and effectively, ensuring their practices comply with all legal requirements while they focus on growing their business.

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Payroll, labor, and employment laws in Washington

Washington’s strict labor and employment laws often set standards beyond federal requirements. With a PEO, ensuring compliance with these requirements becomes the responsibility of the PEO rather than the client company.

Here’s a brief overview of some key laws and regulations specific to Washington:

Payroll and benefits laws

• Minimum wage: Washington’s basic minimum rate per hour is $16.28, with some exceptions. Some local jurisdictions have higher minimum wage rates, including Seattle ($19.97), SeaTac ($19.71), and Tukwila ($20.29)

• Income tax: Unlike most other states, Washington does not have a personal or corporate income tax. Instead, businesses and/or people involved in business in the state are subject to a Business and Occupation (B&O) tax and/or public utility tax

• Overtime: Employees working over 40 hours in a 7-day workweek must receive overtime pay, which is a minimum of 1.5 times their standard hourly rate. Washington state law does not mandate double-time pay, except for specific public works projects

• Paydays and pay periods: Employers must pay their employees at least monthly on a set payday. While employers can mandate direct deposit without costing employees, they also have the option to use debit or prepaid payroll cards for payment

• Final paychecks: Whether a Washington employee resigns or is terminated, they must receive their final paycheck on the next scheduled payday

• Pay transparency: Washington’s pay transparency laws mandate that employers with 15 or more employees disclose wage scales or salary ranges in all job postings. When an existing employee is offered an internal transfer or promotion, they can request and must be provided with the wage scale or salary range for their new role

• Paid sick leave: Employers are required to provide Washington employees with paid sick leave. Workers must earn at least one hour of paid sick leave for every 40 hours they work, and employers may provide more leave if they choose

• Workers compensation: Washington mandates workers' compensation (WC) insurance through its Labor and Industries (L&I) department, making it one of the few states that require WC insurance to be managed through payroll deductions. It generally applies to all employers with work locations in the state of Washington

Labor laws

• WISHA (Washington Industrial Safety and Health Act): WISHA is more comprehensive than federal OSHA regulations, covering almost all employers and employees in the state with additional requirements for specific industries

• Right to Work: Washington is not a right-to-work state, as it allows unions and employers to negotiate contracts and require union membership or payment of dues as a condition of employment
• Meal and rest breaks: Employees are entitled to a paid, duty-free 10-minute break for every 4 hours worked. For shifts over five hours, employees must receive a 30-minute meal break between the second and fifth hour

Employment laws

• At-will employment: Washington is an at-will employment state. This means businesses may fire employees at any time, for any or no reason, as long as they are not violating employee protection laws
• Worker classification: Washington has two separate tests to determine worker classification: One for electrical and construction industries and one for all other industries
• Fair Chance Act: This law prohibits employers from asking about arrests or convictions until after the applicant is determined otherwise qualified for the position
• Equal Pay and Opportunities Act: Washington has stringent laws against gender pay discrimination and requires equal pay for similar work, regardless of gender. Employers are also restricted from limiting employees’ discussions about wages
• Non-Compete Agreements: Washington has specific regulations that limit the enforceability of non-compete agreements, making them voidable under certain conditions, such as when the employee’s earnings are below a certain threshold

See also: Your Ultimate Guide to US Payroll in Washington State

Additional requirements and enforcement

The information above only covers some of the payroll, labor, and employment laws in Washington. Washington’s labor and employment laws are enforced by the Washington State Department of Labor and Industries (L&I). L&I oversees various aspects of employment within the state, including workers’ compensation, workplace safety, minimum wage, and overtime requirements, among others.

Where there is overlap between federal, state and/or local law, companies will generally be required to comply with the law that offers the greatest rights or benefits to the employee. 

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How to choose the right PEO in Washington

Choosing the right PEO in Washington involves a strategic process tailored to your company’s specific needs and goals, given the state’s unique regulatory environment and competitive labor market. Here’s a streamlined approach:

1. Define your business needs and goals

Start by reviewing your current HR operations, identifying inefficiencies and areas where you're spending too much time or money. Consider both your immediate needs and long-term HR strategy.

List down specific services you need, such as payroll processing, benefits administration, compliance with Washington’s labor laws, workers’ compensation, and risk management strategies. Factor in your company’s growth projections to ensure the PEO can scale with you.

2. Research PEOs with local expertise 

Focus on PEOs with proven experience in the US. A PEO familiar with local labor laws and the business environment will navigate regulatory challenges more effectively. Request case studies or client testimonials that demonstrate the PEO's ability to support businesses similar to yours. Check for any awards or recognitions in industry excellence.

3. Evaluate services and benefits

Carefully review the range of services each PEO offers. Check if they can provide everything from payroll to employee training programs. You should also evaluate the benefits packages in terms of coverage options, provider networks, and cost-effectiveness, as high-quality benefits are crucial for attracting and retaining top talent. 

Ensure the PEO offers flexible solutions that can be tailored to fit your business needs and can adapt as your company grows. Also, consider reviewing the technology and tools the PEO uses for HR management to ensure they are user-friendly and can integrate with your existing systems.

4. Assess compliance and risk management 

Ask how the PEO stays updated on changes to state and federal laws and how they communicate these changes to their clients:

• Do they have a dedicated legal team or subscribe to professional services that alert them to regulatory changes?
• How do they document compliance efforts and maintain accurate records?
• Do they send out email newsletters, provide updates through a client portal, or offer webinars on significant legal updates?
• How quickly do they adapt their processes, and what support do they offer your business in making necessary adjustments?
• What internal audit and review processes do they follow to ensure ongoing compliance with legal standards?

5. Check their service and support

Evaluate the PEO’s reputation for responsiveness—quick and effective communication is essential, especially when dealing with HR issues. See if you will have access to a dedicated support team or account manager who knows your business well, and look into what support channels they offer, along with their available hours, languages, and time zones.

6. Review and negotiate the contract

Thoroughly review the PEO contract to understand all aspects, including fees and exit clauses. Negotiate terms that favor your business’s needs, focusing on flexibility and transparency. Consider consulting legal counsel during this step to ensure your best interests are protected.

7. Plan the implementation and transition

Effective communication is key to securing employee support when shifting to a PEO, starting by transparently explaining the transition’s advantages and how it will affect their work. Collaborating closely with the PEO to integrate their systems seamlessly with your existing operations will help guarantee a smooth changeover, minimizing any impact on your day-to-day activities. 

Additionally, setting up structured processes for continuous engagement with the PEO—through consistent meetings and progress updates—can help build a successful, long-term partnership.

See also: How to Choose a PEO or US Payroll Provider: 9 Questions to Answer

Manage your Washington, US, and global workers with Deel

Deel makes payroll and HR management easy, whether you’re hiring in one state, across the country, or around the world. 

As your PEO*, Deel takes care of payroll, human resources, and benefits administration while ensuring state tax compliance and handling sensitive issues by providing:

• Expert payroll administration
• Access to benefit plans from leading carriers and benefits administration
• Robust HRIS with free IT, Finance, and PTO management
• State-specific trainings, HR policies, and on-demand HR support
• Advanced tax and benefits compliance
• And more

Book a demo to learn more about using Deel’s PEO in Washington.

*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel’s partnership with licensed providers where required.

Disclaimer: This article is intended for informational purposes and should not be considered legal advice. Consult a qualified licensed attorney for help on legal issues. Content is accurate at the time of publishing.