Your $35,568 Salary No Longer Makes Someone Exempt: 2026 Overtime Salary Thresholds in Six States

You promoted your best performer to "salaried manager" at $45,000 a year, stopped tracking their hours, and stopped paying overtime. Under federal law, that salary clears the $684-a-week threshold, so you assumed you were safe. Then you hire a remote employee in Washington or California at the same salary — and without changing a single job duty — that same classification becomes a five-figure liability.

If you employ anyone you call exempt from overtime and you operate — or hire remotely — in Alaska, California, Colorado, Maine, New York, or Washington, the federal floor is not your floor. Each of those states has set its own, higher salary level for the white-collar exemptions, and in 2026 every one of them rose again. Understanding where the federal test ends and the state test begins is the difference between a clean payroll and a back-pay audit that doubles on top of itself.

The Federal Floor Froze — And Why That Confuses Everyone​

What $684 a week actually means in 2026​

Under the Fair Labor Standards Act (FLSA), the "white-collar" exemptions — executive, administrative, professional, and some computer employees — have a two-part test. The employee's actual duties must fit one of the exemption definitions, and the employee must be paid on a salary basis at or above a minimum threshold.

For most of the last five years the Department of Labor tried to raise that salary threshold. A 2024 final rule would have lifted it to $844 a week on July 1, 2024 and to $1,128 a week on January 1, 2025, with automatic increases to follow. A federal court in Texas vacated the entire rule in late 2024, and in May 2025 the DOL formally rescinded it.

The result: the federal salary level for 2026 is exactly where it was in 2019 — $684 per week, or $35,568 per year for a full-year, full-time employee. For highly compensated employees (HCE), the federal threshold reverted to $107,432 per year. The duties tests did not change.

If that were the whole story, every employer could apply a single number nationwide. It is not.

Why the federal number no longer decides the outcome​

The FLSA is a floor, not a ceiling. When a state sets a more protective standard — a higher minimum wage, a higher salary threshold, daily overtime — the employer must apply whichever standard is most generous to the employee. An employee who satisfies the federal test can still be non-exempt under state law, and the state law controls for work performed in that state.

Thirty states plus the District of Columbia now have minimum wages above the federal $7.25, and six of them have translated that philosophy directly into higher salary thresholds for exempt status. If you have employees who physically work in, or are legally assigned to, one of those six states, the federal $684 is irrelevant to their classification.

The Six States That Already Beat the Federal Threshold — And What They Require in 2026​

Every January 1, these thresholds tick upward. Here is where they landed for 2026:

California: $1,352 per week​

California ties most white-collar exemptions to twice the state minimum wage for full-time work. With the statewide minimum rising to $16.90 per hour on January 1, 2026, the annualized exempt minimum became $70,304 per year ($5,858.67 per month, $1,352 per week).

This applies to the executive, administrative, and professional exemptions for nearly all employers, regardless of size. California also has a separate, much higher threshold for computer software employees — $58.85 per hour or $122,573.13 per year — and it is the only state that imposes daily overtime: more than eight hours in a single workday triggers overtime even if the week stays under 40.

Planning note: because California adjusts its minimum wage every January 1 by a statutory formula, the exempt salary rises automatically every year. Budget for it in your Q4 compensation review, not as a surprise in January.

Washington: $1,541.70 per week — the nation's highest​

Washington completed a multi-year phase-in that began in 2020. For 2026, all employers regardless of size must pay at least $1,541.70 per week ($80,168.40 per year) to satisfy the executive, administrative, and professional exemptions. That is more than double the federal level and the highest statewide test in the country.

Washington's threshold is indexed to the state minimum wage multiplied by a factor that increased each year and has now reached its final multiplier. Like California, it will continue to adjust annually.

New York: two thresholds in one state​

New York splits the state:

• New York City and Nassau, Suffolk, and Westchester counties: $1,275.00 per week ($66,300 per year) for executive and administrative employees.
• Remainder of the state: $1,199.10 per week ($62,353.20 per year) for executive and administrative employees.

New York's professional exemption uses a different framework, and the thresholds apply only to the executive and administrative categories, which makes role-by-role review critical if you have operations both upstate and in the metro area.

Colorado: $1,057.69 per week​

Colorado's threshold for 2026 is $1,057.69 per week ($55,000 per year), tied to its state minimum wage and the Colorado Overtime and Minimum Pay Standards (COMPS) Order. It applies to executive, administrative, professional, and related exemptions.

Alaska: $938.40 per week​

Alaska sets exempt pay at not less than twice the state minimum wage for a 40-hour week. For 2026 that computes to $938.40 per week ($48,796.80 per year). Alaska also applies daily overtime after eight hours and after 40 hours in a week, similar to California.

Maine: $871.16 per week​

Maine updated to $871.16 per week ($45,300.32 per year) on January 1, 2026. Its threshold is indexed to the state's average wage data and typically moves each January, so employers with seasonal or hospitality staff in Maine should confirm the number each fall.

How to read the table at a glance​

When an employee works in more than one state, or works remotely from a state different from your headquarters, the threshold that applies is the one for the state where the work is performed — not where your company is incorporated. Multi-state employers must apply the highest applicable test for each individual, location by location.

Salary Is Never Enough on Its Own — The Duties Test Still Decides​

Passing the salary number is necessary but not sufficient. An employee who earns $90,000 a year can still be non-exempt if their actual work does not satisfy a duties test. Job titles, offer letters, and even employment agreements do not determine exempt status; the work itself does.

The three core duties tests in plain language​

Executive exemption: The employee's primary duty must be managing the enterprise or a recognized department, they must regularly direct the work of at least two full-time employees, and they must have the authority to hire or fire (or their recommendations must carry particular weight). An "assistant manager" who spends 90% of the day on the same register and stocking tasks as the crew they nominally supervise typically fails this test, regardless of salary.

Administrative exemption: The employee's primary duty must be office or non-manual work directly related to the management or general business operations of the enterprise, and it must include the exercise of discretion and independent judgment with respect to matters of significance. This is the most litigated and most misunderstood exemption. Supporting day-to-day production, selling the product, or executing procedures set by others usually does not qualify, even at a high salary.

Professional exemption: The employee must perform work requiring advanced knowledge in a field of science or learning, customarily acquired by prolonged specialized intellectual instruction. The typical examples are law, medicine, accounting, engineering, and teaching, but the question is always whether the role itself requires that level of specialized knowledge.

In addition, outside sales and certain computer occupations have their own tests, and California and New York define computer and professional exemptions more narrowly than the FLSA does. Always test the state definition, not just the federal summary.

Two common misclassification traps for small businesses​

The salary-only assumption. "We pay salary, so we don't pay overtime." Salary is a pay method, not an exemption. A salaried employee who fails the duties test is a non-exempt salaried employee and is still owed overtime for hours over 40 (and over 8 in California and Alaska).

The working-manager problem. In restaurants, retail, trades, and small offices, managers routinely perform non-exempt work most of the day. Courts and investigators look at primary duty as a practical matter — what the employee actually does — not what the job description says. If the primary duty is not management, administration, or professional practice as defined by the regulation, the exemption fails.

What Misclassification Actually Costs​

This is where the bookkeeping lesson becomes urgent, because the exposure is backward-looking and it multiplies.

Under the FLSA, an employee who should have been classified as non-exempt can recover unpaid overtime for two years, or three years if the violation is found to be willful. On top of back wages, the statute provides for liquidated damages equal to the amount of unpaid wages — effectively doubling the recovery — unless the employer can prove a good-faith basis for its classification. Some states provide additional or treble damages, and California's Labor Code can add $5,000 to $25,000 per willful misclassification.

State audits add their own layer. A state wage-and-hour audit can trigger payroll-tax reassessment, waiting-time penalties, and interest that were never reflected in your original payroll entries. Even a single misclassified employee earning $50,000 a year who regularly worked five overtime hours a week can generate a five-figure exposure once two years of half-time premium, liquidated damages, and state penalties are stacked.

The DOL's June 2025 guidance narrowed when its Wage and Hour Division will seek liquidated damages administratively — in most pre-litigation investigations it will now collect only back wages and leave liquidated damages to a court — but that does not cap what a court can award once an employee sues. The risk has not disappeared; it has shifted to litigation.

A Practical Playbook for Multi-State Small Employers​

You do not need a full compensation department to get this right. You need a repeatable, documented process you run on a schedule.

1. Build a location-based salary inventory​

List every employee you currently treat as exempt. For each one, record: work location(s) where duties are actually performed, 2026 state threshold for that location, current weekly salary, and which exemption you are relying on. If anyone works remotely from a different state than your office, use the remote-work state. A simple spreadsheet with these five columns immediately surfaces every gap.

2. Re-test the duties, not just the dollars​

For each role, pull the actual regulation — FLSA Fact Sheets 17A through 17D for the federal baseline, then the state regulation for anyone in the six states — and walk through the specific bullets. Document the primary duty in one sentence tied to the regulatory language. If you cannot articulate the primary duty without describing production, sales, or task execution, flag the role for counsel.

Good documentation answers: What is the primary duty? Does the employee manage, or just perform? Does the role require independent judgment on matters of significance, or does it apply established procedures? The answer should be evident to a third party reading the file a year later.

3. Decide: raise, reclassify, or restructure — then run the math​

For each employee who fails a state test (or whose salary is below the state threshold), you have three options:

• Raise the salary to meet the state threshold — but only if the duties genuinely satisfy the exemption. Raising pay to $70,400 in California does not cure a failed duties test; it just makes the eventual back-pay calculation larger.
• Reclassify to non-exempt and begin tracking hours and paying overtime at one-and-a-half times the regular rate for hours over 40 (over 8 in California and Alaska). For salaried non-exempt employees, convert the salary to a regular hourly rate each week.
• Restructure the role so the primary duty actually fits the exemption — for example, shifting a working manager who stocks 30 hours a week into a genuinely supervisory role, if the business can support it.

Model the cost of each path. Take a $60,000 employee in Washington who works 45 hours most weeks. Raising to $80,169 costs about $20,169 in additional salary and payroll taxes. Reclassifying and paying five overtime hours costs roughly $8,650 per year in overtime premium at that salary's regular rate — but only if you track hours accurately going forward. Choose with numbers, not habit.

4. Fix the payroll and bookkeeping before the next cycle​

Once you reclassify, your books need to catch up:

• Create separate earnings codes for straight time and overtime premium so you can report and audit the premium itself, not just gross pay.
• Accrue estimated overtime in the pay period it is worked, not just when it is paid, so monthly financials reflect the liability as it is earned.
• For multi-state payroll, code state-specific thresholds and rates so a location change automatically updates the compliance check.
• Preserve time records for at least three years (longer if your state requires it). California requires itemized wage statements that separately show hours, rates, and overtime — a requirement that itself carries penalties when the underlying classification was wrong.

If you reclassify retroactively, do not silently re-label past pay periods. Work with payroll and counsel to calculate any back wages owed and record them as a distinct liability, not as a generic bonus or adjustment. Clean history protects you in an audit far more than a tidy-looking prior year that understated wages.

5. Set a calendar you will actually keep​

Add these dates to your operational calendar now:

• October each year: Check the six state thresholds for the coming January 1. California, Washington, Colorado, Maine, New York, and Alaska all move on January 1, and Washington and California also move with minimum-wage indexing.
• Each time you post a remote job or approve a relocation: Re-run the threshold and duties test for the new location before the offer letter goes out.
• Quarterly: Review any exempt employee whose recorded hours (or, if you do not yet track them, whose calendar and email patterns) suggest regular overtime. Persistent long hours are a signal to re-test, not just a management concern.

6. Get the right review, at the right level​

A quick review with employment counsel for your highest-risk roles costs far less than an audit. Bring your inventory spreadsheet and your one-sentence primary-duty statements. Ask counsel to focus on the administrative exemption — it is the one most small businesses get wrong — and on any role that mixes production and management.

Where Bookkeeping Fits In​

Overtime compliance is not just an HR task; it is a bookkeeping discipline. When you track exempt and non-exempt earnings in separate accounts, reconcile payroll to timekeeping every period, and accrue overtime as it is earned, your general ledger becomes an early warning system. A spike in the overtime premium account for a single location tells you a staffing or classification problem is growing before an outside auditor does.

Concretely, that means maintaining a chart of accounts that distinguishes regular wages, overtime premium, and any state-specific penalty or waiting-time payment; reconciling net pay to bank withdrawals and payroll tax deposits weekly; and keeping a salary-threshold audit trail that shows, for each exempt employee, the applicable threshold at the time of each pay period. When thresholds change on January 1, your books should show who was raised, who was reclassified, and why — not just a new salary number without context.

Simplify Your Financial Management​

As you bring salaries into compliance across states, reclassify roles, and start tracking overtime you previously ignored, clear and separate financial records are what keep a payroll correction from becoming a bookkeeping tangle. Beancount.io gives you plain-text accounting that is fully transparent, version-controlled, and AI-ready — so every payroll adjustment, overtime accrual, and state-specific threshold lives in a ledger you can audit, diff, and explain. Get started for free and keep your books as defensible as your classifications.