Salary Exempt Threshold 2026: DOL Overtime Rules & State Laws

A Brief Timeline: How We Got Here

Understanding the 2026 landscape requires a quick look at the regulatory turbulence that preceded it:

The November 2024 court ruling in State of Texas v. United States Department of Labor was sweeping: it vacated not just the January 2025 increase, but the July 2024 increase as well — reverting the threshold to the pre-Biden level of $684/week. As of May 2026, the Department of Labor has indicated it plans to revisit overtime rulemaking through a new regulatory process, but no new federal rule has been finalized.

The Three Tests for FLSA Exempt Status

Under the Fair Labor Standards Act, an employee qualifies for the white-collar exemption — and is therefore not entitled to overtime — only if they satisfy all three of the following tests:

Test 1: Salary Basis

The employee must be paid on a salary basis — a predetermined fixed amount for each pay period that is not subject to reduction because of variations in the quality or quantity of work performed. Docking pay for partial-day absences (with limited exceptions) destroys the salary basis and can destroy the exemption.

Test 2: Salary Level

The weekly salary must be at least the applicable threshold. Federally, this is $684/week. In states with higher thresholds, the state minimum governs. An employee earning $680/week fails the federal test and is automatically non-exempt, even if their job duties are entirely executive in nature.

Test 3: Duties

The employee must primarily perform executive, administrative, or professional duties as defined by DOL regulations:

• Executive duties: Primary duty is managing the enterprise or a recognized department; regularly directs the work of two or more full-time employees; has authority to hire/fire or whose recommendations carry weight.
• Administrative duties: Primary duty is office/non-manual work directly related to management or general business operations; exercises discretion and independent judgment on matters of significance.
• Professional duties: Primary duty requires advanced knowledge in a field of science or learning, typically acquired through prolonged education; or involves invention, imagination, or talent in a creative field.

The duties test is where most misclassifications happen. A title like "Manager" or "Director" is irrelevant — courts look at what the employee actually does, not what the employer calls them.

2026 Exempt Salary Thresholds: Federal vs. State

Employers with multi-state operations must apply the highest applicable threshold in each state. Here is the full picture as of January 1, 2026:

Source: ADP HR Knowledge Center, Nextep, Symmetry payroll research, and state labor department publications (2026). Thresholds effective January 1, 2026 unless otherwise noted. For California, the threshold equals two times the state minimum wage for a 40-hour work week.

The Highly Compensated Employee (HCE) Exemption

Employees earning above the HCE threshold face a significantly lighter duties test — they only need to customarily and regularly perform at least one exempt duty, rather than having it as their primary duty. The 2026 federal HCE threshold remains at $107,432 annually, of which at least $684/week must be paid on a salary or fee basis.

The 2024 DOL rule had proposed raising the HCE threshold to $151,164 — this increase was also vacated along with the rest of the rule. Employers who had already reclassified employees based on the anticipated increase may need to revisit those decisions if those employees now earn between $107,432 and $151,164.

Some states set their own HCE thresholds or do not recognize the HCE category at all. California, for instance, does not have a state-level HCE exemption — California employers must meet the standard salary and duties tests for all employees.

What HR Must Do Right Now

The compliance priorities for 2026 differ depending on your state footprint:

Single-State Employers in Non-Threshold States

If you operate only in states using the federal floor ($684/week), your primary risk is the duties test, not the salary level. Audit job descriptions against actual work performed — particularly for roles titled "manager" or "coordinator" who spend most of their time on non-supervisory tasks. The Department of Labor's Wage and Hour Division investigates misclassification by examining time studies and daily task logs, not job descriptions.

Multi-State Employers or Operations in California / Washington / New York

These employers face the most pressing immediate compliance obligation. A $50,000-per-year employee at a Texas headquarters who is classified as exempt travels to work at the California office for four months — California's $70,304 threshold may apply. Courts have held that state overtime laws can apply to time worked within the state. Per Payscale's 2025 Compensation Best Practices Report, 63% of HR leaders identify multi-state wage compliance as their top compliance concern — ahead of benefits administration and pay equity.

Remote Work Creates Geographic Risk

The proliferation of remote work has made this more complex. An exempt employee earning $50,000 who works remotely from California for a Texas-based company triggers California labor law — including California's $70,304 exemption threshold. That employee would be legally non-exempt under California law, entitled to overtime and other California-specific protections. HR teams should maintain a real-time map of employee work locations, not just home states. See the pay equity compliance guide for related multi-state compensation considerations.

Misclassification: The Enforcement and Financial Risk

The stakes of misclassification are not theoretical. The DOL Wage and Hour Division recovered $274.8 million in back wages from 163,000 workers in fiscal year 2024, according to DOL enforcement data. FLSA allows recovery of:

• Back wages for all overtime hours going back two years (three years for willful violations)
• An equal amount in liquidated damages (doubling the total owed)
• Attorney's fees paid to the plaintiff's attorneys
• Civil money penalties for repeat or willful violations

Collective action suits — where multiple misclassified employees join a single FLSA claim — are the mechanism that creates multi-million dollar liability from what looks like a small classification error. A single job title that covers 200 employees misclassified by $5,000 each in annual overtime translates to $2,000,000 in back pay liability before liquidated damages.

When the Salary Test Does Not Apply: Key Exemptions

Several categories of employees are exempt from the salary level test but still exempt from overtime:

• Doctors and lawyers: Licensed physicians and attorneys practicing their profession are exempt from the salary basis and level tests — they must still meet the professional duties test, but any salary level qualifies.
• Teachers: Employees whose primary duty is teaching in an educational establishment are exempt without regard to salary level.
• Outside sales employees: The outside sales exemption has no salary requirement — employees who primarily make sales away from the employer's place of business qualify based purely on duties.
• Computer employees: Computer professionals can qualify on either a salary basis ($684/week) or an hourly basis ($27.63/hour), a unique dual-path structure not available for other exemptions.

Practical Salary Benchmarking for Exempt Classification

Smart HR practice is to set exempt salaries meaningfully above the applicable threshold — not right at it. Setting a salary at exactly $684/week federally means any small reduction (partial week without pay, for example) destroys the exemption and creates retroactive overtime liability. A buffer of 10–15% above the threshold is standard practice.

For California employers, set exempt salaries at no less than $72,000–$75,000 to maintain a cushion above the $70,304 threshold. For Washington employers, aim for at least $85,000. Use the salary calculator to model take-home pay at these benchmarks and compare against local market rates, or the average salary by state tool to check whether your threshold-compliant salary is also market-competitive.

What to Watch for in the Second Half of 2026

The DOL has signaled that it intends to pursue new overtime rulemaking after the 2024 rule was vacated. Several things to monitor:

• New federal rulemaking: Any new DOL rule will go through the notice-and-comment process, giving employers 60+ days to prepare before an effective date. Paylocity and ADP HR research both recommend HR teams build internal capacity to reclassify affected employees within 30 days of a final rule publication.
• State minimum wage increases: California, Colorado, Washington, and New York tie their exempt thresholds to the state minimum wage. If minimum wages increase mid-year (some states adjust quarterly), exempt thresholds can increase automatically.
• The IRS overtime deduction: The Tax Cuts and Jobs Act extension provisions introduced questions about deductibility of overtime pay for 2025–2026. The IRS issued guidance (Notice 2025-15) clarifying that qualified overtime compensation received by non-exempt employees may be deductible from gross income — consult your tax advisor for implications on compensation structure.

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