Salary Requirements for Exempt Employees: State Laws vs. Federal

When it comes to managing employees, one key decision employers must make is whether their workers are classified as exempt or non-exempt. This employee classification determines whether they’re eligible for overtime pay.

The difference boils down to salary and job duties, but it’s not always as simple as it sounds — especially when dealing with both federal and state laws.

The Fair Labor Standards Act (FLSA) lays the groundwork for salary thresholds across the U.S., but states can impose their own rules. Some states have higher salary requirements than the federal government, and that’s where things get tricky for employers.

Keeping up with these varying standards is crucial to avoid compliance headaches and protect your business from potential penalties. Let’s first discuss the federal salary requirements and then explore how state laws can complicate compliance.

If that sounds like too much to handle, don’t worry — Mosey offers the business compliance services you need.

What Are the Federal Salary Requirements for Exempt Employees?

The Fair Labor Standards Act sets the stage for determining whether an employee is exempt from overtime. In short, employees need to meet certain salary and duties tests to be classified as exempt.

Let’s look at the most important factors:

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Salary-Level Test

The salary-level test is exactly how it sounds: It’s the minimum salary an employee must earn to qualify as exempt. As of July 2024, the federal threshold is set at $844 per week, which amounts to about $43,888 per year.

However, this isn’t set in stone. Starting in January 2025, that threshold will rise to $1,128 per week or about $58,656 annually. After that, you’re looking at automatic increases every three years starting in 2027.

What does that mean for employers? This means that you must monitor your employees’ salaries to ensure that they align with evolving standards. Failing to do so could result in back pay for overtime.

Salary-Basis Test

In addition to meeting the salary level, employees must be paid on a salary basis. That means employees receive the same amount in their paychecks every week, regardless of how much or little they worked.

There are some exceptions, like employees on unpaid leave, but for the most part, pay consistency is key.

Duties Test

Salary alone doesn’t determine whether an employee is exempt. The duties test considers the actual work the employee does. To qualify as exempt, employees must perform executive, administrative, or professional tasks.

That could mean managing other employees, using independent judgment in decision-making, or applying specialized knowledge in a specific field.

Meeting the duties test is just as important as the salary tests, so it’s wise to review your job descriptions and confirm that everything lines up.

Recent Changes and Upcoming Increases

The big change that employers are currently working through is the July 2024 update, which raised the salary threshold to $844 per week — but that’s not the end of it.

January 2025 brings another bump to $1,128 per week, and by 2027, automatic adjustments will kick in. These increases make it necessary to regularly review your exempt employee classifications.

However, even if you’re compliant with federal law, that doesn’t mean you’re totally off the hook. Some states have their own higher salary thresholds with which you must comply.

What Are the State Salary Requirements?

While the FLSA provides a baseline, many states take things a step further with their own salary requirements. In some cases, these requirements exceed the federal threshold, which means businesses must comply with whichever law benefits the employee most — federal or state.

This can make compliance more complex, especially for businesses running payroll in multiple states.

Let’s take a look at some of the states with higher salary thresholds than the federal government:

States With Higher Salary Thresholds

Some states set their salary requirements well above federal levels, so employers must exercise extra caution when managing employees in these regions.

California: Known for having one of the highest salary thresholds, California requires exempt employees to earn at least $1,280 per week, or $66,560 annually. California also has industry-specific rules, particularly in healthcare and fast food, so employers in these sectors should research these requirements.
Washington: In 2024, Washington raised its salary threshold to $1,302.40 per week, one of the highest in the country. This state isn’t playing around when it comes to paying exempt employees.
New York: Things get even more complicated in New York, where salary thresholds vary depending on the region. In New York City and counties like Nassau, Suffolk, and Westchester, the threshold is $1,200 per week, while the rest of the state has a lower requirement of $1,124.20.
Colorado: Colorado is another state that raised its salary threshold in 2024, now requiring a minimum of $1,057.69.

Each state has its own unique challenges, especially if your business operates across state lines. Employers need to track both state and federal requirements to ensure full compliance.

States That Follow Federal Regulations

Not all states have their own salary requirements. In fact, some simply follow the federal FLSA guidelines, which is more straightforward for businesses operating in these states. States like Texas, Florida, and Alabama all adhere to the federal thresholds, making it easier to stay compliant.

While these states provide some relief in terms of managing classifications, employers must still be aware of local regulations and sector-specific rules that could affect them.

What Factors Impact Salary Threshold Compliance?

Several factors affect whether an employee is exempt or non-exempt. Beyond salary, employers must consider the size of their workforce, the states where they operate, and how their business grows.

Let’s break it down:

Number of Employees

The more employees you have, the more complex compliance becomes. Hiring across multiple states, in particular, can trigger various state-specific requirements that you must stay on top of.

Business Growth

As your business grows, your compliance needs change. Adding new locations, hiring more remote employees, or expanding into new states can create compliance challenges that weren’t there before.

Local and State Variations

Even within states, local jurisdictions might have their own rules. For instance, cities like Seattle and San Francisco often have their own salary thresholds that exceed both state and federal requirements.

If that sounds confusing, don’t worry. Mosey helps businesses stay on track with our compliance management platform. Whether you’re hiring in one state or across multiple, we can help you stay on top of these rules to avoid penalties and ensure proper classification.

What Are the Federal and State Duties Tests?

Meeting salary thresholds is just one part of the equation. The other key factor in determining whether an employee is exempt comes down to the duties test.

Under federal law, the duties test is used to evaluate the nature of the employee’s work and see if it fits within an exempt category — executive, administrative, or professional.

Federal Duties Test

The duties test for each exempt category is fairly specific at the federal level. For example, executive employees typically need to manage others as a primary part of their role, while administrative employees must have significant decision-making authority tied to company operations.

Professional employees, on the other hand, need specialized education or knowledge to qualify as exempt. The duties test ensures employees aren’t simply classified as exempt based on their title or salary alone — it’s about what they actually do each day.

State Duties Tests

Here’s where it gets more complicated: Some states have their own duties tests that go beyond the federal standards. For example, California’s duties test for exempt employees requires more time spent on exempt tasks than federal requirements.

In California, an exempt employee must spend more than 50% of their time on exempt duties, while the federal standard considers the employee’s “primary duty,” which is a more flexible interpretation.

New York also has stricter requirements regarding duties tests for exempt employees, especially for administrative roles. These differences matter because an employee who might be exempt under federal law could be non-exempt under state law.

What Are the Penalties for Non-Compliance?

So, what happens if you don’t comply with salary and exemption requirements? The consequences can be significant, both legally and financially:

Legal and Financial Penalties

If an employee is misclassified, employers could face back pay for overtime wages that should have been paid, along with fines and potential lawsuits. It’s not uncommon for businesses to be caught off guard by how much these penalties add up, especially if the misclassification affects multiple employees over an extended period of time.

Take, for example, a company that misclassifies a group of employees as exempt, believing they meet the duties test. If it turns out those employees were entitled to overtime, the company could be liable for not just the unpaid overtime but additional damages and legal fees.

Common Mistakes in Classification

One of the most common mistakes employers make is assuming that a high salary alone qualifies an employee as exempt. While salary is a significant factor, the duties test is just as important, if not more so.

Another mistake is failing to account for state-specific requirements, particularly for businesses that operate in multiple jurisdictions or hire remote employees.

Continuous Monitoring

Compliance isn’t something you set and forget — it’s a moving target. Regular audits of employee classifications, salary thresholds, and job duties can help businesses stay ahead of any changes and avoid potential missteps that could lead to costly penalties.

How Can Businesses Stay Compliant?

Now that we’ve covered the potential pitfalls of non-compliance, it’s time to talk about what you can do to stay in line with state and federal salary requirements for exempt workers.

Review and Adjust Regularly

The first step is conducting regular reviews of your employee classifications. Salary thresholds and duties tests must be monitored closely. Whenever federal or state laws are updated — like the upcoming federal salary increase in 2025 — you must adjust your salaries accordingly to avoid falling out of compliance.

Stay Up to Date With State Laws

If your business operates in multiple states, tracking state-specific rules is essential. States like California, Washington, and New York often have higher standards than the federal government, which makes staying informed about changes key.

Employers must always prioritize the most favorable law for the employee, even if it means going above and beyond federal requirements.

Use Tools To Simplify Compliance

Keeping up with all these rules might sound overwhelming, but there are tools and services that can streamline the process. Mosey, for example, offers automated state compliance services designed to take the guesswork out of your payroll.

With features that track state and local regulations, automate compliance checks, and notify you of upcoming changes, businesses can stay on top of their obligations with less of a headache.

Take Control of Compliance With Mosey

Mosey is here to help. With tools designed to simplify the complex world of payroll compliance, Mosey makes it easier to keep up with local and state laws, automate critical processes, and avoid costly mistakes. Plus, we keep an eye on the latest updates, so you don’t have to.

Curious about how Mosey can streamline your compliance operations? Schedule a Mosey consultation today — we’ll help you fulfill your requirements with confidence.

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