Three Wage-and-Hour Issues For Employers To Prioritize For 2026

As 2026 approaches, employers may want to assess the following wage-and-hour compliance issues: rising salary thresholds for overtime exemptions, widening gaps between federal and state minimum wage amounts, and increasingly complex state-specific duties tests and exemption standards. Each can present operational risk if job classifications and pay practices are not carefully aligned with both the Fair Labor Standards Act (FLSA) and stricter state laws. Employers can benefit from ensuring they have updated pay rates and job descriptions to align with the new and changing standards explained below.

Quick Hits

• Employers may want to prepare for 2026 by mapping exempt roles in Alaska, California, Maine, New York, and Washington to new salary thresholds and implementing adjustments aligned with effective dates.
• To avoid salary compression, employers may want to reconcile pay bands in the thirty-one states with higher minimum wages than federal law and ensure that any threshold multipliers are captured in exempt pay.
• Employers may also want to refresh exemption determinations in jurisdictions with state-specific duties tests, documenting how each role satisfies these tests and confirming whether any federal exemptions are not recognized locally.

1. Salary Thresholds for Exemptions: Key 2026 Changes

White-collar exemptions generally require both a salary basis and duties test. Where a state sets a higher salary threshold than the FLSA ($684 per week under current federal rules), employers must meet the more protective state level. Several jurisdictions have increased or defined thresholds taking effect in 2026.

To ensure compliance, employers will want to confirm that affected exempt roles in these jurisdictions meet both the salary basis and the applicable duties test. When thresholds increase mid-year (e.g., Alaska, July 1), consider building a staged implementation plan to avoid underpayment exposure. Where multistate jobs are involved, consider paying up to the highest threshold that could apply to the employee's work location(s) to simplify administration and reduce reclassification risk.

2. Minimum Wage and Overtime Baselines: Where State Law Outpaces Federal Rules

While federal law sets a single minimum wage and overtime framework, the majority of states now exceed the federal minimum wage, and many impose stricter or different overtime rules. For 2026, in addition to the District of Columbia, thirty states have higher minimum wages than federal law: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Virginia, Washington, and West Virginia. In these jurisdictions, employers must pay the higher state minimum wage and observe any state-specific overtime nuances.

Practically, higher minimum wages can push up exempt salary thresholds in states that tie exemption salary levels to a multiple of the minimum wage (as Washington does at 2.25 times the minimum wage). They also increase the risk of “salary compression” across pay bands, prompting recalibration of exempt salaries, incentive structures, and job architecture to keep pace with statutory floors.

3. Duties Tests and Exemption Standards: State Variations That Matter

Though the FLSA relies on a “primary duty” analysis for most white-collar exemptions, many states impose different or stricter duties tests, do not recognize certain federal exemptions, or redefine who qualifies as an “employee.” These variations can independently disqualify roles from exemptions that would otherwise be exempt under federal law.

The District of Columbia joins fifteen states with different requirements for overtime exemptions, including California, Colorado, Connecticut, Delaware, Hawaii, Maine, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New York, North Dakota, Oregon, and Pennsylvania. Key points for employers to use in assessing exempt status:

• Some states impose different tests to qualify for white collar exemptions. For example, California and Maine apply a “more than 50 percent” test, requiring that employees spend more than half of their time on exempt work, as opposed to the federal “primary duty” standard. Likewise, Colorado requires more than 50 percent of time on exempt work for executives, and imposes additional constraints for administrative employees, who must directly serve an executive and perform duties important to executive decision-making.
• Other states, like Connecticut, do not recognize the federal “highly compensated” exemption, so employees must also meet the duties test to be exempt for overtime purposes, regardless of their salaries.
• For computer professionals, states vary in approach and often require additional duties beyond the FLSA test to qualify as exempt. Colorado's computer exemption includes several additional requirements beyond federal rules, while Connecticut requires highly specialized work involving discretion and judgment, with primary duties in systems analysis, design, development, or related tasks.
• Still other states, including New York and Oregon, impose stricter requirements for exemptions. For example, the administrative exemption cannot be satisfied based on duties relating to customers—the primary duty must relate to management or general business operations of the employer.

These differences underscore a simple compliance principle: even when a role appears exempt under the FLSA, state law may independently require reclassification, different salary floors, or alternative duty allocations. Employers should consider auditing job descriptions, actual work performed, and compensation structures against the laws of each state where employees work, with special attention to computer, professional, administrative, outside sales, and creative roles.

Action Steps to Prepare for 2026

The following steps will position employers well to address wage-and-hour changes in 2026:

• mapping exempt roles in Alaska, California, Maine, New York, and Washington to the new salary thresholds and implement adjustments aligned with effective dates;
• reconciling pay bands in the District of Columbia and thirty higher-minimum-wage states to avoid compression and ensure that any threshold multipliers are captured in exempt pay; and
• refreshing exemption determinations in the listed jurisdictions that deviate from federal rules, documenting how each role satisfies state-specific duties tests and confirming whether any federal exemptions (computer, highly compensated, outside sales) are not recognized locally.

A careful, state-by-state approach will mitigate wage-and-hour exposure, reduce the risk of misclassification claims, and position compensation programs to remain compliant as thresholds and duties tests evolve in 2026.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.