The article below provides guidance on the FLSA exemption status rules but should not be taken as legal advice. FLSA audits are a legal analysis that should be conducted in conjunction with your employment counsel or General Counsel.
Happy New Year! While you were ringing in 2026, some significant legal changes went into effect, impacting HR and compensation teams across the country. Leading the pack? Six states just raised their FLSA exemption salary thresholds on January 1st. If employers didn't bump salaries before the new year, they might have more employees who are overtime-eligible.
What is FLSA? Understanding the meaning of FLSA
The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards for full-time and part-time workers. Understanding FLSA meaning is critical for both employers and employees — it dictates who gets paid overtime and who doesn't.
At its core, the FLSA protects workers by ensuring they receive fair compensation for hours worked beyond the standard 40-hour workweek. However, certain employees can be classified as "exempt" from these overtime protections if they meet specific criteria.
What is FLSA status? Exempt vs. non-exempt employees
FLSA status refers to whether an employee is classified as exempt or non-exempt from overtime pay requirements:
- Non-exempt employees must be paid overtime (time-and-a-half) for any hours worked over 40 in a workweek
- FLSA exempt employees are not entitled to overtime pay, regardless of how many hours they work
But here's the catch: you can't just slap an "exempt" label on any employee. To qualify as FLSA exempt, workers must pass three critical tests.
Understanding FLSA exempt status: the three tests
Under the FLSA, certain workers — typically those in "executive, administrative, or professional" (EAP) roles — can be exempt from overtime pay if they meet three tests:
1. Salary Basis Test
Employees must be paid on a salary basis, receiving a fixed salary regardless of how many hours per week they work.
2. Salary Level Test
We'll discuss this more below.
3. Duties Test
This portion of the analysis should be conducted in partnership with your attorney, as this is very fact-specific. Job titles alone will not determine whether a role is exempt or non-exempt. Rather, it is the duties of the role that matter.
Employers must show that exempt employees primarily perform duties specific to one of these exemptions:
The Highly Compensated Employee (HCE) Exemption
Alternatively, employers can classify an employee under the Highly Compensated Employee (HCE) Exemption. In this case, employers must only show that the HCE performs at least one duty of an exempt executive, administrative, or professional employee. This is a much more relaxed duties test. The major difference is the salary thresholds, which we'll look at below.
FLSA changes 2026: State salary threshold increases
Here's where things get interesting. While the federal FLSA exempt salary threshold stays put at $684/week ($35,568/year) in 2026, six states are raising their bars. If you have employees in any of these states, you may see more employees suddenly eligible for overtime.
States increasing FSLA exemption thresholds in 2026
* Alaska 2026 thresholds will be published on July 1, 2026
Special Computer Exemption thresholds
The following states have implemented separate salary thresholds for the Computer Exemption:
- California: $58.85/hour or $122,573.13/year
- Washington: $59.96/hour or $124,716.80/year
What these FLSA changes mean for you
For Employers:
- Reclassification required: If employees in these states currently earn salaries above the old threshold but below the new one, they'll need to be reclassified as non-exempt — or given raises to maintain FLSA exempt status
- Multi-state complexity: Employers with workers in multiple states need to track varying thresholds and adjust payroll systems accordingly
- Budget impact: Increased labor costs from either salary bumps or overtime payments
- Compliance risk: Misclassifying FLSA status can result in significant penalties, back pay, and legal fees
For Employees:
- Overtime eligibility: If you work in one of these states and your salary falls below the new threshold, you may now be eligible for overtime pay when you work more than 40 hours per week
- Potential salary increases: Some employers may raise salaries to keep employees at FLSA exempt status rather than tracking and paying overtime
- Changed job classifications: Your role may be reclassified from exempt to non-exempt, which could affect how your time is tracked
How to prepare for FLSA changes in 2026
1. Audit your current FLSA exempt employees
Review all employees currently classified as FLSA exempt. Do they meet all three tests under both federal and state law?
2. Identify affected employees
Flag anyone in the six states whose salary falls between the old and new thresholds.
3. Decide: raise salaries or reclassify
- Option A: Increase salaries to meet the new threshold and maintain FLSA exempt status
- Option B: Reclassify as non-exempt and implement overtime tracking
4. Update policies and systems
Ensure your timekeeping, payroll, and HR systems can handle the changes. Non-exempt employees need accurate time tracking.
5. Communicate changes clearly
If an employee's FLSA status is changing, explain what it means for their day-to-day work, pay structure, and expectations.
6. Consult legal counsel
FLSA audits are complex legal analyses. Work with your employment counsel or General Counsel to ensure compliance, especially regarding the duties test.
Common FLSA status mistakes to avoid
- Relying on job titles alone: A "manager" title doesn't automatically mean FLSA exempt status — duties matter most
- Assuming salaried = exempt: Paying someone a salary doesn't exempt them from overtime if they don't meet all three tests
- Ignoring state laws: Federal FLSA rules set the floor, but states can (and do) set higher standards
- Misunderstanding the duties test: This is the most subjective and litigated aspect of FLSA exempt determinations
Wrapping it up
The new FLSA salary exemption rules are definitely a big deal, but they don't have to land you on the naughty list next year.
Payscale gives you the market data and compensation insights you need to make strategic decisions that keep you compliant without breaking the bank or morale. Whether you're changing salaries to maintain exempt status or justifying reclassifications, we help you navigate these conversations with confidence.
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