What's Happening?
As 2026 approaches, employers are advised to prioritize wage-and-hour compliance issues due to 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. These changes pose operational risks if job classifications and pay practices are not aligned with both the Fair Labor Standards Act (FLSA) and stricter state laws. Employers are encouraged to update pay rates and job descriptions to meet new standards. Key changes include increased salary thresholds in states like Alaska, California, Maine, New York, and Washington, which exceed the FLSA's $684 per week floor. Additionally, thirty states have higher minimum wages than federal law, necessitating adjustments to avoid salary compression and ensure compliance with state-specific duties tests.
Why It's Important?
The upcoming changes in wage-and-hour compliance are significant for employers as they could lead to increased operational risks and potential misclassification claims. Employers must navigate varying state laws that impose stricter requirements than federal standards, affecting salary thresholds and duties tests for exemptions. Failure to comply could result in legal challenges and financial penalties. The adjustments are crucial for maintaining competitive compensation programs and ensuring that exempt roles meet both salary basis and applicable duties tests. This is particularly important in states with higher minimum wages, which can push up exempt salary thresholds and increase the risk of salary compression across pay bands.
What's Next?
Employers should prepare for 2026 by mapping exempt roles to new salary thresholds and implementing adjustments aligned with effective dates. They need to reconcile pay bands in states with higher minimum wages to avoid compression and ensure compliance with state-specific duties tests. A careful, state-by-state approach will mitigate wage-and-hour exposure and reduce the risk of misclassification claims. Employers should audit 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.
Beyond the Headlines
The changes in wage-and-hour compliance highlight the evolving landscape of labor laws in the U.S., reflecting broader economic and social shifts. As states continue to set higher standards than federal law, employers must adapt to a more complex regulatory environment. This could lead to long-term shifts in employment practices, with increased emphasis on aligning compensation with state-specific requirements. The focus on compliance underscores the importance of understanding local labor laws and their impact on business operations.
