What's Happening?
As 2026 approaches, employers in the United States are preparing for significant changes in wage-and-hour compliance. Key issues include rising salary thresholds for overtime exemptions, discrepancies
between federal and state minimum wage amounts, and complex state-specific duties tests and exemption standards. Employers must align job classifications and pay practices with both the Fair Labor Standards Act (FLSA) and stricter state laws to mitigate operational risks. Several states, including Alaska, California, Maine, New York, and Washington, have announced new salary thresholds effective in 2026, which exceed the current federal level of $684 per week. Employers are advised to update pay rates and job descriptions to comply with these new standards.
Why It's Important?
These changes are crucial for employers as they navigate the evolving landscape of wage-and-hour laws. The increased salary thresholds and state-specific requirements could lead to salary compression, affecting pay bands and incentive structures. Employers must ensure compliance to avoid misclassification claims and potential legal challenges. The adjustments are particularly significant in states with higher minimum wages than federal law, which can push up exempt salary thresholds. Employers need to reconcile pay bands and refresh exemption determinations to align with state-specific duties tests, ensuring roles meet both salary basis and applicable duties tests.
What's Next?
Employers should take proactive steps to prepare for these changes by mapping exempt roles to new salary thresholds and implementing adjustments aligned with effective dates. They should also reconcile pay bands in states with higher minimum wages to avoid compression and ensure threshold multipliers are captured in exempt pay. Additionally, refreshing exemption determinations in jurisdictions with state-specific duties tests will be essential. A careful, state-by-state approach will help mitigate wage-and-hour exposure and position compensation programs to remain compliant as thresholds and duties tests evolve in 2026.
Beyond the Headlines
The evolving wage-and-hour landscape highlights the need for employers to adopt a strategic approach to compliance. The differences in state laws underscore the importance of auditing job descriptions, actual work performed, and compensation structures against the laws of each state where employees work. This approach will help reduce the risk of misclassification claims and ensure that compensation programs remain compliant as legal standards change.
