Salary Threshold

The minimum weekly salary level required for an employee to qualify as exempt from FLSA overtime — currently $1,128/week ($58,656/year) federally as of 2025-2026, with several states (CA, NY, WA, ME, AK, CO) requiring higher state-level thresholds.

Detailed Definition

The Salary Threshold (also called the salary-basis level or salary minimum) is the minimum weekly salary an employee must earn to qualify as exempt from FLSA overtime under the white-collar exemptions (executive, administrative, professional, or computer-employee). The threshold is one of two prongs of the exemption test, paired with the duties test. Both prongs must be satisfied for exempt classification — a high salary alone is not sufficient if duties don't qualify, and qualifying duties are insufficient if salary is below the threshold. For US employers, monitoring the salary threshold is essential because the federal threshold has been historically subject to political and regulatory change, with state-level thresholds in some jurisdictions exceeding the federal level.

**The current federal threshold.** As of 2024-2026, the federal salary threshold for the standard white-collar exemptions is $1,128 per week ($58,656 annualized) following the Department of Labor's 2024 final rule (with subsequent litigation outcomes affecting implementation in some scenarios). The threshold applies to executive, administrative, professional, and computer-employee exemptions in the standard tier. The threshold is paid on a salary basis — meaning the employee receives the full weekly amount regardless of hours worked, with deductions for partial-day absences generally prohibited.

**The Highly Compensated Employee (HCE) exemption.** A separate streamlined exemption applies to highly compensated employees earning at least $151,164 annually (2024-2026 figures). HCEs need to perform only one duty associated with executive, administrative, or professional exemptions, rather than meeting the full duties test. The HCE category provides simplification for senior employees.

**Computer Employee specifics.** The computer-employee exemption permits payment either on a salary basis at the standard threshold or on an hourly basis at $27.63/hour or above. The hourly option is unusual among the white-collar exemptions, recognising that some highly-paid technical contractors and specialists work hourly without losing exempt status.

**Outside Sales — no salary threshold.** The outside-sales exemption has no salary requirement. An outside-sales employee can be paid by commission only (with no minimum guaranteed salary) and remain exempt, provided they meet the duties test (primary duty is making sales away from the employer's place of business).

**State-level higher thresholds.** Several states have salary thresholds higher than the federal minimum. (1) **California** — for 2024, $1,280 per week ($66,560 annualized) for employers with 26+ employees; somewhat lower for smaller employers. California also has stricter duties tests for some exemptions. (2) **New York** — varies by region (NYC and downstate counties higher than upstate). (3) **Washington** — increasing scheduled to reach 2.5x state minimum wage by 2028. (4) **Colorado** — higher salary threshold and additional duties requirements. (5) **Maine, Alaska** — state-specific thresholds above federal minimum. Multi-state employers must comply with the more stringent of federal, state, and local thresholds for each employee.

**Why the salary threshold matters.** The salary threshold serves several purposes. (1) **Wage protection** — ensures that exempt employees, who lose overtime entitlement, receive a meaningful base salary in exchange. (2) **Misclassification prevention** — limits employers' ability to classify low-paid employees as exempt to avoid overtime obligations. (3) **Inflation tracking** — periodic threshold updates maintain real-wage protection. (4) **Industry benchmarking** — establishes a floor below which white-collar exemption is impossible regardless of duties.

**Threshold history.** The federal salary threshold has been subject to political and regulatory adjustment. Prior to 2016, it stood at $455 per week ($23,660 annualized) for many years. The Obama administration's 2016 rule attempted to raise it to $913 per week ($47,476 annualized) but was struck down by federal court. The 2019 final rule under the Trump administration set it at $684 per week ($35,568 annualized). The Biden administration's 2024 final rule increased it to $844 per week effective July 2024 and $1,128 per week effective January 2025, with subsequent inflation-adjusted increases planned. Federal court litigation has affected implementation in some jurisdictions; HR teams should track current effective rates.

**Audit and reclassification.** Best practice is to audit exempt classifications annually and after any federal or state threshold change. (1) Review every exempt employee's current salary against the applicable threshold (federal plus most-stringent state). (2) Identify employees below the threshold for reclassification to non-exempt or salary increase to maintain exemption. (3) Update payroll systems with new exempt/non-exempt status. (4) Communicate changes clearly to affected employees. (5) Begin tracking hours and paying overtime for newly non-exempt employees.

**Salary basis violations.** Even when salary level is sufficient, salary-basis test violations can defeat the exemption. Common violations include (1) Improper deductions for partial-day absences. (2) Deductions for poor work quality or quantity. (3) Suspension without pay (limited exceptions). (4) Inconsistent salary varying with hours worked. The 'safe harbour' provision allows employers to maintain exempt status if improper deductions are inadvertent, the employer reimburses, and a clearly communicated policy prohibits improper deductions.

**Practical implications for hiring.** When constructing offers for managerial or professional roles, US employers must (1) Set the offered salary above the applicable salary threshold. (2) Clearly establish that compensation is salary-basis (paid regardless of hours). (3) Document the exempt classification with specific reference to the duties test. (4) Communicate the exempt status (no overtime) clearly in the offer. (5) Plan for annual or periodic review against threshold changes.

**Common compliance traps.** First, missing federal or state threshold changes leading to misclassified employees. Second, classifying employees below the threshold as exempt regardless of duties. Third, structuring 'salary' as varying based on hours (effectively hourly paid disguised as salary). Fourth, applying federal threshold in states with higher state requirements. Fifth, not documenting duties supporting the exemption claim.

**Automation through Peoplifi.** Peoplifi tracks exempt-vs-non-exempt classification per employee with current federal and state-specific threshold validation, flags employees approaching threshold changes for reclassification review, supports duties-test documentation per exemption category, and runs annual compliance audits surfacing any inconsistencies. The platform integrates with FLSA overtime calculation for non-exempt employees.

Automate Salary Threshold with Peoplifi

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