“She's salaried, so she doesn't get overtime.” It is one of the most common sentences in small-business payroll, and it is wrong more often than owners expect. Paying someone a salary is only one of three things the law requires before you can skip overtime. The other two are a minimum salary level and a job that actually meets a duties test.
The minimum salary level is the part that changes on a calendar. On January 1, 2027, California and Washington raise theirs, and Washington's jump is large. The federal level, meanwhile, has gone back to where it was in 2020. If you have salaried employees in either state, now is the time to check every one of them.
Three tests, not one
Under the federal Fair Labor Standards Act, the main overtime exemptions cover executive, administrative, and professional employees, often called the white-collar exemptions. To use one, the employee generally must meet all three of these:
- Salary basis. A predetermined amount paid each pay period that doesn't go up or down with the quantity or quality of work.
- Salary level. At least the minimum set by federal regulation, and by state law where the state sets a higher figure.
- Duties. The job's primary duties must fit the specific exemption, such as managing the business or a department, exercising independent judgment on significant matters, or doing work that requires advanced knowledge.
Titles don't count. The federal rule says it directly: “A job title alone is insufficient to establish the exempt status of an employee” (29 CFR 541.2). An “office manager” who mainly answers phones and enters invoices may be non-exempt no matter what you pay her.
Federal: back to $684 a week
In 2024, the U.S. Department of Labor issued a rule that would have raised the federal salary level from $684 a week to $844 on July 1, 2024, and to $1,128 on January 1, 2025. Courts in Texas vacated that rule. The Eastern District of Texas did so on November 15, 2024, in Texas v. U.S. Department of Labor.
On May 15, 2026, the Department published a technical amendment at 91 FR 27833 removing the vacated 2024 text from the Code of Federal Regulations and restoring the prior version. As of November 2026, 29 CFR 541.600 sets the federal salary level at:
- $684 per week (about $35,568 a year) for executive, administrative, and professional employees;
- $27.63 per hour as an alternative for computer employees paid by the hour; and
- $107,432 in total annual compensation for the highly compensated employee test in 29 CFR 541.601, which still requires at least $684 a week on a salary or fee basis and that the employee customarily and regularly performs at least one exempt duty.
Employers may count nondiscretionary bonuses, incentives, and commissions paid at least annually toward up to ten percent of the $684 standard level, under 29 CFR 541.602(a)(3).
The federal figure is a floor, not a ceiling. The FLSA says nothing in it excuses noncompliance with a state law setting a higher minimum wage (29 U.S.C. § 218(a)), and states set their own exemption tests under their own wage laws. Where a state requires more, you must meet the state standard.
California: $72,384 from January 1, 2027
California ties its exempt salary to the state minimum wage: an exempt employee must earn at least twice the state minimum wage for full-time work. On January 1, 2027, the statewide minimum wage rises to $17.40 an hour. According to the Department of Industrial Relations, that produces:
- $17.40 x 2 x 40 hours x 52 weeks = $72,384 a year, the minimum annual salary for exemption starting January 1, 2027.
The Department adds the point owners skip: “Employees must also satisfy the duties and other requirements applicable to the specific exemption.” Meeting the federal duties test does not settle the California question, so check the state requirements for each role.
Washington: $92,196 or $82,976.40, depending on size
Washington's minimum wage rises to $17.73 an hour on January 1, 2027, and its exempt salary is a multiple of that wage that depends on employer size. Per the Department of Labor & Industries announcement of September 30, 2026:
- Employers with 51 or more employees: the multiplier rises from 2.25 to 2.5 times the minimum wage, so an exempt employee must earn at least $1,773.00 a week ($92,196.00 a year).
- Employers with up to 50 workers: the multiplier stays at 2.25 in 2027, so the floor is $1,595.70 a week ($82,976.40 a year). L&I says the small-employer multiplier is not scheduled to reach 2.5 until 2028.
- Computer professionals paid hourly: 3.5 times the minimum wage regardless of employer size, which is $62.06 an hour in 2027.
Washington's jump for larger employers is about 15 percent in one year, because the multiplier and the minimum wage both increase. A salary that cleared the line comfortably in 2026 may not clear it in 2027.
A worked example
Consider a Spokane property-management company with 60 employees. Its leasing manager earns a $85,000 salary, supervises three leasing agents, and has authority over hiring recommendations. Under federal law, she clears $684 a week easily. Under Washington law in 2026, at the large-employer multiplier of 2.25 times the current $17.13 minimum wage, she also cleared the floor of $80,168.40.
On January 1, 2027, the floor for a 60-employee company becomes $92,196. Unless her salary rises by more than $7,000, she becomes non-exempt under Washington law, even though nothing about her job changed. From that day the company owes her overtime for hours over 40 in a workweek and must track her hours.
Now move the same facts to a 40-employee company. The 2027 floor is $82,976.40, and her $85,000 salary still clears it for 2027. In 2028, when the small-employer multiplier is scheduled to rise to 2.5, she likely won't.
Your options before January 1
For each salaried employee near a new floor, you have four realistic choices:
- Raise the salary to the new level, if the job meets the duties test and the role is worth it.
- Convert to hourly and pay overtime. Many employers set the hourly rate so that expected annual pay, including typical overtime, stays close to the old salary. Start tracking hours on the conversion date.
- Keep the salary but pay overtime. Salaried non-exempt employees are allowed. You must still track hours and pay overtime on top of the salary.
- Revisit the duties. If the job never met the duties test, the salary level was never the real issue, and the fix is reclassification regardless of pay.
Communicate the change in writing before it takes effect. Moving someone from exempt to non-exempt can feel like a demotion. Explaining that the law changed, not their value, goes a long way.
What a mistake costs
Under federal law, an employer that fails to pay required overtime owes the unpaid overtime “and in an additional equal amount as liquidated damages,” plus the employee's attorney's fees (29 U.S.C. § 216(b)). Claims generally reach back two years, and three years for willful violations (29 U.S.C. § 255(a)). State laws add their own remedies and penalties, and misclassification problems tend to involve groups of employees in the same role.
For related classification questions, see our guides to 1099 versus W-2 classification and hiring your first employee. If you have employees in Washington, note that the same L&I announcement also sets 2027 earnings thresholds for non-compete agreements ahead of the state's ban on non-competes, which takes effect in July 2027.
Frequently asked questions
If I pay someone a salary above the threshold, are they automatically exempt?
No. The salary level is one of three requirements. The employee must also be paid on a salary basis and perform duties that fit a specific exemption. Job titles don't decide the question.
What is the federal exempt salary threshold for 2027?
As of November 2026, $684 a week (about $35,568 a year), the level restored after courts vacated the 2024 rule. No federal increase for 2027 had been published as of that date. State thresholds in California and Washington are much higher.
Does Washington count employees statewide or everywhere?
L&I's announcement describes the tiers by employer size, 51 or more employees versus up to 50 workers. How to count part-time and out-of-state employees is a fact-specific question. Check L&I's guidance or get advice before you rely on the smaller-employer figure.
This article reflects 29 CFR Part 541 as shown on eCFR, the Department of Labor's May 15, 2026 technical amendment, the California Department of Industrial Relations' 2027 minimum wage release, and the Washington Department of Labor & Industries' September 30, 2026 release, as of November 2026. Exemption rules vary by state and by occupation. This is general information, not legal advice for your situation.
This article is for educational purposes only and does not constitute legal, tax, or financial advice. Consult a qualified professional for guidance specific to your situation.