The federal Fair Labor Standards Act (FLSA) requires employers to pay most employees at least the federal minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 in a workweek.
The FLSA allows for exemptions from these overtime and minimum wage requirements for certain employees who work in administrative, professional, and executive jobs (known as "exempt" employees). To be considered "exempt," these employees must generally satisfy three tests:
- Salary-level test. Effective January 1, 2020, employers must pay employees a salary of at least $684 per week. The FLSA's minimum salary requirement is set to remain the same in 2021.
- Salary-basis test. With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.
- Duties test. The employee's primary duties must meet certain criteria.
State Impact: Many states have their own salary and duties tests for determining whether an employee is exempt from overtime under state rules. In many cases, the state criteria are harder to meet than the federal criteria. A summary of 2021 changes to state minimum salary requirements is below.
2021 Changes Tied to Minimum Wage:
In some states, the minimum salary requirement for overtime exemption increases automatically whenever the minimum wage increases. This may impact employers in the following states in 2021.
As a result of the change in the minimum wage for 2021, the minimum salary required for the states' administrative, professional, and executive exemptions will increase to $827.20 per week (or two times the minimum wage for a 40-hour week) on January 1, 2021.
In California, exempt employees must meet certain salary and duties tests and must be paid at least twice the state minimum hourly wage based on a 40-hour week. The state's minimum wage is scheduled to increase on January 1, 2021 and varies based on size of the employer. For the administrative, professional, and executive exemptions under state law, employers with 26 or more employees must pay a salary of at least $1,120 per week beginning January 1, 2021. Employers with fewer than 26 employees must pay a minimum salary of at least $1,040 in 2021.
As a result of the change in the state's minimum wage, the minimum salary required for administrative, professional, and executive employees exemptions under state law will increase to $700.97 per week, or $36,450 per year on January 1, 2021.
New York (December 31, 2020):
To be classified as exempt from New York's overtime requirements, executive and administrative employees must meet minimum salary requirements and satisfy certain duties tests. For these two exemptions, the state generally sets the minimum salary requirement at 75 times the state minimum wage, which differs based on the region of the state. On December 31, 2020, the minimum wage is increasing in every region except New York City. As a result, the minimum salary required for the executive and administrative exemptions will increase on December 31, 2020 as follows:
- Nassau, Suffolk, and Westchester Counties: $1,050 per week
- Remainder of the State (Except New York City): $937.50 per week
Note: There is also a professional exemption under state law. For the professional exemption, employees must satisfy certain duties tests, but there is no minimum salary requirement under state law. Federal law establishes a minimum salary of $684 per week for the professional exemption. Employers seeking to classify employees as exempt from overtime should ensure employees meet both federal and state exemption criteria.
Some states have recently adopted regulations that increase the minimum salary requirement for overtime exemption. These include:
Earlier this year, the state adopted the Colorado Overtime and Minimum Pay Standards Order ("COMPS Order") #36. Among other things, COMPS Order #36 expands the industries covered by the order as well as increases the minimum salary required to be considered exempt under state law. On January 1, 2021, the minimum salary required to qualify for the executive/supervisor, administrative, and professional exemptions under state law increases to $778.85 per week.
Note: In Colorado, exempt employees' salary generally must also be sufficient to satisfy the minimum wage for all hours in a workweek. Employers may want to consult legal counsel about how this rule may impact them.
Earlier this year, the state of Washington published a final rule that updates the criteria for determining which workers are exempt from overtime under state law. Among other things, the rule increases the minimum salary requirement incrementally until it reaches 2.5 times the state minimum wage in 2028. Effective January 1, 2021, the rule increases the minimum salary required for the executive, administrative, and professional exemptions under state law as follows:
- Employers with 50 or Fewer Employees: $821.40 per week
- Employers with 51 or More Employees: $958.30 per week
Earlier this year, Pennsylvania adopted a new rule that increases the minimum salary required for the states' executive, administrative, and professional exemptions to $780 per week, effective October 3, 2021.
Before classifying and treating any employee as exempt from overtime, employers should confirm that the employee satisfies all applicable tests for overtime exemption under federal and state laws. If an employee is covered by both federal and state law but doesn't meet both sets of tests, employers should consult with counsel to determine how they should classify the employee in that particular situation.