The federal Fair Labor Standards Act (FLSA) requires that employers 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.
Federal Exemptions from Overtime:
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 2022.
- 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.
Note: There are also exemptions for outside sales and computer professional employees. For the outside sales employee exemption, there is no minimum salary requirement. For the computer professional employee exemption, the employee may be paid by salary (as long as it is at least $684 per week) or by the hour (as long as it is at least $27.63 per hour).
State Exemptions from Overtime:
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.
Changes for 2022:
Five states are increasing the minimum salary requirement for overtime exemption on January 1, 2022. The changes are summarized below:
To qualify for the administrative, professional, and executive exemptions in California, 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, 2022 and varies based on employer size. As a result, employers with 26 or more employees must pay a salary of at least $1,200 per week beginning January 1, 2022 to qualify for the exemption. Employers with fewer than 26 employees must pay a salary of at least $1,120 in 2022 to qualify for the exemption.
Computer software employees may be paid on an hourly or a salary basis in order to qualify for exemption from California's overtime requirements. Beginning January 1, 2022, these employees must earn at least:
- $50 per hour (for all hours worked); or
- A monthly salary of $8,679.16; and
- An annual salary of $104,149.81.
In Colorado, employees must meet certain salary and duties tests to qualify for exemption. As a result of the Colorado Overtime & Minimum Pay Standards Order, the minimum salary required to qualify for the executive/supervisor, administrative, and professional exemptions under state law increases to $865.38 per week on January 1, 2022.
Under the state's exemption for highly technical computer employees, the employee may be paid by salary (at least $865.38 per week in 2022) or by the hour (under a state proposal, the minimum hourly rate would be $28.92 in 2022).
Note: In Colorado, an exempt employee's salary generally must also be sufficient to satisfy the minimum wage for all hours worked in a workweek. Employers may want to consult legal counsel about how this rule may impact them.
To be classified as exempt from overtime under state law, administrative, professional, and executive employees must satisfy certain salary and duties tests and receive a salary that exceeds 3000 times the state minimum wage. Due to an increase in the state's minimum wage, the minimum salary required for the administrative, professional, and executive exemptions from overtime under state law will increase to $735.59 per week on January 1, 2022.
New York (December 31, 2021):
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, 2021, 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, 2021 as follows:
- Nassau, Suffolk, and Westchester Counties: $1,125 per week
- Remainder of the State (Except New York City): $990 per week (proposed—a final decision is expected soon)
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.
In Washington, employees must satisfy certain salary and duties tests to be classified as exempt from overtime under state law. In 2022, employees in Washington must earn a salary of at least 1.75 times the minimum wage for a 40-hour workweek to qualify for exemption. The state's minimum wage is scheduled to increase on January 1, 2022. As a result, the minimum salary required for the executive, administrative, and professional exemptions from overtime under state law increases to $1,014.30 per week on January 1, 2022.
Employers in Washington may pay computer professionals by the hour (if at least $50.72 per hour in 2022) or on a salary basis (if at least $1014.30 per week in 2022) for those employees to qualify for an overtime exemption.
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.