Posted on: January 11, 2023 | Pay                                                                                

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. Here are some key things to know for both federal exemptions and state exemptions, along with some state-specific changes for 2023.

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. Employers must pay employees a salary of at least $684 per week. The FLSA's minimum salary requirement is set to remain the same to start 2023, but the Department of Labor is expected to publish a proposed rule that could increase the minimum salary requirement, so watch for developments.
• 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. Six states increased the minimum salary requirement for overtime exemption on January 1, 2023. The changes are summarized below:

Alaska:

To be classified as exempt from overtime under state law (Alaska Statute 23.10.055), bona fide administrative, professional and executive employees must satisfy certain salary and duties tests. As a result of the change in the state’s minimum wage, the minimum salary required for these exemptions under state law increased to $868 per week (twice the minimum wage for a 40-hour week) on January 1, 2023. 

California:

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 increased on January 1, 2023. As a result, employers must pay a salary of at least $1,240 per week beginning January 1, 2023 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, 2023, these employees must earn at least:

• • $53.80 per hour (for all hours worked); or
  • A monthly salary of $9,338.78; and
  • An annual salary of $112,065.20

Colorado:

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 increased to $961.54 per week on January 1, 2023.

Under the state’s exemption for highly technical computer employees, the employee may be paid by salary (at least $961.54 per week in 2023) or by the hour ($31.41 per hour in 2023).

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. This is true in certain other states as well, some of which will have a new minimum wage in 2023. Employers may want to consult legal counsel about how this rule may impact them.

Maine:

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 3,000 times the state minimum wage divided by 52. 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 increased to $796.17 per week on January 1, 2023.

New York (December 31, 2022):

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, 2022, the minimum wage increased in areas other than New York City and Nassau, Suffolk, and Westchester Counties. As a result, the minimum salary required for the executive and administrative exemptions in these upstate areas increased to $1,064.25 per week on December 31, 2022.

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.

Washington:

In Washington, employees must satisfy certain salary and duties tests to be classified as exempt from overtime under state law. As a result of a new state minimum wage, the salary thresholds used to determine which workers are exempt from overtime under state law also increased effective January 1, 2023: 

Note: Employers of any size may pay exempt computer professionals by the hour, provided they pay at least 3.5 times the minimum wage ($55.09 per hour in 2023).

Conclusion:

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.