After the November 2024 federal court vacated the DOL’s overtime rule, you’ll need to traverse a complex state-by-state compliance landscape. If you raised salaries last July, you’re not legally required to maintain them in federal-only states, but rolling back creates morale risks and potential legal exposure. In the 18+ states with independent thresholds—ranging from California’s $70,304 to Washington’s $80,168—you must maintain compliance regardless of federal changes. The all-encompassing strategies below will help you build a compliant classification framework.
The Overtime Rule Timeline: What Happened and Where We Stand Now
When the Department of Labor published its final overtime rule in April 2024, it promised to reshape exempt classifications for millions of workers through a two-stage salary increase. The first bump raised the minimum salary threshold to $43,888 on July 1, 2024. The second would’ve pushed it to $58,656 by January 1, 2025, with the highly compensated employee threshold reaching $151,164.
Then everything changed. On November 15, 2024, a Texas federal court vacated the entire rule, sending the salary threshold back to $35,568—unchanged since 2019. Many employers had already adjusted salaries and reclassified workers in preparation.
Now you’re left managing the fallout: employees expecting maintained salaries, budgets absorbing unexpected costs, and confusion about which overtime exemptions actually apply.
The 2026 State Threshold Landscape: 18+ States With Independent Requirements
While the federal overtime rule collapsed, state salary thresholds didn’t follow it down. As of January 2026, 18+ states maintain their own requirements that far exceed the federal $35,568 floor. California’s salary level test now requires $70,304 (double the state minimum wage). Washington demands $80,168—the nation’s highest threshold. New York ranges from $62,353 to $66,300 depending on your location.
These state overtime laws operate independently of federal regulations, creating a fragmented compliance landscape. You’ll face radically different requirements for exempt employees based solely on where they work. Connecticut, Colorado, Maine, and Alaska all enforce thresholds tied to their state minimum wage, with automatic annual increases built in. The salary basis test still applies universally, but the dollar amount triggering exemption now depends entirely on your employee’s work location.
The “Maintain or Roll Back” Dilemma: Three Scenarios for July 2024 Salary Increases
If you raised salaries in July 2024 expecting the DOL’s second-stage increase, you’re now sitting on a compensation structure built for a regulation that no longer exists. Your decision tree depends on location.
Scenario 1: Employee above state threshold. Maintain the salary—state law requires it. Their exempt status remains non-negotiable.
Scenario 2: Employee below state threshold despite July raise. You must either raise compensation again to meet state minimums or convert to non-exempt. Rolling back creates retention disasters.
Scenario 3: Employee in federal-only state. At $45,000 post-raise, they exceed the $35,568 federal threshold. You’re legally compliant but face strategic choices: maintain for goodwill, roll back and risk morale damage, or reclassify anyway.
Remember: salary basis represents only one-third of exemption requirements. Audit the duties test simultaneously—exempt workers must meet all criteria regardless of compensation changes.
Building a Multi-State Classification Matrix for Your Workforce
Start by creating a classification matrix listing each exempt employee, their primary work location, current salary, and applicable state threshold. For remote workers, track where they actually perform work—a California resident working remotely triggers California’s threshold regardless of your headquarters location.
Next, layer in exempt job duties analysis. Meeting state thresholds doesn’t guarantee compliant employee classifications if duties fail the exemption test. Your classification policies must address both salary and responsibilities.
Document every decision. Multi-state compliance audits demand proof you applied correct thresholds to each location.
The Duties Test: The Forgotten Compliance Layer That Still Matters
Many employers assume that paying an employee above the salary threshold automatically makes them exempt—but that assumption creates dangerous compliance gaps. Salary level is just one of three required tests.
You must also verify the duties test: whether job responsibilities actually meet exemption criteria for executive duties, administrative duties, or professional work.
An employee earning $80,000 isn’t automatically exempt if they spend most of their time on non-exempt tasks. Titles don’t matter—”Manager” or “Director” means nothing without genuine management responsibilities like supervising two or more employees, exercising independent judgment on significant matters, or performing work requiring advanced knowledge.
Use 2026’s regulatory uncertainty as your opportunity to audit both salary and duties simultaneously. Duties test violations create identical liability as threshold violations.
Five Proactive Compliance Strategies for 2026 and Beyond
While regulatory chaos makes long-term planning difficult, you can’t afford to wait for federal clarity that may never arrive. Start by conducting all-encompassing classification audits reviewing ALL exempt positions—verify salary levels meet state law requirements and duties actually qualify for professional exemptions.
Implement location-based tracking systems for remote workers, linking each employee’s work location to applicable thresholds in your payroll system. Budget for automatic state threshold increases tied to minimum wage adjustments over the next three years.
Consider strategic reclassifications where positions better suit non-exempt status—this protects overtime eligibility compliance while providing scheduling flexibility. Document every classification decision thoroughly: job descriptions, duties analysis, threshold comparisons, and payroll cards. DOL investigations demand proof of exemption rationale.
Finally, communicate changes transparently to preserve employee morale during shifts.
Will a Federal Rule Return? What to Expect From Future Rulemaking
After implementing today’s compliance strategies, employers naturally ask whether they’ll face another federal threshold increase down the road. The current administration hasn’t signaled new federal rulemaking intentions, and any proposal would face the same legal challenges that killed the 2024 rule. Congressional action remains unlikely in a divided government.
The practical reality? Plan as if the federal threshold stays at $35,568 indefinitely. Meanwhile, state thresholds continue their upward trajectory—California, Washington, and others tie their minimums to state minimum wage with automatic annual adjustments. This creates permanent fragmentation: federal compliance becomes a floor, while state requirements drive actual classification decisions.
Don’t wait for federal clarity that may never come. Your compliance framework must accommodate 18+ different thresholds today, with more states likely adopting independent standards regardless of federal action.
Taking Action: Building State-Specific Compliance Frameworks Today
Because state thresholds won’t wait for federal rulemaking to resolve, you need operational systems that adapt to each jurisdiction where you employ workers.
Your compliance framework should include:
- Location-based tracking that identifies which state threshold applies to each employee, especially remote workers
- Salary level audits comparing current compensation against applicable state minimums, with projections for automatic increases
- Duties test verification ensuring job responsibilities genuinely meet exemption criteria beyond just salary
- Strategic reclassifications converting positions to non-exempt when overtime costs prove lower than maintaining inflated salaries
- Documentation protocols creating audit trails showing why each employee qualifies as exempt under both state and federal standards
Don’t wait for regulatory clarity that isn’t coming. Build your state-specific compliance infrastructure now, before the next DOL investigation arrives.
Stop Waiting for Federal Clarity
You can’t wait for federal clarity that isn’t coming. Map your workforce by state, audit your classifications against both thresholds and duties tests, and build compliance frameworks that account for annual increases. Document every decision. If you raised salaries in July, maintain them where retention matters—but verify those employees actually pass the duties test. One misclassification lawsuit will cost far more than proactive compliance. The fragmented landscape isn’t temporary; it’s your new reality.
Expert Guidance Through the State-by-State Maze
Kona HR conducts comprehensive exempt/non-exempt classification audits, evaluating both salary thresholds and duties test compliance across all 50 states. We map your workforce by location, identify employees at risk under state-specific thresholds, assess whether duties actually support exemption, and provide strategic recommendations for reclassifications or salary adjustments. Our documentation creates the audit trail you’ll need when the DOL or a plaintiff’s attorney comes calling.
Contact Kona HR for a complimentary multi-state classification assessment. We’ll help you navigate the post-federal-rule reality and build a defensible compliance program before the next wage-hour lawsuit finds you.
