Eighteen states are raising minimum wages on January 1, 2026, which will automatically increase salary exemption thresholds and potentially reclassify your exempt employees. Washington’s $17.13/hour minimum wage triggers an $80,168 exempt threshold, while California’s jumps to $70,304.
If your currently exempt employees earn below these new state-calculated thresholds, you’ll need to either raise their salaries or convert them to hourly status within the next 66 days. Understanding the state multiplier formulas and your strategic response options becomes critical for avoiding immediate compliance violations.
The 2026 State Minimum Wage Landscape: Where Thresholds Are Rising
Eighteen states will ring in 2026 with higher minimum wages, and if you’re managing exempt employees in these jurisdictions, you’re facing automatic increases to your salary thresholds—whether you budgeted for them or not.
The minimum wage surge impact hits hardest in the Pacific Northwest and Northeast. Washington leads at $17.13/hour, translating to an $80,168 exempt threshold using its 2.25x multiplier. California follows at $70,304, while New York’s regional variations create compliance complexity with thresholds ranging from $62,353 to $66,300.
These exempt salary factors compound quickly. Connecticut’s $16.94 minimum and New Jersey’s $15.92 both trigger significant threshold jumps. Hawaii’s unprecedented $2 increase demands immediate budget planning. Critical note: prorated thresholds don’t exist in Washington—part-time exempt employees must meet the full threshold amount.
Breaking Down the Salary Exemption Math: How State Multipliers Work
Understanding how states calculate exempt salary thresholds requires traversing three distinct tests, and most employers stumble on the second one. The salary level test applies state minimum wage multipliers—California uses 2x while Washington employs 2.25x—creating exempt salary threshold ratios that vastly exceed federal minimums.
You’ll notice job duties impact on exemption remains consistent, but the math changes everything. Washington’s $17.13 hourly rate × 2,080 hours × 2.25 equals $80,168 annually for exempt status. Here’s the catch: part time employee exemptions don’t exist in Washington—you can’t prorate thresholds for reduced schedules.
The impact of inflation on thresholds compounds annually as minimum wages index upward, forcing recalculation each January. Compare your current salaries against both state and federal thresholds, then apply the higher standard.
Three Strategic Paths for Responding to Threshold Changes
- Washington manager earning $75,000 needs $5,168 raise or timeclock training
- California supervisor at $68,000 faces $2,304 gap or hourly conversion
- New York team lead choosing between raise or tracking lunch breaks
- Connecticut coordinator weighing paycheck consistency against overtime potential
The Federal Rollback Question: Can You Reverse 2024 Salary Increases?
Why did so many employers rush to raise salaries in July 2024? They anticipated the federal DOL rule increasing the exempt threshold to $58,656. When courts vacated that rule in November, employers faced a dilemma: could they roll back those increases?
The legal implications seem clear—you technically can reduce salaries with proper notice. However, operational feasibility challenges make rollbacks nearly impossible. Employee retention concerns intensify when workers see pay cuts, regardless of your explanation. Public perception impacts extend beyond your current team; news of rollbacks spreads quickly through industry networks.
Workforce morale factors matter most. Even if state thresholds still require those salaries, reversing increases signals instability and erodes trust. Most employers who raised salaries in 2024 are keeping them, treating the premature adjustment as an irreversible strategic decision.
Your 66-Day Implementation Timeline for January 1 Compliance
With January 1 deadlines rapidly approaching, you’re working with exactly 66 days from the start of November to achieve full compliance. This compressed timeline demands parallel workflows across multiple departments simultaneously.
Your critical path includes:
- Payroll integration updates syncing new salary thresholds and overtime calculations across all platforms
- Communication planning that addresses employee concerns before rumors spread through your workforce
- Performance management changes adapting evaluation criteria for newly non-exempt positions
- Employee education initiatives teaching timekeeping requirements to staff who’ve never tracked hours
Compliance team staffing becomes essential when managing changes across multiple states. You’ll need HR representatives coordinating with legal, finance, and department managers daily. Missing this deadline isn’t theoretical—it triggers immediate violations with your first 2026 paycheck.
Lock In Your Strategy Now
You’ve got two months to get this right. Run your workforce audit now, calculate your state’s new thresholds, and model the budget impact of each option. Document every decision—misclassification penalties don’t care about good intentions. Lock in your compliance strategy by mid-November to allow payroll processing time. January 1 isn’t a soft deadline. When those new minimum wages take effect, your exempt employees either meet the threshold or they’re hourly. There’s no grace period.
Turn Compliance Into Competitive Advantage
Kona HR conducts comprehensive FLSA exemption audits examining both salary thresholds and duties test compliance across all 50 states. We identify which employees fall below new state thresholds, evaluate your classification structure for hidden risks, and provide actionable recommendations with budget impact analysis.
Contact Kona HR for a complimentary classification assessment. We’ll help you navigate the January 1 changes and ensure your entire exempt workforce is defensibly classified—before the state minimum wage increases hit.
