Quick – what’s the minimum wage? If you answered $7.25/hour, you’re correct. If you answered $11.50/hour or even higher, you’re also correct – it depends on where your business is located. The federal minimum wage is $7.25/hour, but 18 states began 2018 with higher minimum wages, and some local governments have enacted even higher rates. State and local minimum wage rules always override federal rules when the local rate is higher.
That was a fairly easy question, but here’s a harder one – what’s the minimum wage for employees who are exempt from overtime? Again, the answer depends on where your employees work. If your state or locality does not have a higher rate, the current federal minimum wage for exempt employees is $23,660/year. You may remember that this rate has been under intense discussion in recent years because it hasn’t been updated since 2004. It was almost raised in late 2016, but a late breaking judicial ruling stopped it. The Department of Labor went back to the drawing board and solicited feedback in mid-2017, so we’re now awaiting the new number, which is anticipated to be in the mid-$30,000/year range.
Regardless of the federal rate for exempt employees, your state or locality may have higher minimum requirements in 2018. Alaska, for example, requires that exempt employees make at least $40,934.40/year, which is twice the Alaska minimum wage of $9.84/hour based on a 40-hour workweek. Other states also have minimum wages for exempt employees that exceed the federal minimum, including California, Colorado, Maine, New York, Connecticut, and Iowa. These states may not have an explicit minimum wage for exempt employees, but when the hourly minimum wage is multiplied by 2080 hours per year, the exempt minimum exceeds the federal rate. In many cases, different requirements apply depending on whether an employer has a certain number of employees.
The key? Know your state and locality’s rules for both exempt and non-exempt employees, and be certain you’re in compliance.