By McKinley Malbrough III, J.D., MS-HRM
Published October 26, 2026. Last updated November 11, 2026.
Short answer
The California exempt salary threshold for 2027 is $72,384 a year, or $6,032 a month. It is two times the $17.40 state minimum wage for 40 hours a week over 52 weeks, effective January 1, 2027. Salary is only half the test, because the employee must also pass the duties test.
The California exempt salary threshold for 2027 is $72,384 a year, or $6,032 a month. That is two times the $17.40 state minimum wage across 40 hours and 52 weeks, effective January 1, 2027. A salary at or above it is only half the test, because the employee must also pass a duties test.
I hold a J.D. and an MS-HRM, I am not an attorney, and I work with employers of 10 to 150 people across California. This is the question I hear every fall from owners who pay a few people a flat salary and have never checked the number against the law. Here is what the rule says, where it comes from, and what I would do before the new year.
It is $72,384 a year, and the Department of Industrial Relations (DIR) published it. In DIR News Release 2026-66, the department says the state minimum wage rises to $17.40 per hour on January 1, 2027, and that an exempt employee must earn at least $72,384 to meet the salary threshold. Monthly, that is $6,032.
For comparison, the 2026 figures come from DIR News Release 2025-118. The minimum wage in 2026 is $16.90 and the exempt salary floor is $70,304. So the minimum wage rises by $0.50 an hour, and the exempt floor rises by $2,080 a year. That is the number I give clients when they ask what the change costs per exempt employee who sits at the current floor.
Anyone paid a salary below $72,384 on January 1, 2027 cannot be treated as exempt under the general rules, however senior the title. For the rest of the January changes, I keep a separate guide on California’s new employment laws for 2027, and my pre-deadline list in the employer checklist before January 1, 2027 shows where this item sits among the others.
The formula is two times the state minimum wage, multiplied by 40 hours and 52 weeks. DIR shows it as $17.40 x 2 x 40 x 52 = $72,384. The source is Labor Code 515(a), which requires that the employee earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Subdivision (c) defines full time as 40 hours a week.
The statute says the state minimum wage. It does not mention city or county rates. That is why Oakland, San Francisco, San Jose and other cities with higher local minimum wages do not raise the exempt floor, as I read the text. A cleaning crew in San Francisco is paid the city rate, and a manager in San Francisco is tested against the state number. I could not find an agency page that addresses the point in so many words, so treat this as my reading of the statute and not a DIR statement.
Note the word monthly. The statute and the wage orders test a monthly salary, and DIR converts it to a yearly figure using 2,080 hours. The exempt salary threshold is therefore a floor on pay, not on the number of hours someone works.
No. The salary test is the first prong, and the duties test is the second. An employee who fails either one is nonexempt and is owed overtime. The duties test is where most mistakes happen, because a title or a flat paycheck proves nothing about the work.
The duties come from the applicable wage order. In Wage Order 4, which covers professional, technical, clerical and similar occupations, the executive, administrative and professional exemptions each require that the employee customarily and regularly exercises discretion and independent judgment. Each also requires that the employee be primarily engaged in the exempt duties. Other industries have their own wage orders, and I read only Wage Order 4 for this article, so check the order for your industry before you rely on the language.
The word primarily has a specific meaning. Under Labor Code 515(e), it means more than one-half of the employee’s worktime. A supervisor who spends most of the week doing the same tasks as the team, such as covering a register or loading orders, may not meet that test even with a manager title and a salary above $72,384.
Two special rules are worth knowing. Outside salespersons have no salary test under Wage Order 4, which defines them as people who spend more than half their working time away from the employer’s place of business. Computer software professionals paid hourly have their own floor, which DIR lists at $61.03 an hour for 2027 and $58.85 for 2026. I verified no other special rules, so I leave them out.
Anyone you pay a salary and treat as exempt, and the employer’s size does not change the rule. I found no employer-size distinction in the statute or the wage orders. A company of 12 and a company of 140 use the same $72,384 test.
In my experience the people at risk are predictable. They are office managers, assistant managers, team leads, executive assistants, junior marketing or HR coordinators, and anyone hired at a round salary in the low $60,000s a few years ago who was never revisited. Run a simple list this week. For each salaried employee, write down the annual salary, the January 1 floor, the gap and the main duties, then sort by the gap.
People who sit just above the line deserve a second look as well. If you pay $72,500, you have almost no room, and the next increase in the minimum wage will push the floor past that salary again. Employees you classify under the ABC test as contractors or employees are a separate question, and I keep that analysis in its own guide.
You have three honest options for each employee below the line, and I could not find a DIR or DLSE statement that recommends one over another. This is my view of how the choice usually works for a small employer.
Reclassifying means timekeeping, meal and rest breaks, and daily overtime. Under Labor Code 510, work beyond eight hours in a day or 40 hours in a week is paid at one and one-half times the regular rate, and work beyond 12 hours in a day at double time. My guide to meal and rest breaks and PAGA exposure covers the break rules that come with that status. If you are setting a salary for a new role, my guide on how to set a pay range shows how to build the range around the floor.
Tell the employee before January 1, in writing, whichever route you choose. Surprises in the first paycheck of the year turn a classification change into a complaint.
More than the back overtime, and it compounds. An employee treated as exempt who should not have been can recover unpaid overtime under Labor Code 1194(a), along with interest, attorney’s fees and costs of suit. Because the employee wins fees, even a modest claim can cost the employer far more than the overtime itself.
Other exposure follows from the same mistake. If the employee leaves and unpaid overtime is part of the final wages, Labor Code 203(a) can continue the daily wage as a penalty for up to 30 days, as I explain in my guide to final paycheck waiting time penalties. Wage statement errors carry their own penalties under Labor Code 226: $50 for the first pay period, $100 for each later one, up to $4,000 per employee, when the violation is knowing and intentional. Representative claims under the Private Attorneys General Act can reach every affected employee, and my PAGA penalty exposure calculator lets you test your own headcount.
The cheapest fix is the audit you do before anyone complains. A written review of every salaried role, with a signed job description, is the evidence that you looked.
To see what a wrong classification costs in dollars, read my worked example of misclassified exempt employee back pay. Nonprofit leaders weighing pay against turnover can also read five structures that help a nonprofit keep its staff.
The exempt flag is one of the fields that most often goes wrong in a software import, as I show in seven data fields to clean before an HRIS rollout.
Do four things before the end of the month.
My exempt vs. non-exempt quick check walks each role through the salary test and the duties test in a few minutes. If you want a second reader on every salaried position and the rest of your wage and hour practices, my HR compliance check-up covers them in one review.
For a related angle, see why employees stop going above and beyond.
McKinley holds a J.D. but is not a licensed attorney. Articles here are general information, not legal advice. For your specific situation, talk with an employment attorney.
Data current as of October 2026. Sources are linked where each figure appears.
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This article is general information, not legal advice. Laws change and every situation is different; for advice on yours, talk with an employment attorney.
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