If you’ve been trying to keep up with federal overtime rules over the past two years, you’re not alone. The salary threshold under the Fair Labor Standards Act has been one of the most contested compliance issues in recent memory — and as of May 14, 2026, the Department of Labor issued a technical amendment that every small business owner needs to understand immediately.
Here’s what changed, what it means for your payroll, and exactly what you need to do to stay compliant.
What Is the FLSA Overtime Salary Threshold?
The Fair Labor Standards Act requires employers to pay overtime — at least 1.5 times the regular rate — to most employees who work more than 40 hours in a workweek. However, certain employees are exempt from this requirement if they meet three conditions:
- They are paid on a salary basis
- Their salary meets or exceeds the federal minimum threshold
- Their job duties fall into an exempt category such as executive, administrative, or professional roles
The salary threshold is the number that determines whether an employee can be classified as exempt. Get it wrong and you’re exposed to back pay claims, penalties, and potentially class action litigation.
What Changed in 2026?
In 2024 the Department of Labor attempted to raise the overtime salary threshold significantly — first to $43,888 annually and then to $58,656 annually by January 2025. Those increases generated immediate legal challenges and were ultimately blocked or reversed through federal court rulings.
On May 14, 2026 the DOL issued a technical amendment officially restoring the white-collar overtime exemption threshold to the 2019 level — $35,568 per year or $684 per week.
This means the aggressive 2024 and 2025 threshold increases are no longer in effect. The current enforceable federal threshold is $35,568 annually.
What This Means for Your Small Business
If you reclassified employees as exempt during the 2024 or 2025 threshold increases — or if you adjusted salaries upward to maintain exemptions — you now need to review those decisions against the restored $35,568 threshold.
Specifically you need to audit three things:
1. Current exempt employee salaries Any employee classified as exempt must earn at least $35,568 annually. If anyone falls below this threshold they must either receive a salary increase to maintain their exempt status or be reclassified as non-exempt and begin receiving overtime pay.
2. Job duty classifications Salary threshold is only one part of the exemption test. Employees must also perform qualifying executive, administrative, or professional duties. Many small businesses make the mistake of assuming a salary alone determines exempt status — it does not.
3. Highly compensated employees The highly compensated employee exemption threshold has also returned to $107,432 annually under the restored rules. Employees earning above this amount are subject to a reduced duties test.
The Most Common Overtime Compliance Mistakes Small Businesses Make
Based on DOL enforcement patterns these are the violations that trigger the most audits and back pay claims for small businesses:
Misclassifying non-exempt employees as exempt. The most expensive mistake. An employee with an impressive title but routine duties does not qualify for the administrative exemption regardless of their salary.
Failing to track hours for salaried non-exempt employees. If an employee is non-exempt — even if they receive a salary — you must track their hours and pay overtime for anything over 40 hours per week.
Averaging hours across two weeks. The FLSA measures overtime on a single workweek basis. You cannot average 35 hours one week and 45 hours the next to avoid overtime liability.
Improper deductions from exempt employee salaries. Deducting pay from an exempt employee’s salary for partial day absences can destroy their exempt status and expose you to overtime liability for the entire period.
Paying a flat weekly salary and assuming it covers all hours worked. A salary does not automatically cover unlimited hours. Non-exempt salaried employees are still entitled to overtime pay.
Your 2026 FLSA Overtime Compliance Checklist
Use this checklist to audit your current workforce:
- Identify every employee currently classified as exempt
- Confirm each exempt employee earns at least $35,568 annually
- Verify each exempt employee’s actual job duties meet the executive, administrative, or professional duties test
- Confirm you are tracking hours for all non-exempt employees including salaried non-exempt workers
- Review your payroll records for any improper salary deductions in the past two years
- Confirm overtime is calculated on a workweek basis not a pay period basis
- Document your classification decisions in writing for each exempt employee
State Overtime Laws May Be Stricter
The federal threshold of $35,568 is the floor — not the ceiling. Several states have established their own higher overtime salary thresholds that supersede the federal standard.
States with higher thresholds as of 2026 include California, New York, Washington, Colorado, and Alaska among others. If you operate in any of these states you must comply with the higher state threshold regardless of the federal restoration.
Always check your state’s Department of Labor website for current state-specific overtime rules.
What To Do If You Discover a Compliance Gap
If your audit reveals employees who have been misclassified or who should have been receiving overtime pay the recommended steps are:
- Calculate the back overtime owed as accurately as possible
- Consult with an employment attorney before making any payments or admissions
- Correct the classification going forward immediately
- Consider whether a self-audit and voluntary correction is appropriate given the circumstances
The DOL’s Wage and Hour Division does operate a self-audit program. Voluntary correction before a complaint is filed typically results in significantly better outcomes than waiting for an investigation.
Key Takeaways
The federal overtime salary threshold is currently $35,568 per year as of May 14, 2026. The aggressive increases from 2024 and 2025 have been reversed. Small businesses should audit their exempt employee classifications now, confirm salaries meet the restored threshold, and verify that job duties actually support the claimed exemption. State thresholds may be higher and always take precedence.
Recommended Resource: Ensure your business meets the 2026 FLSA overtime salary thresholds with Payroll Mastery for Small Business: Complete Guide to FLSA & IRS Compliance — updated for 2026-2027 with step-by-step overtime exemption guidance.
Recommended Resource: Stay current on 2026 FLSA overtime threshold changes with professional reference guides from National Underwriter — trusted by HR professionals and employment attorneys for regulatory compliance guidance.
Disclaimer: The information on WorkplaceLogic.com is for general informational purposes only and does not constitute legal advice. Employment laws vary by jurisdiction and change frequently. Always consult a qualified employment attorney for advice specific to your situation.
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