Overtime salary threshold raised: what small business HR must do

Small business HR teams have been watching the U.S. Department of Labor (DOL) overtime salary threshold closely, especially after the 2024 final rule announced staged increases that would have expanded overtime eligibility for many salaried employees.

But the compliance reality in 2026 is different from what many employers planned for. As of 20/01/2026, the DOL confirms that a federal court vacated the 2024 rule on November 15, 2024, and that “with regard to enforcement,” the agency is applying the 2019 federal thresholds. That means HR must operate from today’s enforceable baseline, while still watching state law, which can be stricter.

1) What actually happened: the “raised threshold” was vacated

The 2024 DOL final rule (published in the Federal Register as changes to 29 CFR Part 541) increased the standard salary level for the executive, administrative, and professional (EAP) exemptions and raised the highly compensated employee (HCE) threshold. It also included an updating mechanism intended to refresh the thresholds on a schedule.

Under the rule’s staged plan, the standard salary threshold would have risen to $844 per week on 07/01/2024 and then to $1,128 per week on 01/01/2025. Many small employers prepared for reclassifications, payroll system changes, and budget increases based on that timeline.

However, the Eastern District of Texas issued a ruling with nationwide effect, vacating the 2024 final rule on November 15, 2024. Legal analyses of the decision describe the vacatur as halting the increases and “returning” the federal standard salary level to the pre, July 1, 2024 amount, meaning employers must treat the planned 2024/2025 increases as void for federal enforcement purposes.

2) The 2026 federal numbers HR should plan around (unless state law is higher)

For federal Fair Labor Standards Act (FLSA) planning in 2026, the key numbers to keep at hand are the 2019 rule thresholds that DOL says it is applying “with regard to enforcement.” The standard salary level is $684 per week, which equals $35,568 per year.

The HCE threshold DOL is enforcing is $107,432 per year. Remember that the HCE classification still requires at least one exempt duty (and other conditions), so it is not a “salary-only” safe harbor.

Most importantly for small business HR: state law can set higher thresholds or different exemption requirements, and employers must follow whichever rule is more protective of employees. News coverage has highlighted states such as New York raising overtime salary thresholds effective January 1 (with amounts varying by location and employer size), so a “federal revert” does not automatically end your obligations.

3) Re-audit exemptions: salary level test plus duties tests

Whether your company changed classifications during the 2024 ramp-up or not, now is the time to re-audit exempt roles using the DOL framework: exemption depends on meeting the salary basis test, the salary level test, and the duties tests. A job title alone never determines exempt status.

Start with the salary level test. If an employee is treated as exempt under the EAP exemptions but is paid below $684/week under federal law (or below a higher state threshold), the exemption is generally not available, even if their duties are managerial or professional. HR then must decide: raise salary to meet the threshold (if duties also qualify), or convert the role to nonexempt and pay overtime.

Then validate the duties tests using current job realities, not legacy descriptions. Small business roles often evolve, an “office manager” may now spend most time on front-desk coverage, or a “team lead” may have lost authority over hiring and discipline. Documentation should capture what the employee actually does, how decisions are made, and which exempt criteria are met.

4) If you reclassified in 2024, decide whether to keep it, and document why

Many small employers reclassified employees to nonexempt in mid-2024 (or prepared to do so for 01/01/2025) to avoid the higher salary threshold. Since the 2024 rule was vacated and enforcement reverted to 2019 thresholds, HR can revisit those choices.

One option is to keep employees nonexempt. This can be the simplest compliance posture because it reduces the risk of misclassification when duties are borderline and makes overtime eligibility straightforward. It can also fit better when workloads spike and hours are unpredictable.

The other option is to reclassify back to exempt (only if both salary and duties tests are clearly met under applicable federal and state rules). If you do this, document the rationale: the legal change (vacatur), the role’s duties analysis, compensation structure, and operational considerations. Clear documentation helps prevent employee-relations issues and supports consistent treatment if you are later audited or face a wage-hour complaint.

5) Pay planning and budgeting: revisit assumptions and model scenarios

The SBA Office of Advocacy flagged small-entity cost concerns during the rulemaking process and urged alternatives, context that helps explain why small businesses built budgets around potential salary increases, overtime premiums, and administrative over. With the federal rule vacated, many of those line items may need to be recalibrated.

Update your labor cost models using enforceable thresholds and realistic hour patterns. For each affected role, compare (1) raising salary to preserve exemption (when legally valid), versus (2) converting to nonexempt and paying overtime. The Texas litigation captured the practical employer choices the rule would force: “pay… overtime… increase their salaries… or forbid them… more than forty hours.” Those same choices remain your operational levers any time a role is nonexempt or becomes nonexempt under state law.

Also review compensation design details. Under DOL rules, nondiscretionary bonuses and incentives can count toward meeting part of the salary threshold up to a limit (subject to the rule’s conditions). If you use bonuses to help manage total compensation cost, ensure your plan design and payroll practices satisfy the applicable requirements, and verify state rules, which may differ.

6) Operational controls: timekeeping, manager training, and overtime management

If any roles moved to nonexempt during 2024 and stayed that way, operational follow-through matters as much as legal classification. Nonexempt work requires accurate time recording, including off-the-clock risks like after-hours calls, messages, and “quick tasks” from home.

Retrain managers on controlling hours and approving overtime. In small businesses, managers often wear multiple hats and may not realize that “just check your email tonight” can create compensable time. Practical steps include defining work hours, requiring time entry daily, and setting rules for meal and rest breaks where state law requires them.

Finally, align scheduling with business reality. If overtime is frequent, decide whether to (1) accept overtime as a cost of doing business, (2) redistribute work, (3) add part-time help, or (4) change service-level expectations. Overtime compliance failures usually stem from unmanaged workload, not payroll math.

7) Policies and communications: clean up references to void increases

Many handbooks, offer templates, and internal memos were updated to reflect “salary threshold increases effective Jan. 1, 2025.” Because the 2024 final rule was vacated and DOL enforcement reverted to the 2019 thresholds, HR should remove or revise any policy language that treats those increases as still in effect.

Employee messaging should be direct and fact-based. A useful internal line is: “Why our OT eligibility changed again.” Point to DOL’s plain-language statement that the 2024 final rule was vacated on November 15, 2024 and that enforcement is applying the 2019 thresholds. This reduces confusion and helps employees understand that HR is responding to a legal change rather than making arbitrary decisions.

Also create a “source bundle” your team can bookmark and revisit: the DOL FAQ and the Small Entity Compliance Guide (both updated to reflect the vacatur). Using official sources helps keep your advice consistent if employees ask questions or if leadership wants a defensible explanation for classification decisions.

8) Future watchlist: state thresholds and the next federal rulemaking cycle

The vacatur does not mean the issue is permanently settled. The 2024 rule included a triennial automatic update mechanism, with the next update that would have been scheduled for July 1, 2027. Because that mechanism was part of what was vacated, employers should monitor for new DOL rulemaking rather than assuming thresholds will stay static.

At the same time, state law remains the fastest-moving variable. Some states adjust exemption salary thresholds regularly, and some tie thresholds to minimum wage or other indices. HR should maintain a state-by-state compliance tracker if you employ remote staff, even if you are a small employer with a single physical location.

Build a repeatable internal process: quarterly threshold checks, an annual exemption audit, and a change-management plan (template communications, payroll system steps, manager retraining modules). That way, the next legal shift, federal or state, becomes a controlled update rather than a last-minute scramble.

For small business HR, the practical takeaway is that the “overtime salary threshold raised” story is now mainly historical context at the federal level, because the 2024 increases were vacated and DOL enforcement reverted to the 2019 thresholds: $684/week ($35,568/year) and $107,432/year for HCE.

What you must do now is operational and document-driven: re-audit exemptions using salary and duties tests, decide whether to maintain any 2024 reclassifications, update budgets, retrain managers on timekeeping, and clean up policies that reference void increases, while staying vigilant on state-law thresholds and any future federal rulemaking.