FLSA Overtime Rules 2026: What Employers Need to Know

Two things about federal overtime changed direction between 2024 and 2026, and an employer working from a two-year-old memo is almost certainly wrong about both. The salary threshold that was supposed to rise did not. And a new federal reporting obligation attached to overtime that did not exist before.

This guide states the current position on both, then covers the mechanics that have not changed — and where the actual liability lives, which is not the threshold everyone watches.

The Salary Threshold: Where It Actually Stands

The 2024 rule that would have raised the standard salary level to $844 per week, and then to $1,128 per week, never took effect. It was vacated by federal court decisions in Texas, the Department of Labor withdrew its appeals, and on May 15, 2026 the DOL formally rescinded the rule.

The operative levels are the ones set by the 2019 rule:

Two practical consequences:

If you raised salaries in 2024 in anticipation of the higher threshold, you cannot unwind that. Not legally impossible, but a salary reduction is a compensation action with morale and potential contract consequences, and it will not be understood as a technical correction.

If you reclassified employees to non-exempt in 2024, reclassifying them back is a genuine decision, not a reversion. The duties test still governs, and moving someone back to exempt after treating them as non-exempt invites scrutiny of whether the exemption was ever correct.

State thresholds are the more important number for many employers. Several states set a minimum salary for exempt status above $684 per week, and some index it annually to a multiple of the state minimum wage. The higher standard applies. An employee properly exempt under federal law can be non-exempt under state law, and a remote employee can become non-exempt purely by relocating.

Our Payroll Wage & Hour Training & Certification Program covers the current framework, and the DOL rules on overtime session covers the federal analysis.

Why the Threshold Is Not Where the Liability Is

The salary level attracts attention because it is a number that appears in headlines. In practice, most overtime liability comes from three other places.

1. The Duties Test

Satisfying the salary level is necessary but not sufficient. The employee must also perform exempt duties under one of the recognized exemptions — executive, administrative, professional, computer, or outside sales.

The distinctions that generate litigation:

• Executive requires managing a recognized department, customarily directing two or more full-time employees, and having genuine authority or influence over hiring and firing. A "manager" who supervises no one is not exempt.
• Administrative requires office or non-manual work directly related to management or general business operations, and the exercise of discretion and independent judgment on matters of significance. Applying established procedures — however skillfully — is not discretion. This is the most litigated exemption and the most often misapplied.
• Professional requires advanced knowledge in a field of science or learning, customarily acquired through prolonged specialized instruction.
• Computer applies to specific systems analysis and programming duties, not to general IT support.
• Outside sales requires customarily and regularly working away from the employer's place of business. Inside sales is not covered.

Job titles are irrelevant. "Assistant Manager," "Coordinator," "Analyst," and "Specialist" carry no weight. What matters is what the person actually does most of the time.

2. Salary Basis Violations

An exempt employee must be paid on a salary basis — a predetermined amount not subject to reduction based on quantity or quality of work. Improper deductions can destroy the exemption, and the consequence can extend to everyone in the same job classification subject to the same practice, not just the affected individual.

Generally impermissible: partial-day deductions for absences, deductions for slow business or lack of work when the employee is available, deductions for disciplinary suspensions of less than a full day outside narrow safety exceptions, and deductions for the quality of work performed.

Generally permissible: full-day absences for personal reasons, full-day absences under a bona fide sick leave plan, full-day disciplinary suspensions for serious workplace conduct violations, the first and last weeks of employment, and unpaid FMLA leave.

There is a safe harbor for employers with a clearly communicated policy prohibiting improper deductions, a complaint mechanism, prompt reimbursement, and a good-faith commitment to future compliance. It only works if the policy exists before the violation.

3. The Regular Rate

This is where the largest dollar exposure sits, and it affects non-exempt employees you have correctly classified.

Overtime is 1.5 times the regular rate, which is total straight-time compensation divided by total hours worked — not the base hourly rate. It must include non-discretionary bonuses, shift differentials, on-call pay, hazard pay, and most incentive compensation.

An employee earning $20.00 per hour who works 45 hours and receives a $100 production bonus has a regular rate of $22.22, and is owed a premium of $55.55 rather than $50.00. The $5.55 gap is invisible on one paycheck and enormous across a classification over a three-year lookback with liquidated damages.

Worse, a bonus covering more than one pay period must be allocated back over the weeks earned, retroactively raising the regular rate for each — meaning a quarterly bonus generates a thirteen-week retroactive overtime calculation that most systems do not perform automatically.

Which bonuses are excludable? Only genuinely discretionary ones, where the fact of payment, the amount, and the timing are all at the employer's sole discretion and not promised in advance. Announcing the criteria makes a bonus non-discretionary regardless of what the plan document calls it.

New for 2026: Separate W-2 Reporting of Qualified Overtime

Under the One Big Beautiful Bill Act, individuals may claim a federal deduction for qualified overtime compensation for tax years 2025 through 2028. The employer obligation begins in earnest with the 2026 tax year: qualified overtime must be separately reported on Form W-2.

The definitional point matters enormously:

• Only the premium portion of overtime mandated by Section 7 of the FLSA qualifies — the half-time premium above straight time, not the entire overtime payment
• Voluntary overtime does not qualify
• Premiums owed only under state law or a collective bargaining agreement do not qualify
• Overtime-style bonuses and shift premiums do not qualify

This creates a coding problem for most employers. If overtime posts to a single earnings code, or if premium-style bonuses share a code with true FLSA overtime, you cannot produce a correct figure in January. Splitting the premium into its own earnings code is a configuration project with a hard deadline.

Note also what does not change: qualified overtime remains fully subject to Social Security and Medicare and remains wages for withholding purposes. Expect employee questions built on "no tax on overtime," which materially overstates the provision. See our OBBBA payroll forms update session.

What Counts as Hours Worked

Overtime liability depends on hours, and several categories are compensable that employers routinely miss:

• Required training and most mandatory meetings
• Travel between job sites during the workday
• Donning and doffing required protective gear where integral to the principal activity
• Waiting time where the employee is engaged to wait rather than waiting to be engaged
• Short rest breaks, generally 20 minutes or less
• Work performed off the clock, including after-hours email and messaging by non-exempt staff
• Unauthorized overtime that the employer knew or should have known about — the fact that it was not approved does not make it unpaid

That last point is the one that surprises managers. "We don't authorize overtime" is not a defense if the work was performed and the employer had reason to know.

Our travel pay rules page and the Questions & Answers For Handling Travel Pay session cover the travel category.

State Overlays That Change the Math

Federal law is a floor. States commonly impose:

• Daily overtime — premium pay after a set number of hours in a day, regardless of the weekly total
• Seventh-consecutive-day premium requirements
• Double time above a higher daily threshold
• Higher exempt salary thresholds, sometimes indexed annually
• Different duties tests, occasionally narrower than the federal versions
• Meal and rest break premiums that function as additional pay obligations

A multi-state employer computing overtime on the federal weekly standard alone will under-pay in daily-overtime states. See our Multi-State Taxation training for the jurisdictional framework and payroll wage and hour training for the enforcement framework.

A 2026 Overtime Compliance Audit

• [ ] Confirm every exempt employee meets the current $684 per week federal salary level and any higher state level
• [ ] Re-test every exempt employee against the duties test, ignoring job title
• [ ] Review pay practices for salary basis violations, especially partial-day deductions
• [ ] Confirm a safe harbor policy exists, is communicated, and includes a complaint mechanism
• [ ] Inventory every earnings code and label it includable or excludable from the regular rate
• [ ] Confirm multi-week bonuses are allocated back to raise the regular rate for the weeks earned
• [ ] Verify "discretionary" bonuses are genuinely discretionary and not announced in advance
• [ ] Test whether compensable time categories are captured — training, inter-site travel, waiting time, off-the-clock work
• [ ] Confirm daily overtime and seventh-day rules are applied in states requiring them
• [ ] Confirm the FLSA overtime premium is isolated in its own earnings code for 2026 W-2 reporting
• [ ] Confirm no premium-style bonus is coded as qualified overtime

Frequently Asked Questions

What is the FLSA salary threshold for 2026?

$684 per week, or $35,568 annually, for the executive, administrative, and professional exemptions, with $107,432 in total annual compensation for the highly compensated employee exemption. The 2024 rule that would have raised these levels was vacated by federal courts and formally rescinded by the Department of Labor on May 15, 2026, leaving the 2019 levels in effect. Several states impose higher thresholds, and the higher standard applies.

Did the DOL overtime rule increase take effect?

No. The 2024 final rule would have raised the standard salary level to $844 per week and then to $1,128 per week, but it was vacated in Texas litigation, the DOL withdrew its appeals, and the rule was formally rescinded in May 2026. Employers who raised salaries in anticipation cannot easily unwind those increases, and employers who reclassified employees to non-exempt should treat reclassifying back as a fresh decision governed by the duties test.

How is overtime calculated under the FLSA?

At 1.5 times the regular rate for hours worked over 40 in a workweek. The regular rate is total straight-time compensation divided by total hours worked, and it must include non-discretionary bonuses, shift differentials, on-call pay, and most incentive compensation — not merely the base hourly rate. Bonuses covering more than one pay period must be allocated back over the weeks earned, retroactively increasing the regular rate for each.

Can an employer refuse to pay unauthorized overtime?

No. If a non-exempt employee performed the work and the employer knew or should have known about it, the time is compensable regardless of whether it was approved. An employer may discipline an employee for violating an overtime authorization policy, but it must still pay for the hours worked. After-hours email and messaging by non-exempt staff is a common source of this exposure.

What is a salary basis violation?

An improper deduction from an exempt employee's predetermined salary — most commonly a partial-day deduction, a deduction for slow business when the employee was available to work, or a disciplinary suspension of less than a full day outside narrow safety exceptions. The consequence can extend beyond the individual to everyone in the same classification subject to the same practice. A safe harbor is available to employers with a communicated policy, a complaint mechanism, and prompt reimbursement — but only if the policy predates the violation.

Does the OBBBA no tax on overtime provision change how employers withhold?

No. Qualified overtime remains fully subject to Social Security and Medicare and remains wages for income tax withholding purposes; the deduction is claimed by the individual on their personal return. What changes is reporting: beginning with the 2026 tax year, employers must separately report qualified overtime on Form W-2, and only the premium portion of FLSA-mandated overtime qualifies — not voluntary overtime, state-law-only premiums, or overtime-style bonuses.

Going Deeper

• Payroll Wage & Hour Training & Certification Program — the full FLSA framework
• DOL rules on overtime — current federal requirements
• The Payroll Wage & Hour Procedures Manual — documenting your practices
• Certified Payroll Administrator — the broader credential

Federal overtime rulemaking has moved repeatedly since 2024 and state thresholds change annually, several by indexation. Confirm the current federal levels with the Department of Labor and check each state where you have employees before relying on any classification.