The Department of Labor's updated salary threshold for overtime eligibility is now final. With the clock ticking toward the effective date, here's the step-by-step playbook for getting your organization audit-ready without disrupting your workforce.
Key Takeaways
The Department of Labor's final rule on overtime exemption thresholds has arrived, and the clock is running. Effective 60 days from publication, the minimum weekly salary required for an employee to qualify as exempt from overtime under the FLSA's executive, administrative, and professional exemptions rises from $684 per week to $1,128 per week, an increase of $444 per week that will extend overtime eligibility to an estimated 4.1 million American workers. For HR teams, this is not a regulatory development to monitor. It is an operational crisis to manage, and the window to do so responsibly is narrowing fast.
The rule also increases the total annual compensation threshold for the "highly compensated employee" (HCE) exemption from $107,432 to $151,164, and establishes an automatic triennial update mechanism that will adjust both thresholds to reflect current wage data going forward. This last provision is significant: it means the compliance work HR teams do today is not a one-time project but the foundation of an ongoing process that will require regular review and response with each future adjustment cycle.
"This is the largest single expansion of overtime eligibility in nearly two decades," says employment attorney Diane Kowalski of Fisher Phillips. "For most organizations, the question isn't whether it matters, it's whether you have enough time to respond correctly. The teams that started this analysis six months ago are well-positioned. The teams starting today need to move very quickly and in close coordination with legal counsel."
HR teams facing the threshold change have three primary response options, and the right choice depends on the specific characteristics of each affected role. The first option is to raise salary above the new threshold, maintaining exempt status. This approach preserves scheduling flexibility and avoids the administrative burden of overtime tracking, but at a direct labor cost. For employees earning $900 to $1,127 per week who work little overtime and whose roles clearly satisfy the duties tests for exemption, salary elevation is often the most practical and least disruptive path. The cost of the salary increase must be weighed against the cost of overtime exposure and the managerial overhead of converting to hourly tracking.
The second option is reclassification to non-exempt status. This approach involves moving affected employees to hourly compensation, implementing time-tracking systems, and paying overtime for all hours worked beyond 40 per week. Reclassification is the legally cleaner path for employees whose roles involve significant hourly variation or who regularly work beyond standard hours, but it carries significant change management risk. Employees who have been classified as salaried-exempt frequently perceive reclassification as a demotion, even when their total compensation is maintained or increased, and HR teams need to communicate the change carefully and proactively.
"The reclassification conversation is not primarily a legal conversation — it's a cultural one. Most employees have internalized 'salaried' as a status signal. When you tell them they're moving to hourly, the first thing they hear is 'we trust you less' — and that perception needs to be actively managed." — Diane Kowalski, Partner, Fisher Phillips
Before choosing a response strategy, HR teams need a complete picture of their exposure. A structured audit should begin with a full enumeration of all currently exempt employees whose weekly salary falls below $1,128, including bonus and commission components that may or may not count toward the threshold depending on how compensation is structured. Layer in actual hours data for each affected role, drawn from time and attendance systems, project management tools, or manager attestation, to model the overtime cost exposure that reclassification would create. Then model the salary adjustment cost for those where elevation is the preferred response, to compare the two paths on a total cost basis.
This analysis should be conducted in collaboration with employment counsel, particularly for roles where the duties test itself is questionable. The salary threshold change does not affect the duties tests. Employees must still satisfy the relevant executive, administrative, or professional duties criteria to qualify for exemption regardless of salary level, and the threshold change creates an opportunity to audit whether borderline role classifications are truly defensible in their current form.
The overtime rule is both a compliance obligation and a workforce management decision that will affect employee morale, scheduling practices, and total compensation structures for years to come. HR teams that approach it as a narrow legal problem to solve will likely address the immediate compliance risk but create new operational headaches downstream. Those that treat it as an opportunity to audit and rationalize their exempt classification practices holistically will come out the other side with a more defensible, better-documented workforce structure, and a foundation for handling the next threshold adjustment with considerably more ease.
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