Overtime, Exemptions, and Pay Rules: What Employers Need to Know Right Now

Overtime and employee classification continue to be one of the most closely watched — and frequently misunderstood — areas of payroll compliance. Recent headlines about changing overtime rules have added to the confusion, leaving many employers unsure what actually applies today versus what may apply in the future.

May is an ideal time to step back, clarify the current rules, and make sure payroll practices are aligned with what is enforceable now, not just what’s been discussed.

TL;DR — May Payroll Priorities

• Overtime and classification remain high-risk payroll areas
• Federal salary thresholds are currently at the 2019 levels due to court action
• Job titles alone do not determine exemption status
• Bonuses and commissions can affect overtime calculations
• State rules may still be stricter than federal rules
• Reviewing pay rules mid-year helps prevent costly mistakes

A Quick Update on Recent Overtime Developments

You may have seen news about proposed increases to federal overtime salary thresholds. While the U.S. Department of Labor issued a rule in 2024 that would have raised those thresholds, a federal court later vacated that rule.

What applies today:

• Federal enforcement has reverted to the 2019 salary thresholds
• The standard exemption threshold remains $684 per week ($35,568 annually)
• The highly compensated employee threshold remains $107,432 annually
• Appeals and future rulemaking are possible, but no higher federal thresholds are currently in effect

This is an important reminder that payroll compliance depends on what is enforceable, not just what has been announced.

1. Exempt vs. Non-Exempt: Still More Than a Job Title

Despite the recent headlines, the foundation of exemption classification has not changed.

To qualify for most white-collar exemptions, employees must meet:

• A salary basis requirement
• A salary level requirement
• A duties test

If any part of this test is not met, the employee is generally entitled to overtime — regardless of job title or intent.

2. Overtime Calculations Go Beyond Hourly Wages

Overtime is not always calculated solely on base pay. In many cases, the overtime rate must reflect the employee’s regular rate of pay, which may include:

• Non-discretionary bonuses
• Commissions
• Shift differentials
• Certain incentive payments

Failing to include these amounts properly can result in underpaid overtime, even when employees are paid time-and-a-half for hours worked.

3. Federal Rules Aren’t the Whole Story

Even though federal salary thresholds are currently unchanged, many states impose stricter wage and hour requirements, such as:

• Higher minimum salary thresholds
• Daily overtime rules
• More limited exemption categories

When federal and state rules differ, employers must generally follow the rule that is more favorable to the employee — making multi-state payroll especially complex.

4. Why Misclassification Risk Is Still a Major Concern

Misclassification remains one of the most expensive payroll mistakes employers can make. It can result in:

• Back wages for unpaid overtime
• Penalties and interest
• Legal exposure
• Increased scrutiny during audits or investigations

Because misclassification often affects multiple pay periods and employees, even small errors can add up quickly.

5. Why May Is the Right Time to Review Pay Rules

By May, employers typically have:

• Several months of current-year payroll data
• Visibility into staffing patterns and compensation changes
• Time to adjust before peak business or seasonal periods

A mid-year review allows employers to confirm they are compliant now, while staying flexible for potential changes later in the year.

Agencies such as the Internal Revenue Service and labor departments continue to emphasize accurate wage calculations and proper classification — even when rules are evolving.

How Secure HR Helps Employers Navigate Overtime with Confidence

Secure HR helps employers:

• Review exemption and classification decisions
• Validate overtime calculations
• Identify potential compliance gaps
• Stay informed as regulations evolve

Our approach is practical and measured — focused on accuracy today and preparedness for tomorrow.

If you have questions about overtime rules, employee classification, or recent developments, our team is here to help.

World Class Payroll. First Class Service.