Most small business owners think overtime law only applies to hourly workers on a factory floor. That assumption is costing people real money. The Department of Labor’s updated overtime rules raised the salary threshold for exempt employees to $58,656 per year, effective in 2025 and now fully enforced heading into 2026. If you have salaried employees earning below that number, they qualify for overtime pay, regardless of their job title.
The common mistake is conflating title with classification. You can call someone a manager, a supervisor, or a coordinator, and it means nothing if they earn under the threshold and their actual duties don’t meet the federal duties test. The DOL has been clear: a job title is not a legal classification. Employers who misclassify workers here face back wages, penalties, and in some states, double damages.
The duties test is where most employers get caught. To be exempt, an employee must meet both the salary threshold and pass one of the standard duties tests: executive, administrative, or professional. Bureau of Labor Statistics data shows that roughly 3.6 million additional workers became overtime-eligible under the updated threshold. A chunk of those workers are sitting on small business payrolls right now, and many of those employers haven’t touched their compensation structures.
You have two legal options when an employee falls below the threshold. Raise their salary above $58,656 to preserve the exemption, or reclassify them as non-exempt and track their hours. Neither option is free. Reclassification means timekeeping systems, adjusted schedules, and potential overtime liability the moment someone works 41 hours. A salaried employee who regularly works 50 hours a week at $50,000 annually could now cost you an extra $9,000 to $14,000 per year in overtime once properly classified, depending on their effective hourly rate.
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State law complicates this further. California, New York, and Washington all have higher state-level overtime thresholds than the federal floor. In California, the threshold for small employers sits above $66,560 annually as of 2026. If you operate in multiple states, you must comply with whichever standard is higher. Checking only federal rules is not enough.
The audit risk is not theoretical. The DOL recovered over $274 million in back wages in a single recent fiscal year, with a significant share coming from small and mid-sized employers. Wage and hour complaints are among the most common labor claims filed.
Review every salaried position under $60,000 now. Run the duties test. Document your reasoning. Ignorance of the classification rules is not a legal defense, and the bill when you’re wrong is specific, calculable, and avoidable.