Preparing for White-Collar Overtime Changes

Changes to white-collar overtime regulations can significantly affect payroll costs, employee morale, and legal risk. Employers who plan ahead, audit their workforce, and communicate clearly will be better positioned to manage new requirements under the Fair Labor Standards Act (FLSA).

This article explains how white-collar overtime rules work, why salary thresholds matter, and practical steps your organization can take to prepare for regulatory changes while maintaining compliance and trust.

Understanding White-Collar Overtime Rules

Under the FLSA, most employees must receive at least the federal minimum wage and overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Employees who are not entitled to overtime are commonly referred to as exempt, while those who must receive overtime are nonexempt.[10]

What Are White-Collar Exemptions?

The term white-collar exemptions generally refers to specific categories of exempt employees covered by the FLSA, including executive, administrative, and professional staff. These exemptions are often used for managers, office-based employees, and roles that involve higher-level decision-making or specialized knowledge.

To qualify for one of these exemptions, three key criteria must usually be met:

• Salary basis test – The employee must be paid a fixed salary that does not vary based on the quantity or quality of work performed.
• Salary level test – The salary must meet or exceed a minimum weekly threshold set by the U.S. Department of Labor (DOL).
• Duties test – The employee’s primary job duties must fall within specific executive, administrative, or professional definitions under the FLSA.

If an employee fails any of these tests—particularly the salary level test—then they are generally nonexempt and must be paid overtime when they work more than 40 hours in a week.[10]

Executive, Administrative, and Professional Roles

The white-collar exemptions are tied to the nature of an employee’s duties. In simplified terms:

• Executive employees usually manage part of the business, regularly supervise at least two full-time employees, and have meaningful authority over hiring or firing.
• Administrative employees primarily perform office or non-manual work related to management or general business operations, and exercise independent judgment on important matters.
• Professional employees typically perform work requiring advanced knowledge in a field of science or learning, or are engaged in artistic or creative professions.

In addition, the FLSA recognizes a separate category for highly compensated employees, who can qualify for exempt status under a relaxed duties test if they earn above a specified total compensation level.

Why Salary Threshold Changes Matter

One of the most impactful aspects of white-collar overtime rules is the minimum salary threshold. Changes to this threshold can instantly convert large groups of employees from exempt to nonexempt or vice versa, affecting payroll budgets and timekeeping practices.

The Role of the Salary Level Test

The DOL sets a minimum weekly salary that employees must earn to be treated as exempt under the executive, administrative, and professional categories. At present, federal rules require most exempt white-collar employees to be paid at least $684 per week, which equates to $35,568 per year. Employees paid less than this are generally entitled to overtime, even if their job titles sound managerial or professional.

For highly compensated employees, the threshold is higher. Under the 2019 rule that currently governs federal overtime thresholds, a highly compensated employee typically must earn at least $107,432 in total annual compensation, including a minimum of $684 per week on a salary or fee basis.

Recent and Proposed Threshold Adjustments

In recent years, the DOL has periodically updated these salary thresholds, and some rules have been subject to legal challenges. For example, a final rule issued in 2024 sought to raise the standard threshold to $844 per week and then to $1,128 per week by January 2025, with additional automatic increases scheduled every three years. The same rule would have increased the highly compensated employee threshold to $132,964 and then $151,164.

However, a federal court later vacated key parts of the 2024 rule, resulting in a reversion to the thresholds established under the DOL’s 2019 rule at $684 per week and $107,432 annually. These events illustrate how quickly compliance obligations can shift, and why employers should monitor both regulatory updates and court decisions.

Because federal thresholds and enforcement priorities can change, employers should treat salary levels as a dynamic compliance requirement rather than a static figure.

First Step: Audit Your Employee Classifications

When white-collar overtime rules shift, the most urgent task is to identify which employees will be affected. A structured classification audit allows organizations to determine who may need to be reclassified, whose pay may need to be adjusted, and where current practices might create exposure.

Conducting a Systematic Review

Start with a list of all salaried employees and categorize them by exemption status, job title, department, and current pay level. Then evaluate each position against the FLSA tests:

• Check salary basis – Confirm that exempt employees are truly paid a fixed salary not subject to improper deductions.
• Measure salary against current thresholds – Compare each exempt employee’s weekly pay to the applicable federal threshold, and to any higher state or local thresholds where they work.
• Review job duties – Compare actual duties—not just job descriptions—to the executive, administrative, or professional criteria.

Employees who fall below the salary threshold or do not satisfy the duties test should be flagged as candidates for reclassification to nonexempt status.

Pay Particular Attention to Borderline Roles

Some positions frequently sit on the border between exempt and nonexempt status. Examples include:

• Assistant managers who perform mainly front-line tasks rather than true management.
• Administrative staff whose work is more clerical than strategic.
• Technical employees whose duties are closer to support roles than to recognized professional occupations.

In many industries, employees with professional-sounding titles may not meet the legal criteria for white-collar exemptions. Misclassification in these cases can lead to significant back pay and penalties if challenged.

Second Step: Decide Whether to Raise Salaries or Reclassify

Once you identify employees who fall below the applicable salary threshold, you will generally have two main options: increase their pay to retain exempt status, or reclassify them as nonexempt and begin paying overtime.

Option 1: Increase Salaries to Maintain Exempt Status

For roles where exempt status is essential—such as key managers or professionals with unpredictable hours—raising salaries to meet the threshold may be the most practical solution.

Consider the following when evaluating pay increases:

• Budget impact – Compare the total cost of salary increases to projected overtime expenses if the employees were reclassified.
• Market competitiveness – Ensure that new salaries align with market rates to avoid wage compression or inequities.
• Consistency – Apply clear criteria for who receives salary increases to reduce the risk of perceived favoritism.

Keep in mind that higher thresholds for highly compensated employees may also affect how you structure pay for senior staff.

Option 2: Reclassify Employees as Nonexempt

Reclassification is often appropriate for employees whose duties fit better within nonexempt categories or whose working hours are predictable. When reclassifying:

• Determine an appropriate hourly rate or nonexempt salary that reflects typical hours and anticipated overtime.
• Establish clear timekeeping procedures, including rules for recording hours worked, breaks, and remote work.
• Train managers on how to schedule and supervise nonexempt staff to control overtime costs.

Because nonexempt employees must be paid for all hours worked, including unauthorized overtime in many circumstances, organizations should also reinforce policies against off-the-clock work.

Third Step: Update Payroll, Policies, and Communication

White-collar overtime changes do not only affect pay rates; they require updates to payroll processes, handbooks, and internal messaging. The more clearly you communicate and document these changes, the less likely you are to face disputes or confusion.

Strengthen Timekeeping and Payroll Systems

As more employees become nonexempt, accurate time records become essential. Employers should verify that their payroll systems can:

• Capture start and end times, meal periods, and rest breaks for all nonexempt staff.
• Calculate overtime at one and one-half times the regular rate of pay for hours over 40 in a workweek.
• Handle multiple pay rates, bonuses, and other compensation elements that might affect the regular rate.

Organizations with hybrid or remote work arrangements should ensure that their systems can reliably track hours worked away from the physical workplace.

Revise Policies and Employee Handbooks

Written policies should reflect current overtime rules and expectations. Consider updating:

• Overtime approval procedures – Clarify who can authorize overtime and how requests should be submitted.
• Work-from-home guidelines – Specify how remote nonexempt employees must record their hours.
• Travel time rules – Outline when travel is compensable for nonexempt workers.

Consistent policies help ensure that managers apply overtime rules uniformly across departments, reducing the risk of discrimination claims or morale issues.

Communicate Changes Transparently

Reclassification or pay adjustments can be sensitive topics. Employees may view a shift from exempt to nonexempt status as a demotion, even though it often results in greater pay transparency and overtime eligibility.

To manage perceptions and preserve trust:

• Explain that changes are driven by legal requirements, not by performance concerns.
• Highlight the benefits of nonexempt status, such as eligibility for overtime pay.
• Provide practical guidance on timekeeping, breaks, and scheduling to reduce uncertainty.

Managers should be trained to answer basic questions and direct more complex concerns to human resources or legal counsel.

Managing Risk: State Law, Litigation, and Future Updates

White-collar overtime compliance is not only a federal issue. Many states and localities have their own overtime rules, minimum wage laws, and salary thresholds that may be more protective than federal law. Employers must follow whichever standard is more protective of employees.

Watch for State and Local Requirements

Some jurisdictions set higher salary thresholds or have different tests for exemptions. For employers operating across multiple states, policies should be tailored to the most protective applicable laws in each location. In practice, this may mean:

• Applying different thresholds for the same job title depending on where the employee works.
• Maintaining location-specific handbooks or addenda addressing local rules.
• Working with counsel familiar with regional labor standards.

Prepare for Future Threshold Adjustments

Recent rules have included mechanisms to automatically adjust salary thresholds at regular intervals, such as every three years, based on percentile earnings in certain regions. Even where such mechanisms are vacated or modified by courts, they signal a regulatory trend toward regular updates rather than decade-long periods of stability.

To stay ahead of future changes, employers should:

• Schedule periodic reviews of exempt salaries relative to anticipated thresholds.
• Monitor DOL rulemaking, court decisions, and guidance for new developments.
• Build contingency plans for salary adjustments or reclassifications when new rules are proposed.

Frequently Asked Questions

Do job titles alone determine exempt status?

No. Employees must meet the salary basis, salary level, and duties tests to be treated as exempt under the FLSA. A managerial or professional-sounding title without appropriate pay or duties will not satisfy white-collar exemptions.

Can an employee be exempt if paid below the salary threshold?

Generally, no. Most executive, administrative, and professional employees must be paid at least the minimum weekly salary set by the DOL to qualify for exemption. Some professions, such as certain teachers, doctors, and lawyers, may be treated differently under specific regulations, but these are limited exceptions.

What happens if a court reverses a DOL overtime rule?

If a federal court vacates part of an overtime rule, the prior threshold or standard may come back into effect. Employers should closely follow official DOL announcements and credible legal updates to determine which rules are currently enforceable.

Are blue-collar workers treated differently?

Yes. Workers whose primary duties involve manual labor or repetitive physical tasks are generally nonexempt and entitled to overtime pay, even when they earn high salaries. The white-collar exemptions are aimed at executive, administrative, professional, and certain other specialized roles.

How often should employers review exemption classifications?

Regular reviews are advisable, especially when new DOL rules are proposed, thresholds change, or job duties evolve. Many employers conduct annual or biannual audits of classification, pay levels, and job descriptions to reduce the risk of misclassification.

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Sneha TeteBeauty & Lifestyle Writer

 

Sneha is a relationships and lifestyle writer with a strong foundation in applied linguistics and certified training in relationship coaching. She brings over five years of writing experience to waytolegal,  crafting thoughtful, research-driven content that empowers readers to build healthier relationships, boost emotional well-being, and embrace holistic living.

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