Overtime Eligibility Threshold

The overtime eligibility threshold determines which salaried workers must be paid 1.5× their regular rate for hours worked beyond 40 per week. Under the Fair Labor Standards Act (FLSA), salaried employees are exempt from overtime only if they earn above a salary threshold and pass a duties test — right now that threshold is $58,656/year ($1,128/week), though its legal status is contested after a federal court vacated the 2024 rule. About 3.4 million workers were expected to gain overtime eligibility under that 2024 increase; the rollback eliminated most of those gains. The policy is a live battleground: the Biden administration raised the threshold twice; the Trump administration is expected to lower or freeze it. Separately, Congress is debating a proposed income tax deduction for overtime wages (not the same as the threshold), which would benefit workers who already qualify for overtime. Understanding whether you're currently covered — and how pending changes could shift your take-home pay — requires knowing both rules.

Current Law (2026)

The Fair Labor Standards Act (FLSA) requires employers to pay overtime (1.5x regular rate) for hours worked over 40 in a workweek. Salaried employees are exempt from overtime only if they meet both a salary threshold and a duties test.

Note: The DOL's 2024 rule raising thresholds was vacated by federal court in November 2024. Current enforceable threshold may be the pre-2024 level of $35,568. Check current status.

Proposed Overtime Tax Deduction

Source: wallet_editorial overtime_deduction data. These are proposed/modeled values, not current law.

Legal Authority

• 29 U.S.C. § 207 — Maximum hours (overtime pay required for hours worked over 40 per workweek)
• 29 U.S.C. § 213(a)(1) — Exemptions from overtime for executive, administrative, and professional employees
• 5 USC § 5542 — Federal employee overtime rates: overtime required when officially ordered to work over 40 hours/week or 8 hours/day; rate is 1.5× basic hourly pay if at or below GS-10 minimum (including locality pay), or the greater of 1.5× GS-10 minimum or straight hourly rate if above GS-10
• 5 USC § 5544 — Wage-board overtime and premium pay: prevailing-rate (blue-collar) federal employees get overtime for work over 8 hours/day or 40 hours/week at minimum 1.5× basic hourly rate; Sunday premium of 25% of basic rate
• 5 USC § 5547 — Premium pay cap: federal employee base pay plus premium pay cannot exceed the higher of GS-15 Step 10 (with locality) or Executive Schedule Level V; waivable during emergencies declared by the President or OPM
• 29 CFR Part 541 — Defining exempt employees

Implementing Regulations (CFR)

• 29 CFR Part 541 — Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer, and Outside Sales Employees (50 sections — the complete regulatory definition of who is exempt from FLSA overtime). Part 541 implements 29 U.S.C. § 213(a)(1) by specifying the duties tests and salary requirements for each exempt category. Key provisions:

  • § 541.2 — Job titles are not dispositive: the exemption status of any particular employee must be determined based on whether their salary and actual duties meet the regulatory requirements — a "director of operations" who does routine data entry is not exempt; a "team lead" who supervises 3 employees and participates in hiring decisions may be exempt regardless of title
  • § 541.100 — Executive exemption: requires (1) compensation on a salary basis at least the minimum salary threshold; (2) primary duty must be management of the enterprise or a customarily recognized department or subdivision; (3) customarily and regularly directs the work of 2 or more other full-time employees or their equivalent; and (4) has authority to hire or fire other employees, or whose suggestions and recommendations on such matters are given particular weight; all four elements must be met simultaneously — a manager who doesn't supervise 2+ employees or has no input into hiring decisions fails the executive test
  • § 541.101 — Business owner exemption: a narrow alternative to the executive test — any employee who owns at least a 20% bona fide equity interest in the enterprise and is actively engaged in its management qualifies regardless of the salary threshold; covers small business owners who are also employees
  • § 541.200 — Administrative exemption: requires (1) salary basis at or above the threshold; (2) primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and (3) primary duty must include the exercise of discretion and independent judgment with respect to matters of significance; the third element is the most frequently contested — routine clerical work does not qualify; setting policies, resolving disputed claims, or managing client accounts with real authority typically does
  • § 541.202 — Discretion and independent judgment: a high standard — the employee must have the authority to make an independent choice, free from immediate direction or supervision, not merely apply well-established techniques and procedures; following a manual or checklist for routine decisions does not qualify; comparing with past practice, applying specialized knowledge to unusual situations, or negotiating on behalf of the company does; evidence that higher-level review of decisions is rare and decisions are followed without reversal supports exemption; evidence that a supervisor must approve routine decisions undercuts it
  • § 541.203 — Administrative exemption examples: insurance claims adjusters who evaluate liability and authorize settlements typically qualify; tax compliance personnel who only apply established formulas typically don't; HR managers who make hiring recommendations with real authority typically qualify; payroll clerks processing routine computations typically don't
  • § 541.300 — Professional exemption: requires (1) salary basis at or above the threshold; and (2) primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor
  • § 541.301 — Learned professional: the defining characteristic is the requirement for advanced knowledge typically acquired by a course of specialized intellectual study leading to a degree — doctors, lawyers, dentists, pharmacists, teachers, CPAs, and licensed engineers are the classic examples; business school graduates in routine accounting or financial analysis are generally not "professionals" unless their actual work requires advanced specialized knowledge applied in a non-routine way
  • § 541.303 — Teachers: teachers with a primary duty of teaching, tutoring, instructing, or lecturing at an educational institution are exempt regardless of whether they meet the salary threshold — the teacher exemption has no salary floor; applies to elementary and secondary school teachers, college and university faculty, and tutors, but not to teachers' aides performing routine non-instructional duties
  • § 541.304 — Law and medicine: any employee who holds a valid license permitting the practice of law or medicine and is actually engaged in practice is exempt; licensed professionals who have been admitted to the bar or licensed as physicians qualify regardless of the salary test
  • § 541.400 — Computer employee exemption: computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt if compensated on either a salary basis at or above the threshold or on an hourly basis at a rate not less than $27.63 per hour — the hourly alternative makes the computer exemption unique (no other category allows an hourly-paid employee to be exempt); must be primarily engaged in applying systems analysis techniques, designing or developing computer systems or programs, or similar systems/programming work; computer hardware maintenance or repair, help desk work, or routine network troubleshooting typically does not qualify
  • § 541.500 — Outside sales exemption: no salary threshold applies — outside sales employees are exempt with any compensation arrangement if (1) primary duty is making sales or obtaining orders or contracts; and (2) the employee is customarily and regularly engaged away from the employer's place of business in performing that primary duty; telephone or internet sales made from the employer's office do not qualify as "outside sales"; drivers who deliver products may qualify only if the primary duty is sales, not delivery
  • § 541.600 — Salary amount required: to qualify as an exempt EAP employee, the minimum salary is the contested threshold — currently $684/week ($35,568 annually) after the Biden 2024 rule raising it to $1,128/week was vacated; the salary may be prorated for employees who work part-year on an annual basis; up to 10% of the minimum salary threshold may be satisfied by non-discretionary bonuses and incentive payments if paid at least annually
  • § 541.601 — Highly compensated employee (HCE): an employee with total annual compensation of at least $107,432 (pre-2024 rule amount; the vacated 2024 rule set it at $151,164) who performs office or non-manual work and customarily and regularly performs any one or more of the exempt duties of an executive, administrative, or professional employee qualifies for exemption — the HCE rule requires fewer duties elements because the compensation level itself provides a strong signal of exempt status
  • § 541.602 — Salary basis: an employee must receive a predetermined amount that is not subject to reduction based on the quality or quantity of work performed; the employer may not dock pay for partial-day absences for hourly-like reasons; the key practical rule: if a salaried employee's paycheck is ever reduced because they only worked 3 hours on a given day, the salary basis requirement is destroyed — and the employer loses the exemption
  • § 541.603 — Effect of improper deductions: an employer who maintains an actual practice of making improper deductions (not just isolated instances) loses the exemption for the entire period and for all employees in the same job class — one improper deduction doesn't automatically destroy the exemption if the employer has a clear policy against it and reimburses the improper amount; a pattern of docking pay for partial-day absences is treated as an actual practice

  The central operational fact of Part 541: the duties tests are fact-intensive and highly employer-specific. The same job title performed at two different companies may lead to opposite exemption determinations depending on actual day-to-day duties, supervisory authority, and decision-making independence. Employers routinely misclassify employees — particularly retail assistant managers, restaurant shift supervisors, and financial services employees — because the "management" label or a salary above the threshold creates a false sense of safety without satisfying the duties test. DOL's enforcement posture, plaintiff attorney contingency practices, and collective action rules under FLSA (allowing hundreds of employees to join a single back-pay lawsuit) make misclassification expensive when discovered.

• 29 CFR Part 778 — Overtime compensation computation (regular rate of pay, inclusion of bonuses and commissions, calculation methods)

• 29 CFR Part 548 — Authorized basic rates for computing overtime pay (alternative methods for computing overtime for employees with fluctuating workweeks or multiple pay rates)

• 29 CFR Part 4 — Labor standards for federal service contracts:

  • General minimum wage determinations under the Service Contract Act (prevailing wage requirements for service employees on federal contracts)
  • Effect of the Fair Labor Standards Act Section 6(e) (interaction between FLSA minimum wage and Service Contract Act wage determinations)
  • Overtime pay requirements for service contract employees (overtime at 1.5x for hours over 40 per workweek)

• 29 CFR Part 10 — Establishing a minimum wage for federal contractors:

  • Minimum wage requirements for workers performing on or in connection with federal contracts
  • Overtime payments for federal contractor employees (overtime computed on the federal contractor minimum wage rate)

• 5 CFR Part 551 — Pay Administration Under the Fair Labor Standards Act (55 sections across 7 subparts — OPM's regulations applying FLSA to federal civilian employees; parallel to but distinct from the GS overtime rules in 5 U.S.C. § 5542):

  • Subpart B — Exemptions (17 sections): each employee is presumed FLSA nonexempt unless the agency clearly establishes an exemption applies (§ 551.202); employees earning less than $23,660/year in basic pay are automatically nonexempt regardless of duties (§ 551.203); three white-collar exemptions mirror private-sector FLSA: executive (primary duty is management of an agency subdivision, customarily directs 2+ subordinates, authority to hire/fire or recommend) (§ 551.205); administrative (primary duty is nonmanual work related to business operations, exercises discretion and independent judgment on significant matters) (§ 551.206); professional (requires advanced knowledge in a field of science or learning, typically a degree, or creative/artistic work) (§ 551.207–208); certain protective occupation employees (guards, firefighters) and equipment operators are categorically nonexempt regardless of salary (§ 551.204)
  • Subpart D — Hours of Work (12 sections): compensable hours include all time an employee is required to be on duty or on the employer's premises; travel time, training, and on-call time have specific rules; meal periods of 30+ minutes where employees are completely relieved of duty are not compensable; waiting time at the employer's direction is compensable; preparatory/concluding activities that are an integral part of the principal activity count
  • Subpart E — Overtime Pay (8 sections): FLSA nonexempt federal employees must receive 1.5× their regular rate for all hours over 40 in a workweek; agencies may offer compensatory time off at 1.5× as an alternative to cash overtime pay for FLSA-covered employees, but only with the employee's agreement; the regular rate includes all remuneration except specific exclusions (gifts, vacation pay, overtime premiums already paid); federal FLSA overtime applies even when the employee's total compensation for the week exceeds GS caps
  • Subpart G — FLSA Claims and Compliance (10 sections): FLSA claims must be filed within 2 years (3 years for willful violations); back pay recovery includes all underpaid wages plus an equal amount in liquidated damages unless the employer demonstrates good faith; agencies must maintain time and attendance records for all FLSA-covered employees for at least 3 years; employees may file FLSA claims with OPM, the agency, or in federal court; OPM may conduct compliance reviews of agency records

• 29 CFR Part 23 — Increasing the minimum wage and overtime pay for federal contractors:

  • Updated minimum wage and overtime rules for workers on federal contracts (current minimum wage rates, overtime at 1.5x for hours over 40)

How It Works

FLSA overtime exemption requires passing a two-part test — both parts must be satisfied simultaneously. First, the employee must earn at least the current salary threshold (see the Current Law table above). Second, the employee must perform exempt "white-collar" duties: executive (managing a department and directing two or more full-time employees), administrative (office work directly related to management or general business operations with discretion and independent judgment), professional (work requiring advanced knowledge in a field of science or learning, or creative/artistic work), computer employee (systems analysis or programming), or outside sales. A highly paid manager who fails the duties test is still entitled to overtime; an executive earning $35,000/year who passes the duties test is still entitled to overtime because the salary threshold wasn't met. Independent contractors are not employees and receive no FLSA overtime protection — whether a worker qualifies as an employee at all is governed by worker classification rules.

To qualify as salaried, the worker must receive a fixed, predetermined salary that isn't reduced based on the quality or quantity of work in a given week. Docking a salaried employee's pay for partial-day absences — taking two hours off and having $50 deducted from the paycheck — can destroy the salary-basis requirement and expose the employer to overtime liability for the preceding period. DOL's rules allow up to 10% of the salary threshold to be satisfied by non-discretionary bonuses, commissions, or incentive payments, provided they're paid at least annually — so an employee earning slightly below the threshold in base salary may still qualify if bonuses close the gap. Several states set higher thresholds than the federal floor: California applies a formula tied to the state minimum wage (currently exceeding $68,000 annually), New York uses a separate regional schedule, and Washington State has its own threshold. In those states, the higher state figure governs for employees working there.

Federal employees operate under a parallel but distinct overtime regime under 5 U.S.C. § 5542 — separate from FLSA's weekly-only structure. Federal overtime triggers at over 40 hours in a week or over 8 hours in a single day (whichever generates more), and the pay rate splits at the GS-10 Step 1 minimum: employees below that level receive 1.5× their hourly rate; those above receive the greater of 1.5× the GS-10 minimum or straight-time at their actual rate. A premium pay cap under § 5547 limits total base plus premium pay to GS-15 Step 10 or Executive Schedule Level V, though the cap can be waived during declared national emergencies. Blue-collar federal wage-board employees (§ 5544) earn overtime for work over 8 hours/day or 40 hours/week at a minimum of 1.5×, plus a 25% Sunday premium — a more generous structure than most private-sector schedules. Workers injured during overtime hours are covered by workers' compensation the same as during regular hours; overtime earnings may also factor into average weekly wage calculations used to set workers' comp benefit levels.

Overtime Tax Deduction (Proposed)

There are active proposals to allow workers to deduct overtime pay from taxable income, effectively making overtime pay tax-free up to a limit. This is modeled in the wallet_editorial data but is NOT current law. Key design features:

• Only applies to workers who are legally entitled to overtime under FLSA
• Capped at $50,000-$75,000 depending on filing status
• Phases out at higher income levels
• Would significantly benefit hourly workers in manufacturing, healthcare, construction, and service industries

How It Affects You

State Variations

Several states have higher salary thresholds and/or additional overtime protections:

Pending Legislation (119th Congress)

• HR3118 — No Tax on Overtime Act — New tax deduction for overtime pay, capped at 300 hours, phased out at higher incomes, with W-2 reporting changes (Rep. Moran, R-TX)
• HR2621 — REAL AMERICA Act — Deductions for tips and overtime; reclassify carried interest as ordinary income; remove Social Security from taxable income (Rep. Cohen, D-TN)
• HR2870 — Working Families Flexibility Act — Allow private-sector employees to take comp time instead of overtime pay, with accrual caps and anti-coercion protections (Rep. Miller, R-IL)
• HR1962 — Guaranteeing Overtime for Truckers Act — Remove FLSA exemption so truckers become eligible for overtime pay (Rep. Van Drew, R-NJ)
• HR2270 — Empowering Employer Child and Elder Care Solutions Act — Exclude employer-paid childcare/eldercare from overtime regular rate calculation (Rep. Messmer, R-IN)
• HR2299 — Ensuring Workers Get PAID Act — Voluntary DOL program for employers to self-audit and settle wage/overtime violations through supervised settlements (Rep. Grothman, R-WI)
• HR3495 — Direct Seller and Real Estate Agent Harmonization Act — Exclude direct sellers and some real estate agents from FLSA overtime protections (Rep. Kiley, R-CA)
• HR 4740 (Rep. Sykes, D-OH) — No Tax on Overtime for All Workers Act. Would let employers deduct certain overtime pay when it meets FLSA or prearranged CBA rules, including a 1.5x rate and a 40-hour standard. Status: Introduced.
• HR 6439 — Would expand eligibility for special overtime pay to U.S. Border Patrol agents classified above grade GS-12. Status: Introduced.
• S 1046 (Sen. Hawley, R-MO) — No Tax On Overtime Act of 2025. Would make FLSA overtime pay non-taxable, lowering taxes for workers who earn overtime. Status: Introduced.
• HR 7577 — TIP Improvement Act of 2026. Would require employers to pay full minimum wage to tipped workers and make a larger, permanent tip tax deduction with stronger reporting rules. Status: Introduced.

Recent Developments

• Biden overtime rule vacated (2024-2025): A federal judge in Texas vacated the Biden DOL's overtime rule (which raised the salary threshold from $35,568 to $58,656/year in two steps) in November 2024, finding DOL lacked statutory authority to raise the threshold beyond what the primary duties test could anchor. The Trump administration chose not to appeal and has returned to the pre-Biden threshold of $35,568/year. Approximately 4.3 million workers who would have become overtime-eligible under the vacated rule remain below the threshold.
• Threshold stagnation and inflation: The $35,568 annual salary threshold (equivalent to $684/week) has not been significantly updated since 2019. At that level, salaried workers earning just above $35,568 are exempt from overtime requirements regardless of how many hours they work or how routine their duties are. The gap between the threshold and median full-time wages has widened substantially since the original 1975 threshold ($8,060/year, equivalent to $50,000+ in today's dollars). The practical effect: the "white collar exemption" now covers far more workers than Congress intended when the salary level test was designed.
• DOL independent contractor rule implications: The Biden DOL's final independent contractor rule (2024) — which narrowed the circumstances under which workers can be classified as independent contractors — was challenged and reviewed by the Trump DOL, which has signaled a return to a more permissive economic reality test. The independent contractor classification affects overtime eligibility: independent contractors are not entitled to FLSA overtime regardless of hours worked. Reclassification of app-based workers (gig workers) from independent contractors to employees would make them overtime-eligible, significantly increasing labor costs for platforms like Uber, DoorDash, and Instacart.