With summer nearing, employers across North Carolina and the country are swelling their ranks with seasonal employees. This article aims to update employers about the current state of federal law for paying workers who work overtime.
What’s Old Is New
Employers who have been following overtime news may have heard about the Biden Administration’s rules that reduced the number of exempt employees as well as the court challenges that followed. The next section describes the demise of those rules. For now, the applicable federal rules will be familiar to most employers.
Federal law requires employers to pay 1.5 times the regular hourly rate to employees for every hour worked over the standard 40-hour work week.
Most exempt employees must meet both the current salary threshold and the duties test. The current salary threshold is $684 per week ($35,568 per year). Qualifying “duties” for exempt employees fall into several categories:
- Executive Exemption: must manage a department or subdivision, direct the work of at least 2 full-time employees, and have authority to hire and fire people.
- Administrative Exemption: primary duty must be office or non-manual work related to business operations and must exercise independent judgement.
- Professional Exemption:
- Learned Professional: work duties must require advanced knowledge in science or learning and discretion in judgment.
- Creative Professional: must do work requiring invention, imagination, originality, or talent.
- Computer Exemption: must be employed as a computer systems analyst, programmer, or other similarly skilled work inthe computer field.
- Outside Sales Exemption: primary duty must be making sales outside of the business location.
Employees who are “highly compensated,” i.e., paid total annual compensation of $107,432 or more, only need to regularly perform one of the “duties” above in order to be exempt.
The July 2024 Rule That Wasn’t
In 2024, the Biden Administration’s Department of Labor (DOL) attempted to raise the salary threshold, which would have reduced the number of exempt employees. This overtime rule would have raised the threshold on July 1, 2024, and again on January 1, 2025. Then the rule required automatic increases of the threshold every three years beginning July 1, 2027.
On November 15, 2024, a Texas federal court struck down new rule. The court found that the DOL had exceeded its statutory authority under the Fair Labor Standards Act (FLSA). DOL has appealed, but with the change in presidential administration, DOL filed in April 2025 an unopposed motion to stay the appeal for 120 days.
Whether DOL will resume the appeal or drop it remains to be seen. For this summer, however, employers should follow the usual exemptions.
Potential Changes in Taxing Overtime Pay
President Trump’s “Big Beautiful Bill” narrowly passed in the House of Representatives on May 22, 2025. The Bill includes a provision that would eliminate federal tax on overtime wages through 2028.
The Senate currently plans to vote by the end of the summer. But the version of the Bill under consideration does not include tax exemptions for overtime wages.
Whatever the ultimate outcome of that process, employers (and employees) this summer should plan on normal tax treatment for all overtime pay.
Conclusion
We recommend, as always, that employers consult with competent counsel for overtime and other legal decisions. We will be monitoring any additional federal changes in the meantime.
* Many thanks to our summer clerk, De’Ja Alston, for substantial contributions to this article.
