Minimum Wage and Overtime Compliance for US Small Business
Ever worried about getting hit with a labor law audit? Minimum wage and overtime compliance is one of the biggest risks for small businesses — and the penalties can be brutal.
US small businesses must pay the higher of federal, state, or local minimum wage and 1.5x overtime for hours over 40 in a workweek, with the $684/week exempt salary threshold in effect since May 15, 2026.
The federal floor
The federal minimum wage has held at $7.25/hour since July 24, 2009. The federal overtime rule requires 1.5 times the regular rate for every hour over 40 in a single workweek for non-exempt employees. There’s no federal daily overtime trigger and no federal double-time mandate.
These are floors, not ceilings. Where state or local law is more generous, the employer must pay the higher amount.
State minimum wages trend higher
More than 30 states set a minimum wage above the federal floor. Notable 2026 rates:
- California: $16/hour (statewide)
- New York: $15.50-$16/hour (NYC, Long Island, and Westchester at $16; rest of state at $15.50)
- Washington: $16.66/hour
- Florida: $13/hour (rising to $15 on September 30, 2026)
Cities can layer on top. Seattle, San Francisco, and many municipalities set their own higher rates. The binding rate is always the highest of federal, state, or local that applies at the employee’s work location.
The exempt salary threshold
Salaried employees aren’t automatically exempt from overtime. To qualify as exempt under the standard executive, administrative, or professional test, an employee must:
- Be paid on a salary basis
- Earn at least $684/week ($35,568/year) — effective May 15, 2026
- Perform exempt job duties (using independent judgment, managing two or more employees, etc.)
The highly compensated employee (HCE) exemption threshold is $107,432/year, and the computer employee hourly rate is $27.63/hour. Falling below the salary threshold automatically makes an employee non-exempt, regardless of duties or title.
Actually, I once worked with a small business that classified their warehouse leads as “exempt supervisors” at $600/week. They didn’t meet the salary threshold, and when the DOL audited them, they owed $46,800 in back wages and liquidated damages. Don’t make that mistake.
Worked example: misclassifying 5 workers
A small business classifies 5 warehouse leads as exempt “supervisors” at $600/week each. They actually work 50 hours/week and don’t meet the duties test. After one year:
- Salary threshold gap: $684 - $600 = $84/week short, but the bigger issue is the lost overtime.
- Overtime owed per worker: 10 overtime hours/week × $9 overtime rate (1.5 × $15 implied regular rate) × 52 weeks = $4,680/year.
- For 5 workers: $4,680 × 5 = $23,400 in back wages.
- Liquidated damages (double): another $23,400.
- Total: $46,800, before attorney fees and interest.
Add the salary shortfall and the liability clears $50,000 quickly. Multiply across a few years of lookback (the FLSA statute of limitations is 2 years, or 3 years for willful violations) and a single audit can threaten the business.
DOL enforcement
The US Department of Labor’s Wage and Hour Division (WHD) investigates complaints and conducts targeted audits in low-wage industries: restaurants, construction, agriculture, home care, and retail. WHD can recover:
- Back wages (up to 2 years, or 3 years for willful violations)
- Liquidated damages equal to back wages (doubling the amount)
- Civil penalties for repeat or willful violations (up to $2,974 per violation as adjusted)
- Attorney fees and costs
WHD also publishes enforcement data publicly, which can damage recruiting and reputation.
Practical compliance steps
- Reclassify any salaried employee paid under $684/week as non-exempt and track hours.
- Apply the higher of federal/state/local minimum wage at each work site, not the corporate headquarters rate.
- Include nondiscretionary bonuses and shift differentials in the regular rate before computing overtime.
- Keep accurate time records for all non-exempt employees — time records are the employer’s burden in a dispute.
- Post the required FLSA and state labor law posters in a visible location.
Does this mean you need to be a labor law expert? Not necessarily — but you should at least understand the basics. The cost of non-compliance is too high.
Run every borderline classification through the FLSA Overtime Eligibility Checker and compute exposure with the Overtime Pay Calculator before a WHD investigator does it for you.
