The recent updates to the Department of Labor (DOL) overtime threshold, followed by a court decision that vacated the planned increases, have created a confusing situation for businesses.
Some employers adjusted salaries early, others waited and many are now unsure which rules apply. For brokers, this moment is an opportunity to offer clarity and prevent clients from being caught off guard.
Below is a straightforward breakdown of what changed, why it matters, the risks of delaying action and how PrestigePEO is the compliance partner brokers can count on to make adjustments simple and stress-free for clients.
In this article, you will see how:
- The DOL’s planned increase to the federal salary threshold for overtime eligibility was vacated by a court ruling, leaving the old threshold in place.
- Starting in 2025, employees can deduct the half-time premium of their overtime pay, with limits based on filing status. Proper documentation is crucial.
- Employers face confusion over salary adjustments, employee classifications and payroll.
- Brokers have a unique opportunity to enhance client relationships: We’ll support you to help clients reassess salary structures, update payroll systems and ensure compliance with current regulations.
- PrestigePEO offers automated payroll alignment, classification reviews, compliance monitoring and communication support to help your clients navigate these changes confidently.
What LTPT Eligibility Means for Brokers and Their Clients
LTPT eligibility expands retirement plan access for part-time employees who were historically excluded, while introducing new administrative responsibilities for employers. These responsibilities center on hour tracking, plan amendments and employee communication, which are areas where many businesses need support.
For brokers, understanding how these requirements work in practice is essential. LTPT compliance is not a one-time exercise; it requires ongoing oversight, accurate documentation and clear guidance to help clients remain aligned year after year.
What Changed: An Overview of the DOL Overtime Threshold Update and Court Ruling
The DOL planned to raise the federal salary threshold for overtime eligibility, which means more employees would qualify for overtime pay. Many employers prepared early by adjusting salaries or reclassifying roles.
But a federal court ruling vacated the planned increase, keeping the old threshold in place for now.
This leaves employers in one of three situations:
- They already increased salaries and do not know whether to revert.
- They didn’t adjust and don’t know what to do next.
- Their payroll systems made automatic changes that may now be incorrect.
The result: confusion, inconsistent practices and a higher risk of payroll errors.
Why It Matters: The Real Impacts on Payroll, Staffing and Compliance
The implications of the DOL overtime threshold changes are significant for businesses.
These changes affect much more than pay calculations. They impact:
- Payroll accuracy
- Employee classification
- Staffing and scheduling decisions
There’s also a new 2025 overtime tax deduction that directly affects employees who earn overtime pay. For the 2025-2028 tax years, employees can deduct the “extra” portion of their overtime pay (the half-time premium) up to:
- $12,500 for single filers
- $25,000 for joint filers
This specifically applies to the “half” part of the “time-and-a-half” pay mandated by the Fair Labor Standards Act. For an employee to qualify, this overtime pay must be documented on a Form W-2, Form 1099, or another official statement provided by the employer.
The deduction phases out at higher income levels, and employers have to provide clear documentation for employees to qualify. Flagging this early will help your clients update their reporting processes well before year-end.
Employers need clear guidance now, not after the next pay cycle.
Here's What You Can Communicate to Your Clients About the Overtime Tax Deduction
Employers must provide accurate documentation of their employees’ overtime earnings. This involves submitting information returns to the IRS or SSA and furnishing employees with a statement that details the total qualified overtime compensation they received during the year.
- From a payroll perspective, the changes require businesses to review their salary structures and ensure that they are in line with the current regulations. This involves not only adjusting salaries but also recalculating overtime pay for eligible employees.
- For staffing, the uncertainty around the threshold can affect hiring decisions and workforce planning. Employers may need to reconsider their staffing levels and the allocation of overtime hours to ensure compliance and manage labor costs effectively.
- Compliance is another critical area impacted by these changes. Businesses must stay afloat of the latest regulations and ensure that their practices align with the current legal requirements. Failure to do so can result in significant financial penalties and damage to the company’s reputation.
Employers who had proactively adjusted their payroll systems and employee classifications now face the dilemma of whether to maintain these changes or revert to previous practices. This uncertainty can lead to administrative challenges and potential compliance issues, making it imperative for you to provide clear guidance to clients.
The IRS offered transition relief for tax year 2025 to help everyone adjust to these new requirements. As a broker, you can play a pivotal role by guiding your clients through these changes. You can assist them in understanding the new reporting obligations and help them communicate the benefits of this deduction to their employees, ensuring a smooth transition and compliance with the new regulations.
The Risks: Common Mistakes That Lead to Costly Consequences
Failing to adapt to the new DOL overtime threshold can have serious consequences for businesses. Common mistakes include misclassifying employees, incorrectly calculating overtime pay and failing to update payroll systems promptly.
These errors can lead to significant financial penalties, including fines and back pay for affected employees. Additionally, businesses that do not comply with the correct overtime rules risk damaging their reputation and employee morale. You will help clients avoid these pitfalls by providing clear guidance and support.
- Misclassification of employees is a common issue that can arise from the changes in the overtime threshold. Employers may inadvertently classify employees as exempt from overtime when they are, in fact, eligible. This can lead to underpayment of wages and potential legal challenges.
- Incorrect calculation of overtime pay is another risk, as businesses may struggle to keep up with the changing regulations and ensure that their payroll systems are accurate.
- Failing to update payroll systems promptly can result in delayed payments and administrative headaches.
These mistakes not only have financial implications but can also affect employee satisfaction and retention. Employees who feel undervalued or unfairly compensated may become disengaged or seek employment elsewhere, leading to increased turnover and additional recruitment costs. You can guide clients through these potential pitfalls by offering clear, actionable advice and support.
Practical Steps for Your Clients Before the Next Pay Cycle
Encouraging your clients to take proactive steps now will align compliance with the current DOL overtime threshold.
Guide clients through these immediate next steps by:
- Reconfirming employee classifications under the current DOL overtime threshold.
- Verifying payroll system accuracy to ensure overtime rules didn’t update automatically.
- Reviewing salary adjustments made in anticipation of the now-vacated increase.
- Updating reporting processes so employees can take advantage of the overtime tax deduction in 2025.
- Communicating any changes clearly to avoid confusion or frustration.
These simple actions prevent missteps that often lead to penalties, back pay or employee dissatisfaction.
You can also recommend that clients establish a regular review process to monitor compliance with overtime regulations. This proactive approach identifies issues early on and prevents them from escalating into significant problems. By communicating these points, you’ll help clients manage risk and avoid costly compliance issues, ultimately contributing to the long-term success of their businesses.
How PrestigePEO Helps You Bring Clarity and Stability to Clients
PrestigePEO is already prepared to support clients through these changes. This evolving complexity will not be managed alone.
Proactive classification reviews
Our Human Resources experts help clients confidently verify exempt/non-exempt status.
Compliance monitoring and guidance
We track regulatory updates so clients stay aligned as rules evolve.
Automated payroll alignment
We ensure payroll settings reflect the correct DOL overtime threshold and that overtime calculations remain accurate.
Employee communication support
We help employers clearly explain salary or overtime updates to their teams.
Audit-ready documentation and support
From recordkeeping to preparation, we help protect clients from compliance risks.
Brokers Who Offer Clarity and Compliance Stability Strengthen Trust and Long-Term Client Retention
In times of regulatory uncertainty, clarity and stability in compliance are invaluable to your clients. By staying informed about the latest DOL overtime threshold changes and providing actionable guidance, you will help clients navigate these challenges with confidence. This not only strengthens trust but also enhances long-term client retention. Clients who feel supported and informed are more likely to remain loyal and continue their partnership. By partnering with PrestigePEO, you will ensure your clients receive the support they need to manage compliance seamlessly. Help your clients stay compliant and confident. Partner with PrestigePEO for seamless payroll and HR compliance support.
