FLSA Compliance: A 2026 Guide for Employers

Updated November 2026

Often called the “mother of all employment laws,” the Fair Labor Standards Act (FLSA) sets the federal rules for minimum wage, overtime pay, recordkeeping and child labor for most private employers in the United States. It also determines which employees are “exempt” from overtime and which are “non-exempt.” Getting FLSA compliance wrong can mean back wages, liquidated damages and civil penalties — so it pays to know the current rules.

Minimum wage provisions under the FLSA

Under the FLSA, employers must pay non-exempt employees at least $7.25 an hour. When state or local law sets a higher rate, employers must pay the higher amount. Arizona’s minimum wage is $15.15 an hour in 2026, and some cities go further — Tucson’s rate is $15.45 and Flagstaff’s is $18.35.

Overtime and the exempt vs. non-exempt test

Non-exempt employees must receive overtime of at least one and one-half times their regular rate of pay for every hour worked over 40 in a workweek. Exempt employees are not covered by the overtime requirement — but an employee is only exempt if they meet all three of these tests:

• Salary level test: paid at least $684 per week ($35,568 a year).
• Salary basis test: paid a predetermined, fixed salary that is not reduced because of variations in the quality or quantity of work.
• Duties test: primary duties are executive, administrative or professional (or another recognized exemption) as defined by the Department of Labor. Job titles alone do not determine exempt status.

The overtime salary threshold in 2026

The Department of Labor’s 2024 rule would have raised the salary level to $1,128 a week, but federal courts vacated it in November 2024. In May 2026 the DOL formally rescinded the 2024 rule and restored the 2019 levels: $684 a week for the white-collar exemptions and $107,432 a year in total compensation for highly compensated employees.

Some states — including California, New York and Washington — set higher salary thresholds for exempt status. Arizona follows the federal threshold, but multi-state employers must apply the strictest rule in each location.

Common overtime exemptions

• Executive: manages the business or a department, directs two or more full-time employees, and has input on hiring and firing
• Administrative: office or non-manual work related to business operations, using independent judgment on significant matters
• Professional: work requiring advanced knowledge in a field of science or learning, or original and creative work
• Computer employee: skilled systems analysis, programming or software engineering work (salary of at least $684 a week or $27.63 an hour)
• Outside sales: primarily makes sales away from the employer’s place of business (no salary test)
• Highly compensated employees: total annual compensation of at least $107,432, including at least $684 a week in salary, and regularly performs at least one exempt duty

Full details are on the Department of Labor overtime page.

“No tax on overtime” does not change overtime pay rules

The One Big Beautiful Bill Act created a federal income tax deduction for qualified overtime pay for 2025 through 2028 — up to $12,500 a year ($25,000 for joint filers). It does not change who is entitled to overtime. It does create new payroll reporting: from 2026, employers report qualified overtime (the premium portion of FLSA-required overtime) on Form W-2 using Box 12, code TT.

Employees vs. independent contractors

The FLSA’s minimum wage and overtime protections apply to employees, not independent contractors, so classification matters. The DOL’s 2024 rule uses a six-factor “economic reality” test. In May 2025 the DOL said it would no longer apply that rule in its own enforcement, and in February 2026 it proposed a new rule focused on two core factors — the nature and degree of control over the work, and the worker’s opportunity for profit or loss. Until a final rule is issued, review classifications carefully. Our 1099 vs. W-2 guide explains the tests in plain English.

Child labor laws under the FLSA

The FLSA sets 14 as the minimum age for most non-agricultural jobs. Workers aged 14 and 15 may not work during school hours, more than 3 hours on a school day, more than 18 hours in a school week, or outside 7 a.m. to 7 p.m. (9 p.m. from June 1 through Labor Day). No one under 18 may work in occupations the Secretary of Labor has declared hazardous.

Recordkeeping requirements

The FLSA does not require a specific format, but employers must keep accurate records for each non-exempt employee, including:

• Full name and Social Security number
• Address, including ZIP code
• Birth date, if younger than 19
• Sex and occupation
• Time and day of week when the workweek begins
• Hours worked each day and total hours each workweek
• Basis of pay (for example, $15 an hour or $700 a week)
• Regular hourly pay rate
• Total daily or weekly straight-time earnings
• Total overtime earnings for the workweek
• All additions to or deductions from wages
• Total wages paid each pay period
• Date of payment and the pay period covered

Payroll records must be kept for at least three years, and records used to compute wages — such as time cards and wage rate tables — for at least two years. For a full list of federal and Arizona retention periods, see our personnel document retention guide.

Penalties for FLSA violations

Employers who violate the FLSA can owe unpaid back wages plus an equal amount in liquidated damages. Civil money penalties in effect for 2026 include up to $2,515 per repeated or willful minimum wage or overtime violation, up to $16,035 for each employee subject to a child labor violation, and up to $72,876 for a child labor violation that causes serious injury or death (doubled to $145,752 if repeated or willful). Willful violations can also be prosecuted criminally, with fines of up to $10,000; a second conviction can lead to imprisonment. See real-world FLSA enforcement examples.

Frequently asked questions

Staying FLSA compliant is easier with the right support. Focus HR’s payroll specialists and HR team track wage and hour changes for you — see how HR outsourcing for small businesses works.