With major changes to federal overtime rules fast approaching, cannabis dispensaries, hemp manufacturers, and related businesses must prepare for the U.S. Department of Labor’s (DOL) new 2025 salary thresholds—or risk costly compliance failures. The phased-in salary level changes, which impact the Fair Labor Standards Act (FLSA) exemptions, demand immediate action to reassess payroll classifications, adapt time-tracking, and communicate effectively with impacted staff. This guide delivers a step-by-step approach for the sector, integrating cannabis- and hemp-specific concerns, potential state law overlays, and tip/commission pay complications common in dispensary environments.
DOL Overtime Rule 2025: What Cannabis Businesses Need to Know
The DOL’s final rule—Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees—phases in new salary thresholds for exempt workers (sometimes called the “white collar” exemptions). For cannabis and hemp employers, failing to comply can lead to wage claims, regulatory scrutiny, and even disqualification in state licensing processes.
Key Federal Thresholds (Effective Dates)
- July 1, 2024: Standard salary threshold increases to $844/week ($43,888 annually).
- January 1, 2025: Threshold jumps to $1,128/week ($58,656 annually); highly compensated employee (HCE) threshold rises to $151,164/year.
- Future Updates: Salary levels will be updated every three years (next likely July 2027). Read more from the DOL.
Impact & Litigation Status
Several business groups are litigating to block the rule, though, as of November 2025, initial phases are in effect and the cannabis sector should plan to comply. State and local law may set higher standards where applicable.
Why Payroll Reclassification Matters for Cannabis & Hemp
Cannabis industry operations are labor-intensive. Assistant managers, shift leads, budtenders-turned-leads, lab techs, and others historically classified as exempt may now fall below salary or duties thresholds, leading to:
- Back-pay risk for overtime if misclassified
- Fines from the DOL or state agencies
- Recordkeeping violations or license review flags
- Challenges for multi-state operators with variable rules
Step-by-Step Reclassification Guide: Cannabis Dispensaries & Manufacturers
1. Identify Potentially Affected Employees
Review all current exempt (salaried) roles: assistant managers, junior lab techs, department leads, and especially hybrid sales/lab roles earning between the old and new thresholds.
2. Apply the Duties Test vs. Salary Test
- Duties Test: Assess whether job roles meet all executive, administrative, or professional duties standards. DOL Duties Test Details.
- Salary Test: Confirm whether annual and weekly pay meets or exceeds new thresholds.
Both must be satisfied for exemption. Many cannabis retailers and manufacturers previously met the duties test, but pay may now fall short.
Special Note: Cannabis-Industry-Specific Split Roles
It’s common in dispensaries for employees to fill multiple functions—e.g., a manager who also runs a register. The primary duty drives exemption. Misassigning status based on partial duties is a frequent compliance risk.
3. Reclassify Roles as Needed
For each affected employee:
- If they do not meet both tests, reclassify as non-exempt (eligible for overtime).
- Update payroll systems to handle overtime calculations, especially for shift, lab, and cultivation staff.
- Consider pay increases versus reclassification to minimize business disruption.
4. Roll Out Time-Tracking Protocols
Non-exempt employees must have precise wage and hour recordkeeping. Implement or enhance:
- Clock-in/out systems for accurate tracking
- Clear break/lunch policies
- Supervisor training (especially for formerly exempt employees unused to tracking time)
5. Communicate Clearly and Compassionately
Role changes can impact morale—especially for workers who perceive reclassification as a demotion. Key steps:
- Announce changes in advance (preferably in one-on-one or small group meetings)
- Explain the legal foundation and business rationale
- Outline new pay practices, OT eligibility, and reporting procedures
6. Assess Budget and Scheduling Impact
- Factor in potential overtime costs for busy periods (harvest, product launches, major cannabis holidays, etc.)
- Consider reallocating job duties or shifting schedules to minimize overtime needs
- Update financial projections and operational budgets accordingly
State Law Overlays: Higher Thresholds May Apply
Some states set even higher salary thresholds for overtime exemption. Notably:
- California: $68,640/year for employers with 26+ staff; duties tests are stricter than federal Reference
- Colorado: $56,485/year for 2025
- New York, Washington State, and a few others have their own standards
- Rule of Thumb: If a state’s threshold is higher than the federal rule, use the more protective standard.
This makes multi-state payroll compliance especially complex for vertically integrated or multi-license operators.
Special Cannabis Industry Considerations
Tip Credits & Commission Pay for Hybrid Sales Staff
Cannabis dispensaries often employ sales associates who receive both base pay and variable incentives (tips or commissions).
- Federal FLSA and DOL rules: Tip credits are generally not allowed for the executive/administrative/professional exemption.
- Hybrid Roles: If managers/supervisors also earn tips or commissions, all forms of pay must be included when applying salary tests—but overtime pay calculations can get especially tricky with fluctuating weekly earnings.
- Best Practice: Carefully document all forms of compensation. When in doubt, treat these workers as non-exempt unless they clearly meet both salary and duties tests, and your payroll system can support variable wage reporting.
Recordkeeping Requirements
FLSA-compliant records must include:
- Employee name, address, occupation
- Total hours worked each workweek
- Regular hourly rate and total weekly straight-time and overtime earnings
Failure to maintain records can trigger penalties from both DOL and state agencies—and may put your license at risk in regulated states.
Common Cannabis & Hemp Role Scenarios
- Assistant Managers: Previously classified as exempt, but earning under $58,656? Reclassify.
- Junior Lab Techs: Duties may not meet the professional exemption; review carefully and convert if needed.
- Budtender-Shift Leads: Exemption likely fails new salary test—pay overtime.
- Managers on the Floor/Sales: If more than 50% of duties aren’t exempt tasks, treat as non-exempt.
Litigation and Future Compliance
Legal challenges to the 2025 DOL rule continue, but pending a final court resolution, employers must comply or face risk of back-pay liability. Automatic updates to the salary thresholds are set for every three years starting July 1, 2027—plan for ongoing compliance reviews.
Takeaways for the Cannabis & Hemp Sector
- Audit job descriptions and salary bands now.
- Update timekeeping systems and supervisor training to ensure wage/hour law compliance.
- Monitor state-level changes, as thresholds may rise even faster than federal standards.
- Document all payroll decisions and communications for future audits.
- Prepare for threshold updates every three years; compliance is not a “one-and-done” task.
For compliance checklists, up-to-date rule summaries, and personalized guidance for your cannabis or hemp business, visit CannabisRegulations.ai and keep informed as employment law and sector regulations evolve.
