OBBBA “Qualified Overtime” Designation - Pay Code Modifier Overview
Description: In this topic, the user will learn how organizations can define a Pay Code Modifier to support reporting requirements under the One Big Beautiful Bill Act (OBBBA). To enable this feature, please submit a DCI Support ticket indicating the preferred Pay Code Modifier.
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Table of Contents
Overview
The One Big Beautiful Bill (OBBBA) requires that employers include a new line item on W-2s that represents the total dollar amount of premium overtime pay that the employee is able to claim as a potential tax exemption when filing their taxes. The dollar amount represents the premium pay for hours works over 40 that qualify for overtime under Weekly Overtime rules.
In order for Payroll systems to calculate this dollar amount and map to the appropriate W-2 line item, the Portal needs to provide the correct earning code on the payroll entries and file output.
What is considered “Qualified Overtime”?
Overtime is considered “Qualified Overtime” for the purpose of this tax exemption if:
It is overtime earned under the Weekly Overtime rule.
The hours would have earned Weekly Overtime had they not already been paid a different form of overtime earlier in the week due to State level overtime rules.
Enabling OBBBA Qualified Overtime on your organization’s instance
To enable this feature, please submit a DCI Support ticket indicating the preferred Pay Code Modifier. Once OBBBA Qualified Overtime is enabled for the instance, during Payroll Processing, the system uses the Pay Codes set up under Settings>Payroll>Pay Codes to determine which Pay Code to assign to the Payroll Entry. During that process, the system determines if any overtime hours in the batch should be considered Qualified Overtime. If yes, those Pay Codes should be appended with the Qualified Overtime Modifier with the configured modifier selected by your organization.
For example:
Pay Code for Double Overtime = 2OT
Pay Code Modifier = Q
Pay Code for Double Overtime with addended Pay Code Modifier = 2OTQ
Where does the Qualified Overtime Pay Code Modifier Appear?
The Qualified Overtime Pay Code Modifier will be applied in the Payroll Entries and Payroll Batch files that result from creating and processing Payroll Batches, including:
Payroll Entries
Payroll Entry Detail page > Pay Code
Payroll Batch File Attachments
Qualifying payroll entries will have modified Pay Codes on the Payroll Batch File Attachments
What counts as Qualified Overtime?
The following table provides examples of how Qualified Overtime is applied in various real-world scenarios. Review each use case to understand how the system evaluates overtime eligibility and assigns the Qualified Overtime designation.
Use Case # | Use Case Description | Answer |
|---|---|---|
1 | Only Weekly Overtime is in play (no additional State overtime rules apply to the data set) | All hours designated as Weekly OT should be considered Qualified Overtime |
2 | State overtime rules apply such that the employee worked more than 40 hours in the pay week (48 for example) but was not paid any Weekly OT. | The system will apply the Qualified Overtime modifier to 8 hours of OT, even though the OT is not Weekly OT. This does not need to be the last 8 hours in the week (which would likely be Regular Hours in this case). |
3 | State overtime rules apply such that the employee worked more than 40 hours (45 for example), was paid both Daily OT and Double Daily OT but not weekly OT. | The system will apply the Qualified Overtime modifier to 5 hours of Daily OT and not Double Daily OT, as it should be applied to hours paid at time and a half. |
4 | Hours are entered late such that hours previously submitted to UKG did NOT meet the criteria for Qualified Overtime but now they do. | The system will cancel the original payroll entry and create a duplicate new payroll entry with the new pay code. The Raw Payroll Dump file will include 2 lines:
|
5 | Employee earns State level OT but does not work over 40 hours. | No hours count as Qualified Overtime |