Compliance Stuff

A new federal law enacted last year provides a tax benefit to employees who receive overtime pay – but calling it a “No Tax on Overtime” law is a bit of misnomer. For starters, OT pay remains taxable and subject to withholding rules. And while a new income tax deduction may be available to some employees who work overtime, only a limited portion of  federally  required overtime compensation is tax deductible. We’ll clear up some of the biggest misconceptions surrounding these new rules and provide some key employer takeaways – which will become especially important this tax season and beyond as more employees learn the realities of these rules and the IRS cracks down on employers’ new filing and information reporting obligations.   Overview of “No Tax on Overtime” The One Big Beautiful Bill Act (OBBBA), which President Trump signed into law last year, includes a new federal income tax deduction related to overtime pay. This new deduction: applies for tax years  2025...

  One of the fastest trending topics in the  employment   and  taxation   blogosphere in recent weeks has been the passage of the One Big Beautiful Bill Act (OBBBA), which, among other provisions, allows for a tax deduction of up to $12,500 ($25,000 for joint filers) in “qualified overtime compensation.”  The fact that the OBBBA provides for a tax  deduction  can be interpreted as good news for employers in the short term, because it means they are not required to immediately change withholding amounts on a paycheck-by-paycheck basis. Rather, employers will have to record and report qualifying overtime compensation on employees’ end of year tax forms . This means that the primary thing employers need to carefully assess right now is their time tracking and recordkeeping systems to ensure they can satisfy the new reporting requirements at year’s end.  You may be asking yourself, “how hard could that be?” Well, a potentially overlooked aspect ...

On February 14, 2025, the Fifth Circuit denied the appellants’ petition for rehearing  en banc  in  Mayfield v. United States Dep’t of Labor— a  September 2024 decision  holding that the U.S. Department of Labor’s authority to “define” and “delimit” the terms of the Fair Labor Standards Act’s executive, administrative, and professional (EAP) exemptions includes the power to set a minimum salary for exemption. The dispute in  Mayfield  dates back to 2019, when the DOL issued a  final rule  raising the minimum salary required to qualify for most EAP exemptions from $455 per week to $684 per week.  Mayfield, a small business owner, challenged the rule, arguing that the DOL lacks, and has always lacked, the authority to define the EAP exemptions in terms of salary level (as opposed to by job duties)—an argument that has been embraced repeatedly by the Texas federal district courts (see  here  and  here ).  The district co...

The Virginia General Assembly is currently considering new legislation with substantial impact on Virginia businesses.  Two of these new bills are   House Bill 2561   and   Senate Bill 1052 .  These bills would significantly increase the penalties for payroll mistakes, increase the time for employees to file several different types of claims, expand the types of lawsuits employees can bring as a collective action against employers, and expose small businesses with between five and fifteen employees to lawsuits for discrimination, harassment, and retaliation under state law . If these bills are enacted, Virginia will be one of the most employee-friendly states with some of the harshest remedies for payroll mistakes in the nation .  House Bill 2561 was passed by the House Labor and Commerce Committee, and it is now headed to a House floor vote on Monday, February 3, 2025. There is no Senate version of the bill.   Senate Bill 1052 has already passed ...

  The U.S. Department of Labor (DOL) has released an opinion letter addressing whether per diem expense payments for tools and equipment may be excluded from the hourly rate when calculating overtime pay under the Fair Labor Standards Act (FLSA). ( FLSA 2024-01 , Nov. 8, 2024). While the opinion letter doesn’t break new ground, it’s an important reminder for employers about when such reimbursements must be factored into the regular rate. Per diem expense reimbursements are widely used by employers, but their treatment under the FLSA is tricky, and it is easy to get it wrong. Expense Reimbursement and Regular Rate The FLSA requires “all remuneration” to be included in the regular rate when computing overtime pay . There are certain exceptions to this requirement, however, including reimbursement for expenses incurred by an employee on the employer’s behalf. The FLSA regulations state that only the “actual or reasonably approximate amount of the expense is excludable.” Factual Scenar...

  According to Puerto Rico Secretary of Labor Gabriel Maldonado, neither the Constitution of Puerto Rico nor P uerto Rico Act 379 imposes any limitations on employers requiring overtime work of employees beyond paying a specific premium rate . Secretary Maldonado’s Sept. 13, 2024, Opinion revokes the previous multifactor guidance issued by the Puerto Rico Department of Labor (PRDOL). Previous Guidance The Puerto Rico Constitution mandates that workers have a right to an ordinary work schedule not exceeding eight hours in a day . Any time worked over eight hours must be paid at no less than one and one-half times the rate established by law. Puerto Rico Act 379 provides that any time worked over eight hours in a calendar day and over 40 in a week must be compensated generally at one and one-half times the regular rate of pay. PRDOL guidance had interpreted the law to mean that overtime work should be an exception, and not the norm. Thus, employers could only require workers to work ...

In November 2023, Alabama enacted a law exempting, from Alabama state income tax, amounts received by full-time hourly wage-paid employees as compensation for overtime worked. On May 17, 2024, Alabama amended the Overtime Exemption Act, changing what overtime pay is exempt from Alabama state income tax. U nder the amendment, starting October 1, 2024, overtime paid in accordance with the Fair Labor Standards Act (FLSA) will be exempt from Alabama state income tax. For employers governed by the National Railway Labor Act, the exemption will be based on overtime compensation as stated in relevant collective bargaining agreements. Quick Hits Under the amendment, the Alabama overtime income tax exemption will be based on overtime paid in accordance with the FLSA. For employers governed by the National Railway Labor Act, the exemption will be based on overtime paid as stated in relevant collective bargaining agreements. The amendment applies from October 1, 2024, until June 30, 2025. As many...

 On November 9, 2023, Alabama Governor Kay Ivey signed into law a bill that beginning on January 1, 2024, will make compensation received by full-time hourly wage-paid employees for overtime work performed in excess of 40 hours in a workweek exempt from Alabama state income tax. Source: Ogletree Deakins , reported on December 18, 2023