AL Payroll

[Medlin Software, Dennis]

AL has decided OT premium (paid to employees) is NOT subject to AL withholding starting 1-1-24. There will need to be a report covering 2023 (likely data gathering), and reports going forward. Stubs and W2's will be affected as well.  And for additional grins, it appears to apple for all of 2024, but only half of 2025!

https://www.revenue.alabama.gov/aldor-provides-guidance-for-overtime-pay-exempt-from-income-tax/

[Lee B]

II clicked on the link. It says overtime pay exceeding 40 hours in a week for a full time employee will be exempt form withholding and from Alabama Income Tax.

It doesn't say overtime premium? Very strange law.

 

[Medlin Software, Dennis]

I have the same question. Wording proves written by someone who never handled a payroll. I suspect on all wages after 40 hours. Even with that, the “benefit” to the employee still maxes as 5% of the exempted amount.

If one believes rules come from someone willing to pay for the change, it is likely from employers claiming this will help them keep employees.

The pre report for 2023 seems to be data collecting to see if ot is more or less in 2024. The sunset half way through 2025 smells extra fishy. 
 

Payroll folks who make money on complication win. Employers lose (explaining this one to employees). Tax preparers neutral, maybe revenue increase, maybe lost clients.

Me? Probably lose.  Cannot charge more for this. Likely lose some clients to payroll processors. Certainly a fair chunk of hours programming and later on, answering questions. 

[Medlin Software, Dennis]

“Amounts received by a full-time hourly wage paid employee as compensation for work performed in excess of 40 hours in a week.“

Reading with my brain off, just the words, is all pay for work over 40 hours in a week. 

[Medlin Software, Dennis]

The text of the bill implies all amounts paid for work over 40 hours.  So it is really not an OT law, as some likely get "OT" via contract or agreement, such as is often done for someone working 3 12's.  AL has no state OT rule, so it reverts to FLSA and only time after 40.

I saw something about this being a political item to "help" employers compete with neighbors who have no state income tax. At least they are honest this is only 5% savings on the extra pay, hoping to get employees to stay and or more readily agree to work OT.

Will be interesting to see how this washes out.  Hopefully they are careful with the implementation and avoid removing the exempted amount from "remuneration" for other purposes (such as UI, WC, etc.). The implication - based on the suggestion to show the OT amount in W2 box 14 - is the state wages on the W2 will be regular pay only, Too soon to be sure though as this likely just got in the hands of those tasked to implement.

[Medlin Software, Dennis]

Those who receive comp time get you know what-ed.

"Relating to gross income; to amend Section 40-18-14, Code of Alabama 1975; to exclude hours worked above 40 in any given week from gross income."

This means any tax within AL, or anything else which uses AL "gross income" (as opposed to something like "remuneration") will be affected... and likely means the W2 will show less AL wages, with the exempted wages in box 14.

[Corduroy Frog]

Huntsville AL has a substantial number of NASA employees.  During space missions, most of these employees work horrific overtime hours.  Even salaried employees who are "exempt" for USDept of Labor purposes are paid, or else they will quit.

I would estimate that a majority of these people work overtime at straight time pay (1X) but possible some of them are getting overtime premium (1.5X).  If I understand this correctly, any overtime pay of any sort over 40 hours will be tax exempt.

This reeks of lobbying somewhere in the state capitol.

[BrewOne]

Maybe it's an attempt to encourage employees to pay workers on an hourly basis, rather than call practically everyone "managers" with a paltry salary (and no OT)?  There was an attempt at legislation a few years back to end Walmart et al from paying someone a salary circa $20-25k a year and working them 60 hours a week.

[Medlin Software, Dennis]

Salaried employees (same pay for no minutes a week or all of them) are not part of this "temporary" rule.