Alabama Wages with OT (2024/2025) - and OT wages in general

[Medlin Software, Dennis]

If you have any AL W2 earners, who have OT, beware of payroll/W2 issues.

AL, for 2024, and Q1/Q2 of 2025, is exempting OT earnings from AL gross wages (essentially AL taxable wages). The W2 should have a box 14 item showing the exempted wages, and box 16 should not include the exempted wages.

I expect many employers handled this less than accurately. Such as exempting only the OT premium, by exempting incorrectly (ONLY on pay earned after 40 hours in a week), and so on.

My suggestion is if you see an AL W2, view it with caution. You may want to start by asking for their last stub for the year. See if you can figure out if the OT was properly exempted from AL WH. Or maybe create a note reminding the employee you are going off the W2, and if they want you to prove out their W2, that is an extra fee, and they will need all of their stubs for the year, or some sort of paycheck listing for the year. "I" would only bother digging if the annual OT earnings were significant enough to result in a significant Al reduction.

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OT wages in general seem to be a growing issue. What I am referring to is the seemingly lack of proper RROP (Regular Rate of Pay) handling.

Depending on your interest, you could ask W2 employees if they received and OT, and if so, if they work at more than one pay rate, received a raise during a pay period, or received any sort of "additional" pay (Bonus, commission, gifts, etc.). Anyone who was paid OT, and had more than one pay rate, or received additional pay, is subject to RROP for OT/PTO calculations.

I recently had a new customer complain because of RROP. Roughly, they have an employee who earns 10 per hour, or 15 per hour, depending on the job. Of course, the employer wants the OT only on the 10 per hour job and was upset since he "always" paid OT only on the lower rate. With his given figures, the difference was less than $10, but if the employee catches on, the difference will likely be thousands in penalties and defense.

I still have had only one or two customers ever ask about handling RROP, which even for my type of customer, is too low. Even though my customer can setup RROP handling, I suspect many ignore it.

[Corduroy Frog]

Overtime Premium was mandatory under an Obama Executive order unless the employee was making $23.46 or better.  The executive order was removed by some Federal Court, I believe.

Mr. Medlin, I have an Alabama employer with Quickbooks.  As long as the employee was not receiving premium, QB did not exempt Alabama Earnings.  QuickBooks may be treating this properly, or it may not.  I don't know.

 

[jklcpa]

The information for compliance and reporting is clearly laid out with easily understandable explanations on the Alabama Dept of Revenue's site.

Start here with the rules for Jan 1, 2024 through Sept.30, 2024:

 https://www.revenue.alabama.gov/individual-corporate/overtime-exemption/

And for the amended version from Oct 1, 2024 through June 30,.2025:

  https://www.revenue.alabama.gov/individual-corporate/overtime-pay-exemption-amended/

 

[Medlin Software, Dennis]

Easy for those in the business, but not every employer keeps up with the rules, nor do all employees even know about things like this, or RROP. Just today, I was ripped into by two people claiming OT is ALWAYS 1.5x.  Also helped an AL employer who incorrectly handled their OT (put all OT, even not meeting the rules for the special exemption) as exempt from AL wages.

My point here was for your customers who are in AL, ask if they had any weeks over 40 hours, and then verify their W2 is accurate (or suggest they do themselves). Also, as it is now clear to me RROP is often ignored, ask if any customers received any sort of OT, PTO, or really, any sort of payment which might trigger or be subject to RROP. Not that as a preparer you would get into RROP, but it would be a great catch if you mentioned it and found a client who was underpaid.