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Internal Summary & FAQ: 2026 W-2 Overtime Premium Reporting

Summary

For clients using both Timekeeping and Payroll, a new feature was enabled on 12/30/2025 to run a separate, parallel FLSA overtime calculation to support the 2026 W-2 reporting requirement.

This parallel calculation:

  • Does not replace or modify existing overtime rules

  • Does not affect pay, rates, or net pay

  • Calculates only the overtime premium portion (typically the 0.5 component)

  • Stores the result in a memo-only earning [OBBBA Qualified Overtime Premium]

  • Reports the amount on the W-2 in Box 12, Code TT

This is a shadow calculation used only for year-end reporting.
Employees are paid exactly the same way they are today.

Important:
In the initial rollout, this will not be displayed on pay statements.  It will be visible in certain payroll reports.  

OBBBA Qualified OT Premium is strictly Reporting/Informational ONLY (memo type earning code)


Solution for PC1 Clients:
🔗UKG Guide PC1

Pay Calc 1 (PC1) – Quick Summary

  • Overtime premium logic lives in Pay Prep Profiles

  • Uses calculated time record sets to group worked hours by week

  • Identifies hours over 40 using a Simple Weekly Overtime rule

  • Calculates the premium only by deriving a blended rate and applying a 0.5 divider

  • Outputs to a memo-only earning for W-2 Box 12, Code TT

  • Exempt exclusion depends on profile assignment, not an exemption flag

  • Sensitive to global week start vs timesheet alignment


Solution for PC2 Clients:
🔗UKG Guide PC2

Pay Calc 2 (PC2) – Quick Summary

  • Overtime premium logic lives in Pay Calculation Profiles

  • Uses counters, not Pay Prep record sets

  • Routes hours over 40 into an _FLSA Overtime counter

  • Applies a 0.5 premium multiplier, copying existing weighted/average OT logic where present

  • Exposes results via a Counter Records step for W-2 reporting

  • Rules can be enabled or disabled per profile, which controls exempt inclusion

  • Better alignment with weighted or average overtime configurations

Reasons Why Some Clients May Require Review

Review is needed when any of the following conditions are present, because the parallel calculation relies on profile and rule configuration:

  • Exempt or salaried employees track hours and are assigned to pay calculation profiles where FLSA overtime rules are active.

  • Weighted or average overtime calculations are used, where multiple earnings contribute to the regular rate (Some not all scenarios review is needed)

  • Non-standard overtime thresholds or alternative FLSA work periods are in place, including:

    • The company’s global workweek definition differs from the workweek used by existing overtime rules at the profile level

    • Client pays Overtime or Doubletime based on own policies or state rules.  These are expected differences, as the parallel FLSA OT rule is limited only to weekly hours worked over 40.

  • Payroll data is exported to a third-party provider rather than processed natively.  The export won't inherently include this.

  • Clients override or add Overtime directly on Pay Statements.  Solution requires hours tracking to be accurate.
  • Client do not want to show the memo code on the Pay Statements. This requires disabling visibility of Current/YTD settings.

What to do if historical corrections are needed:

The pay statements drive W2 reporting accuracy, any corrections need to be recorded on a pay statement similar to any other earning correction.


Potential Secondary Issues/Errors:

  • Memo code earnings cannot be assigned a GL Code if a client wants to track this on their GL.
  • Memo code earning is not added to any lists by default
    • Labor Distribution profiles may not use an earnings list: this typically appears as a labor distribution profile error, because there is no list inside the employee's profile so it assumes all earnings.  A list may need to be created that excludes the memo code to resolve the error.
    • Retirement / 401k Earnings List: be sure this is excluded from the earnings list otherwise the system will inaccurately calculate contribution amounts.
  • PC2 Pay Calcs and Average Weighted Overtime: The FLSA overtime AWOT rule runs in parallel, so if a client's average weighted overtime rule is added or changed, the FLSA average weighted overtime rule should be reviewed to ensure alignment.

 What it will look like when displayed on a pay statement:

2025-12-26 11_45_11-Greenshot

 

Client Newsletter - 12/30/25


2026 OBBBA Overtime Update
New 2026 W-2 Requirement: Separate Reporting of Overtime Premiums

What this means for your payroll and what is not changing

Why this is happening

Beginning in 2026, employers are required to separately report the overtime premium portion of pay on employee W-2s. The premium is the additional pay earned for overtime, not an employee’s regular wages.

What this means for your payroll

As an initial step in preparing for this requirement, PayNW is enabling a parallel FLSA weekly overtime calculation that tracks only the overtime premium portion for reporting purposes.

This applies to clients who use both payroll and time tracking, allowing overtime premiums to be identified based on weekly timesheet data. This change does not impact how overtime is calculated or paid.

As this is an early step toward 2026 reporting, the overtime premium amounts tracked may not reflect the full or final premium you expect. That is okay. We are actively working through overtime configurations and more complex overtime scenarios, and some setups may require clarification or adjustments as we prepare for accurate year-end reporting.

Overtime pay is not changing
Employee time entry is not changing
Your payroll process is not changing
What you may notice

At this time, overtime premium amounts will not appear on employee pay statements. You may see a new memo earning code labeled “OBBBA Qualified OT Premium” in certain payroll reports. This memo earning code is used for reporting purposes only and can be filtered out as needed.

What if I do not use time tracking?

If you do not use PayNW time tracking, no changes are being made today.
We are actively working on solutions for other scenarios and will share more guidance as it becomes available.

Anything I need to do?

No action is required at this point.

PayNW will be reviewing overtime setups as this rolls out and will reach out if any questions or adjustments are needed. This message is intended to keep you informed as we begin preparing for 2026 reporting.