The current payroll export sends total regular hours and total overtime hours for the pay period, but does not distinguish between state-level daily overtime (fir example in California: over 8 hours/day) and federally qualified overtime (over 40 hours/week) as defined under the OBB Bill. Payroll providers (such as ADP) require a dedicated memo code to record qualified overtime hours for the purposes of the overtime premium tax exclusion. Without this, accounts cannot correctly report the OT premium deduction in payroll, creating potential compliance exposure.
New Behavior
TW now calculates and exposes a distinct qualified overtime hours field representing hours worked over 40 in a workweek, separate from any state-mandated daily OT or any other non-qualified OT.
This value is available in payroll mapping and CSV tokens
Existing Overtime Fields remain unchanged. Ie they report total overtime. The NEW field is a layer on top.
Broad impact
Any account processing payroll for hourly employees in California — or other states with daily OT rules — faces this gap and we are less competitive for labor compliance reporting in CA as this complicated calculation would need to be manually calculated.
Tokens
Fed OT Hours = OT_FED@
Mapping
Use the Qualified Federal Overtime field. Existing overtime fields remain as set. This new field does not replace existing overtime fields.
Mapping is available for ADP, Paychex, Gusto
The following cases have been tested
Weekly / Bi-Weekly / Semi-Montly pay frequencies
Tokens
Push to ADP WFN / Memo Code
Critical Discoveries during Pilots
Aligning systems - how each payroll will ingest the hours
What wage is sent. For ADP, consistent with OT hours, TW sends the Base Rate and ADP calculates the OVERTIME PREMIUM, which is the critical datapoint.
For all first-time cases, we must validate the wage format expected / align system / validate on payroll register.
INCLUDE ME PETER IN ALL PILOTS DURING THIS INITIAL PHASE
Other Notes
Fed OT does NOT appear on the screen report, only Tokens / Mapping
We should raise this with CA restaurants whenever we can. The following talk track should be used.
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Merchant Facing Link:
https://support.dolceclock.com/help/qualified-overtime-federal-income-tax-deduction-reporting
New Tax Bill (BBB)
1) What the BBB actually changed
The law created a new federal income tax deduction for “qualified overtime”.
Workers can deduct up to $12,500 of qualifying overtime income (double for joint filers).
But only a specific portion of overtime qualifies:
The extra “half-time premium” required under the federal Fair Labor Standards Act (FLSA)
Not the full overtime paycheck
And critically:
Overtime that exists only because of state law (like California rules) does NOT qualify
2) Why this creates a reporting issue
Because of that distinction, employers now have to separate overtime into two buckets:
✔️ Federally Qualified Overtime
Required under federal law (FLSA: >40 hours/week)
Eligible for the federal tax deduction
❌ Non-qualified overtime
Overtime required only by state law
Not eligible for the deduction
3) Why California businesses are especially affected
California has much stricter overtime laws than federal law, for example:
Overtime after 8 hours in a day (not just 40/week)
Double time in some situations
Those extra rules mean:
👉 A large portion of overtime paid in California is NOT “federally qualified”
So employers must:
Track which overtime hours are federal vs. California-only
Report them separately (e.g., on payroll records, potentially W-2 breakdowns or supporting documentation)
4) Why this matters for taxes
This separation matters because:
Employees can only deduct the federally qualified portion
If employers don’t properly classify it:
Employees may lose tax benefits
Employers risk incorrect reporting/compliance issues
In short:
👉 The federal tax break forces a new layer of payroll accounting detail
5) The practical impact
For California businesses, this means:
Payroll systems must be updated to:
Identify FLSA overtime vs. CA overtime
Accounting and HR need to:
Track “qualified overtime” separately
Employees may:
Ask for breakdowns to claim deductions
Bottom line
There isn’t a separate “California reporting law” in the BBB.
What’s happening is:
👉 The federal tax deduction only applies to FLSA overtime,
👉 California has extra overtime rules,
👉 So businesses must track and report overtime in a more detailed way to support those federal tax deductions.
Pilot Tracking: Fed Qualified OT - Pilot Log