Qualified Overtime (QOT) refers to the FLSA premium portion of overtime pay, the extra half-time rate for hours worked beyond 40 in a workweek, that employers are required to track and report under OBBA and IRS regulations. This enhancement introduces a dedicated accumulator for these premium amounts, ensuring compliance without altering the way overtime is currently paid to employees.
QOT is calculated during W-2 processing and displayed on W-2 in Box 12b with Code TT starting with tax year 2026. For transparency during the year, Year-to-Date QOT values are also visible on employee statements and portals as “Qualified Overtime (FLSA premium portion).”
In summary, this feature allows employers to meet federal reporting standards, prepare accurate W-2s, and provide full compliance visibility without impacting regular payroll calculations or paychecks.
Where and How It Is Displayed
- QOT amounts are calculated and finalized during W-2 processing; these values are not shown as separate earnings during regular payroll.
- In year-end forms, the QOT value appears in W-2 Box 12b labeled with Code TT, in accordance with IRS requirements starting in tax year 2026.
Calculation Details
- Step 1 – Identify Qualified Hours: Weekly hours for non-exempt employees beyond 40, excluding state-only daily overtime unless those hours also count toward weekly overtime.
- Step 2 – Determine Regular Rate: Uses the existing regular-rate which will be applied in overtime calculations. The overtime rate calculation for this is always going to be 1.5X RT.
- Step 3 – Calculate Premium Per Hour:
- QOT premium per hour = (Overtime rate − Regular rate).
- For standard 1.5x OT, this equals 0.5 × regular rate.
- Step 4 – Total QOT Dollars:
- QOT Amount = Premium per hour × FLSA OT hours.
- For clarity: only the FLSA-required premium is included; any incremental above time-and-a-half (such as double time) is excluded.
- The derived QOT dollars are posted to a non-pay, non-tax accumulator for audit and reporting purposes only, no effect on gross wages, taxability, or GL distribution.
- Accumulator values are maintained as YTD, with optional Pay-to-Date and Quarter-to-Date views. They automatically update on payroll recalculations and retroactive adjustments.