Compliance Update – Alabama State Income Tax (ALSIT) Overtime Wage Exemption

by · December 27, 2023

The state of Alabama passed legislation in 2023 that exempts overtime wages from Alabama State Income Tax (ALSIT), effective January 1, 2024, through June 30, 2025.

This exemption applies to hourly overtime wages that meet all the following criteria:

  • Hours are worked by hourly, Fair Labor Standards Act (FLSA) non-exempt employees,
  • Hours (excluding paid time off and holiday pay) worked over 40 hours per week, and
  • Wages are subject to Alabama State Income Tax (ALSIT), including wages earned in states that do not have state income tax.

Paid time off and holiday pay hours do not count toward the 40 hours. Wages earned in states with state income tax, bonuses, commissions, and salary wages continue to be taxed following the standard requirements.

For more information about this exemption, review the Overtime Pay Exemption Reporting Guidance and FAQs page on the Alabama Department of Revenue website.

Before running your first payroll of 2024, PlanSource will review and update the configuration for each component company that has locations or employees subject to Alabama State Income Tax (ALSIT), to ensure that overtime wage tax exemption is applied to the tax code ALSIT for hourly, non-exempt employees.

Company and Employee Setup for the Alabama Overtime Exemption

Action may be required by you as the employer:

Review the configuration of your UKG Pro solution to ensure that overtime wage tax exemption is applied to Alabama State Income Tax (ALSIT) for hourly, non-exempt employees.

Earnings business rule:

(Menu > System Configuration > Business Rules > Business Rules > Earnings)

  • Earnings codes that are used for hourly, non-exempt employees subject to ALSIT are configured correctly to track overtime for FLSA average pay rate.

Note: Earnings must be tracked on a weekly basis in payroll. Alabama does not allow for averaging of overtime with biweekly time entry.

Jobs business rule:

(Menu > System Configuration > Business Rules > Business Rules > Jobs)

  • Jobs codes that are used for hourly, non-exempt employees subject to ALSIT are configured with a non-exempt FLSA status and hourly compensation.

Note: If the job code is set up for salary compensation, the job must be set to hourly compensation from the employee record.

If you have any additional questions, please reach out to the HCM Service Team at hcmservice@plansource.com or 407-447-3837.

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