This year’s new federal overtime rules require contractors to track premium pay separately from standard pay.
Learn how Raken’s time tracking tools support compliance.
What are the new regulations?
The One Big Beautiful Bill Act was signed into law on July 4, 2025, creating a federal income tax deduction for Qualified Overtime Compensation.
Starting in 2026, employers are expected to track overtime premium pay and report it separately on W-2s under Code TT. Previously, standard and premium pay could be reported together as total wages.
Premium pay vs. standard pay
Premium pay refers to any earnings employees accrue over the standard rate. This means employers do not simply need to track overtime pay separately from standard pay, they need to separate the base pay from the .5 overtime increase and report both earnings individually.
For example, if an employee makes $40/hr working regular hours, and earns $60/hr working overtime, the employer must track and report the $20 premium separately from the $40 base pay.
Qualified overtime
Only overtime pay that is required by the Fair Labor Standards Act (FLSA) is covered. State-mandated daily overtime like California’s 8-hours rule, weekend premiums, and holiday premiums do not qualify.
Compliance is crucial
The goal of these new regulations is to protect the earnings employees make when working over 40 hours a week. If a contractor fails to report correctly, they will face significant IRS fines and risk potential HR backlash.
Accurately track overtime with Raken
Tracking premium pay separately from standard can be a logistical nightmare with paper time cards and individual spreadsheets. Our construction time tracking software makes it easy to capture clean, accurate time data and sync it directly with your preferred accounting software.
Fast, easy time tracking
Choose from three flexible time entry options, including our mobile time clock app, and set custom rules for tracking overtime or use a pre-built template.
Eliminate duplicate data entry and make sure the earnings you report accurately reflect hours worked.
Seamless payroll integrations
Time data from Raken can be synced with Sage, Viewpoint, QuickBooks, and other leading accounting tools. Automatically feed your payroll system the clean overtime data it needs to comply with the new regulations.
See it in action
Try our mobile time clock app, shared kiosk, or supervisor-led time cards today.