Qualified Overtime Tracking (OBBBA)

Overview

The One Big Beautiful Bill Act (OBBBA) requires employers to identify and report a specific subset of overtime hours called Qualified Overtime. These are hours that meet the FLSA overtime threshold and may qualify as tax-free compensation for employees.

Hero Schedule tracks this with a separate overtime policy that runs in the background alongside your existing rules. Your current overtime setup, pay rates, and time cards are not affected. The Qualified OT policy simply counts the hours that meet the FLSA threshold each work period and drops them into a dedicated accrual account for reporting.

Note: Most qualified overtime scenarios are handled automatically. The one exception is comp time payouts - see the Comp Time section below for details on those.

Common FLSA Thresholds

Check with your legal counsel or HR team to confirm the right work period and threshold for your agency before setting this up.

Setting Up the Qualified OT Tracking Policy

You'll create a dedicated overtime policy just for OBBBA tracking. It runs alongside your existing policies and doesn't replace them.

Step 1 - Create the Policy

1. Go to Menu > Organization Setup > Fair Labor Standards.
2. Select the Overtime Policies tab.
3. Click + Add Overtime Policy.
4. Set the Policy Name to Qualified OT Tracking.

Step 2 - Configure the Work Period

1. Set the Date Period to match the FLSA work period for this group (e.g., 14 days).
2. Set the First Day of Any Period to the start date of the applicable work period. This is usually the first day of a pay period and can be a past date.

Step 3 - Assign Groups

1. Under Policy Applies To, select Schedule View Grouping.
2. Pick the shifts or groups this policy covers (e.g., A Shift, B Shift, C Shift, D Shift).

If different groups have different work periods or thresholds, create a separate policy for each.

Step 4 - Configure Exclusions

Only actual hours worked count toward the FLSA qualified overtime threshold. The exclusions below keep non-worked time from inflating that number.

Bypass Callback Codes

Check Bypass Callback Codes. If an employee is called in but only works 15 minutes while receiving a 2-hour callback minimum, this setting makes sure the calculation uses actual time worked - not the callback minimum.

Exclude Activities

Add any activities that should not count as hours worked. Common examples:

• On-call / standby time
• FTO (Field Training Officer) credits that are pay-only
• Automatic stipends (K9, SWAT/Bomb Squad, Negotiations)
• Four-hour minimums configured as pay-only entries

Exclude Overtime Categories

Add any overtime categories that shouldn't count toward qualified overtime. Common examples:

• Contract overtime
• FTO overtime
• Any category tied to a premium rather than actual scheduled hours

Qualified Time Off Accounts

Leave this section blank. Time off (vacation, sick, etc.) should not count as hours worked toward the threshold, and comp time should not be added here either - see the comp time section below.

Step 5 - Add the Overtime Rule

1. Under Rules, click + to add a rule.
2. Set Hours Worked to your qualifying threshold (e.g., > 86 hours).
3. Set Selected Account to (any) - this makes the rule apply regardless of what the employee selected.
4. Set Multiplier to x1.
5. Set Add to Account to Qualified OT.

Result: Any overtime request hours where the employee worked more than 86 hours in the work period go into the Qualified OT account at a 1:1 rate. This account shows up on the pay period closing report for admins but is not visible to employees on their time cards.

Do not add a rule for comp time earned. Comp time is not qualified overtime at the time it is earned.

Step 6 - Save and Verify

1. Click Save.
2. Pull up a recent closed pay period and confirm the Qualified OT account is populating correctly.
3. Spot-check against known overtime payments to make sure the numbers look right.

Comp Time Payouts - Manual Tracking Required

Comp time works differently from regular overtime when it comes to OBBBA reporting, because there are two separate events:

1. Earned - Comp time earned is not qualified overtime, even if the employee worked more than 86 hours that period.
2. Paid out - When comp time is paid out as cash (because the employee hit their comp time cap), that cash payment is what the IRS is looking at, and a portion of it may count as qualified overtime.

Hero Schedule handles the first part automatically. When a comp time payout happens, you'll need to add a manual adjustment using this calculation:

Hours paid out x 0.6667 = Qualified Overtime hours to add

Example: 3 hours of comp time paid out - 3 x 0.6667 = 2 hours of Qualified Overtime

The 0.6667 factor strips out the 1.5x comp time multiplier to get back to the base hours that represent actual time worked.

How to spot comp time payouts

Look for pay periods where an employee's comp time balance was trimmed back to their cap and the extra hours were paid as cash. In Hero Schedule, this shows up as hours truncated at the cap limit - for example, balance was 83 hours, cap is 80, so 3 hours were paid out.

How to record the manual adjustment

Add the calculated hours directly to the employee's Qualified OT accrual account for that pay period and note the adjustment in your payroll records.

We're looking at ways to automate this in a future update.

Reporting & Payroll Export

The Qualified OT account is included in the pay period closing report. Each pay period shows only that period's qualified overtime hours - it's not a running total. This makes it easy to hand off the qualified overtime number to payroll (or your payroll system, such as NEOGOV) each period.

From there, your payroll team can calculate:

• Total OT paid - from your standard overtime policies
• Qualified OT - from the Qualified OT account
• Non-Qualified OT - Total OT minus Qualified OT

Quick Reference - What Counts vs. What Doesn't

Need Help?

If you need help setting up your Qualified OT Tracking policy or have questions about your specific configuration, submit a support ticket.

For general overtime policy setup, see Setting Up Overtime Policies in Hero Schedule.