Overtime Exemption from State Income Tax

In some jurisdictions, you need to record your employees' hours worked over the statutory limit, because the wages are exempt from state income tax (SIT). The payroll process uses two balances to determine these wages.

• Wages Earned for Hours Worked in Excess of Statutory Limit

• Hours Worked Over Statutory Limit

Note: The payroll process uses these balances only for Alabama SIT calculations. In Alabama, a nonexempt hourly employee is exempt from SIT on wages earned for any hours worked over 40 during a 7-day work week.When you upgrade your elements using the Feature Upgrade process, it doesn't generate feeds to these balances. Instead, it indirectly feeds these balances through the predefined SIT Exempt Wages and SIT Exempt Wages Retro information elements.

When you create time elements using the Element template:

1. It creates two objects to help you record the hours worked.

   • When you define Time category elements, it creates two value definitions.

   • When you define Standard category earnings elements that use the Hours * Rate calculation type, it creates two input values.

   These value definitions and input values have the same names.

   Name	What it does
   Exceeds Statutory Hours Limit	Indicates whether the hours passed on the element exceed the statutory limit. Use this attribute when you pass separate time entries to payroll for the exempt and taxable work hours. The payroll process ignores this if there is a value found for Hours Worked Over Statutory Limit.
   Hours Worked Over Statutory Limit	Identifies the hours worked that exceed the statutory limit and are exempt. Use this attribute when you can't pass separate time entries to payroll for the exempt and taxable work hours, such as when: Using third-party time applications Manually identifying the exempt hours from the total hours passed If this has a value, the payroll process ignores Exceeds Statutory Hours Limit.

2. It creates feeds for earnings results and retropay results elements to the two balances.

How to use the simplified solution

If in your own assessment of compliance, you already have a set of time and retroactive time calculation result elements that are exclusively exempt from Alabama SIT calculation, the quickest solution is to define balance feeds from those elements to the balances mentioned previously and skip the Element upgrade and Time application configuration.

However, before you do, consider the following.

• The SIT exemption doesn't apply to overtime exempt or salaried nonexempt employees.

• The SIT exemption isn't limited to the overtime pay type but applies to any wages earned from hours worked after 40 hours, regardless of the pay type or element through which it is paid.

• Overtime paid prior to the 40-hour limit, either due to union or other contractual agreements, aren't exempt from SIT.

• Only time worked is counted towards the 40-hour limit, regardless of whether you count other earnings types, such as Holiday Hours, for your existing overtime calculation.

The subsequent sections in this document assume you don't have payroll elements that could be deemed exclusively exempt for purposes of Alabama SIT calculation and enabling support for this feature requires an upgrade to your existing Payroll elements and configuration in Time & Labor prior to transferring any time entries that are paid in 2024.

How to configure your elements

You must run the Feature Upgrade process to update your existing:

• Time category elements

• Standard category Earning elements using the Hours * Rate calculation rule and any corresponding time components (CIR elements)

The process adds these required components:

• Value definitions for your Time elements

• Input values for your Standard earnings elements

These value definitions and input values have the same names. They work in conjunction with your existing time component value definitions or element input values.

Note: The process doesn't affect element entries you created prior to the upgrade.

To upgrade your elements:

1. Start the Feature Upgrade process.

2. Set these values.

   Field	How you use it
   Feature	Select Upgrade Elements for Alabama SIT Exemption.
   Additional Information	Type your element group name.

3. Submit the process.

How to configure Time and Labor

These steps are limited to the configuration of Oracle Time and Labor (T&L) to support Alabama's overtime exemption only. The actual steps may differ based on your existing configuration and business requirements.

For this example, you have an hourly nonexempt employee working in Alabama on a 35 hours per week schedule. As per their employment terms, they are paid overtime (time and a half) for any hours worked exceeding their contracted hours. This employee is on a weekly payroll where the payroll frequency matches the overtime work week. In a particular period, this employee works 45 hours and must therefore be paid 35 hours at their regular rate of pay and 10 hours as overtime at a time and a half rate of pay. You have two options for configuring T&L.

1. Use the Exceeds Statutory Hours Limit value definition (ORA_HRX_US_HOURS_OVER_STAT_LIMIT).

   Entry	Payroll time types	Hours	Exceeds Statutory Hours Limit
   1	Regular	35	Null
   2	Overtime	5	Null
   3	Overtime	5	Y

   This splits the 10 hours of overtime into two entries. The 5 hours that exceed the 40-hour threshold are passed value definition set to Y.

2. Configure T&L to calculate the exempt hours, and pass them to the Hours Worked Over Statutory Limit value definition (ORA_HRX_US_EXEMPT_HOURS_OVER_STAT_LIMIT).

   Entry	Payroll time types	Hours	Hours Worked Over Statutory Limit
   1	Regular	35	Null
   2	Overtime	10	5

The following steps assume you are performing the first option.

Assumptions and prerequisites

For this example, assume the following.

• You've configured Unified Layout functionality to enable new time attributes as Single Attribute time card fields.

  To determine if Unified layout is enabled:

  1. Start the Manage Common Lookups task.

  2. Search for WFM_UNIFIED_LAYOUT_ENABLED lookup codes under the ANC_PROC_CONFIGS lookup type.

• Your timecard period coincides with a standard 7-day overtime work week.

Implementation

These steps describe how to generate and display exempt time in T&L. They involve using a predefined time calculation rule formula as a starting point.

1. Run the Generate Data Dictionary Time Attributes process.

   Run this process after you have configured your elements using the Feature Upgrade process.

   For further info, see Generate Data Dictionary Time Attributes in the Help Center.

2. Use the Time Entry Layout Components task to define a time card field.

   If you haven't enabled Unified layout, you can define the field as a dependent time card field.

   1. Create a Single attribute time card field layout component type.

   2. Use the same time attribute names as those associated with the value definitions.

      For this example, use the Exceeds Statutory Hours Limit value definition (ORA_HRX_US_HOURS_OVER_STAT_LIMIT).

   3. Use the HRC_YES_NO value set in both the filtered and unfiltered data sources.

   4. Under display properties, enable Smart choice list as the display type.

   5. Set the field as not required on time card, and enable override on layouts.

      For further info, see Basic Time Entry Layout Component Configuration Process in the Help Center.

3. Add the time card fields to the to the layout set you assigned to your workers.

4. Use the Time Categories task to create a time category that includes all payroll time types that contribute to the statutory 40-hour threshold.

   You must have enabled the Exceeds Statutory Hours Limit value definition for these payroll time types.

   You can also use an eligible existing time category.

5. Define a time calculation rule template using the Time Rules Template task.

   1. Use the Time calculation rule template type and the predefined WFM_THRESHOLD_TIME_CALCULATION_RULE_AP fast formula.

      This divides the reported time into calculated time attributes for values above and below a threshold hours value.

   2. Assign a name to the rule template, and enable an events trigger rule on save, submit, and resubmit.

   3. Follow the guided process to complete the configuration.

   4. Select the Time Category parameter type for the WORKED_TIME_CONDITION parameter.

   5. Select the Fixed number parameter type for the DEFINED_LIMIT parameter.

   6. Configure the template outputs.

      For example:

      Output name	Output group	Time attribute	Value type	Value set	Output source	Display name
      OUT_MEASURE_ARY_UNDER	Output Group 1	Measure	N/A	N/A	Formula	OUT_MEASURE_ARY_UNDER
      OUT_MEASURE_ARY_OVER	Output Group 2	Measure	N/A	N/A	Formula	OUT_MEASURE_ARY_OVER
      Hours Worked Over 40	Output Group 3	PayrollTimeType	Data Source	N/A	User defined	Hours Worked Over 40
      Exceeds Statutory Hours Limit	Output Group 4	GD_ORA_HRX_US_HOURS_OVER_STAT_LIMIT_CHAR	Fixed Text	N/A	User defined	Exceeds Statutory Hours Limit

6. If you've configured your own time calculation rules, for each output group that exceeds the threshold, add an additional output name for this time attribute.

   GD_ORA_HRX_US_HOURS_OVER_STAT_LIMIT_CHAR

7. Use the Time Rules task to configure a time calculation rule (TCR).

   1. Use your time calculation rule template.

   2. Set the following.

      Display name	Value
      WORKED_TIME_CONDITION	Enter the name of your time category.
      DEFINED_LIMIT	Enter 40.

   3. Set your outputs.

      For this example, you would set the following.

      Display name	Grouping structure	Value	Time attribute
      OUT_MEASURE_ARY_UNDER	Output Group 1	Measure	N/A
      OUT_MEASURE_ARY_OVER	Output Group 2	Measure	N/A
      Hours Worked Over 40	N/A	Enter the name of the payroll time type for hours over 40	PayrollTimeType
      Exceeds Statutory Hours Limit	N/A	Enter Y	GD_ORA_HRX_US_HOURS_OVER_STAT_LIMIT_CHAR

8. Create a time processing profile that applies to your Alabama employees.

   You can define an HCM group to identify the employees in Alabama.

   For further info, see Overview of Linking People to Time and Labor Objects in the Help Center. This provides an overview of evaluation criteria based on worker personal and employment criteria.

9. Use the Time Rule Sets task to identify the rule set assigned to your worker time processing profiles and add your time rule to it.

   You may have to determine the processing sequence of the time rule based on your existing rule setups.

When you run either the Load Time Card Batches or Transfer Time Cards from Time and Labor process, it transfers the time to the payroll system, which uses these value definitions or input values to process wages that are exempt from Alabama SIT.

Note: When passing time elements, make sure the entries don't overlap multiple overtime work weeks.

How to configure third-party time applications

If you are using a third-party time application, you must configure it to:

1. Identify nonexempt hourly employees.

2. Identify the hours worked over 40 in a 7-day work week in the Alabama jurisdiction.

3. Identify the element in which the exempt hours were earned.

4. Populate either of the two values.

   • Exceeds Statutory Hours Limit

   • Hours Worked Over Statutory Limit

   These are value definitions if you are passing this info to time card components. They are input values if you are passing this to time element entries.

When you load your time data into payroll time card components or to the payroll element entries, the payroll process calculates the exempt wages based on the hours passed by these values.

Interim solution using HCM extracts

An alternative to configuring your third-party time application is to use a predefined HCM extract. This option is available only if:

1. You import your time elements directly to payroll element entries.

2. You have configured those time elements as standard category Earning elements with a calculation rule of Hours * Rate.

   Note: You must perform the element upgrade prior to transferring time to be paid in January 2024.

This extract generates the HCM Data Loader (HDL) DAT file with all the time entries in Oracle Cloud Payroll.

1. Import your time entries into payroll.

2. Create an element group with all your applicable time elements used for tracking worked hours.

3. Use the Submit a Flow task in the Payroll work area to run the Hours Worked Over Statutory Limit Report with these parameters.

   Parameter name	Value
   Payroll Name	Select the payroll you're processing.
   Payroll Period	Select its payroll period.
   State	Select AL.
   Element Group	Select an element group that includes the time elements you are processing.

4. Submit the flow.

   This flow generates an extract data file.

   Note: If the output file has an additional .TXT extension, manually correct it to .DAT.

5. Review the data file in your preferred application, such as Microsoft Excel or Notepad.

6. Identify the hours that are exempt from SIT, and update either of the two input values for those hours.

   • Exceeds Statutory Hours Limit

   • Hours Worked Over Statutory Limit

   Select one of these values, and stay consistent in your approach.

   Note: The extract doesn't include retropay element entries. You must make any corrections in the base element.

7. Save and import the ElementEntry.dat file using the Import and Load Data task.

   For further info, see Create and Maintain Data with HCM Data Loader (HDL) in the Help Center.