Additionally, the FLSA contains several dealer-specific exemptions. These exemptions apply to technicians, service advisors, finance managers, parts counter and warehouse personnel, and sales representatives. There is also an exemption for employees who are paid primarily on a commission basis, provided that they receive at least 1.5 times the federal minimum wage. Unlike the “white collar” exemptions, these are partial and apply only to overtime. Employees in these positions still must be paid at or above the federal minimum wage for all hours worked, and accurate time records must be maintained for them. The remainder of dealership employees are typically non-exempt under the FLSA and must receive overtime for all hours worked in a work week. These individuals generally include porters, receptionists, cashiers, warranty clerks/administrators, detailers, hourly lube techs, BDC representatives, payroll clerks, accounts payable and receivable clerks, and other non-managerial office staff. It is not legal under the FLSA to simply pay these individuals a salary and not compensate them for overtime hours. In addition to violating the FLSA, such a practice could now also create issues under the tax laws as you will be effectively denying your non-exempt employees’ right to the deduction because you failed to pay them overtime. This is a good time to review your pay practices to make sure that you are keeping time records for and paying overtime to all employees who are non-exempt. Only overtime payments provided to your non-exempt staff will qualify for the tax deduction. Consequently, if you elect to pay overtime to an exempt employee when you are not required to do so, there is a good chance that the IRS will reject the deduction when submitted by the employee. EMPLOYER IMPACT AND NEXT STEPS While the OBBBA’s new overtime deduction is a tax benefit for employees filing individual tax returns, it impacts employers in several important ways: • New Filing and Information Reporting Requirements: The OBBBA requires employers to include the total amount of “qualified overtime compensation” on the employee’s Form W-2. Properly tracking, calculating and reporting these amounts may be challenging and burdensome for auto dealerships, particularly those that operate in multiple states. For the 2025 taxable year, the IRS is granting employers penalty relief related to failures to separately report qualified overtime compensation. This relief will not be available for the 2026 tax year or future years, so it is important that dealers correctly calculate and report qualified overtime compensation. • Payroll Withholding: All overtime pay remains subject to payroll taxes and withholding requirements (although employees may opt to adjust their Forms W-4 to reflect any expected deductions for qualified overtime compensation). Dealers must be aware of their withholding obligations in light of the new tax rules for qualified overtime compensation and look out for any employee updates to Forms W-4. Please work with your CPA on this front. • Employee Relations: Some employees might be motivated to work more overtime hours based on the OBBBA’s new overtime deduction, and employers should be prepared to respond to any employee confusion — and perhaps hard feelings — related to any misconceptions surrounding it. As a general rule, you should avoid giving employees any tax planning advice and remind them that the dealership is following IRS rules. CONCLUSION There certainly is much more than meets the eye in connection with the seemingly straightforward “no taxes on overtime” rules. All employers should work with counsel and their certified professional accountants on filing, reporting and withholding issues, as well as employee communications, related to qualified overtime compensation. This is particularly true for auto dealers since industry-specific issues will likely make compliance more challenging. 12
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