The One Big Beautiful Bill – An Employer Impact Review

June 4, 2025
by Lofton Staffing

The “One Big Beautiful Bill” (OBBB), recently proposed in Congress, has stirred considerable attention across industries for its broad economic and workforce implications. A standout provision? The federal income tax deduction for qualifying overtime pay. While the bill is still working its way through the legislative process, employers should begin evaluating its potential impact now.

This review breaks down the most important considerations employers need to keep in mind—along with key questions to guide your internal planning and compliance efforts.

The Overtime Deduction Provision – the basics:

The overtime deduction provision provides a federal income tax deduction for certain employees on their qualified overtime pay. Here is what you need to know:

• Applies to employees earning less than $160,000 annually
• Covers overtime income received during 2025 and continuing through 2028
• Can be deducted by employees on their federal tax return even if they don’t itemize
• Directly reduces adjusted gross income (AGI) before tax calculation
• Does not affect Social Security or Medicare tax (FICA) obligations

If passed, this federal provision tied to how overtime is compensated and taxed will create new considerations for employers and employees alike. While the bill awaits Senate approval, proactive employers will want to be ready.

How Will This Affect Payroll Operations?

Even though the deduction benefits employees, the compliance burden will fall largely on employers. You’ll need to ensure that your payroll systems and processes can:

• Accurately track and report overtime hours separately from base wages
• Maintain detailed, verifiable records of overtime earnings
• Clearly report overtime pay on W-2s as distinct from regular wages
• Support auditable documentation for the IRS and employee use

How Will This Impact Employee Behavior?

Tax-deductible overtime may appeal to many employees, but it also introduces complexities. Employers should anticipate:

• Increased interest in voluntary overtime
• Shifting preferences between overtime, bonuses and PTO
• Equity questions among employees who don’t qualify for the deduction
• Requests for reclassification from exempt to non-exempt status
• Overwork and burnout leading to employee fatigue, health and safety concerns

Do Internal Overtime Policies Need to Change?

Your existing policies on overtime eligibility, limits, and approval procedures may need updates. Consider:

• Reassessing caps or thresholds for overtime
• Updating approval processes to manage increased demand
• Training managers on balancing fairness, employee well-being and cost control

What’s the Cost Impact to Employers?

While the deduction does not reduce employer tax liability, the downstream effects could impact labor costs. Considerations should include:

• Increased employee demand for overtime
• Higher overall labor costs if hours rise significantly
• The need for more frequent review of compensation strategies
• Budget pressures from avoiding new hires in favor of extended hours
• Changes and updates in payroll systems

Final Thoughts

Whether you think the OBBB is a Beauty or a Beast, it marks a major shift in how federal tax law intersects with wage and hour regulations. While much remains to be finalized, the direction is clear: employers must prepare for change. Start conversations with your payroll provider, HR team, legal counsel, and tax advisor. Proactive planning will be key.

Want a simple, actionable checklist to guide internal discussions? Reach out—we’ll send it your way.

Why Choose Lofton as your Staffing Partner?

Choosing Lofton Staffing as your staffing partner offers a strategic advantage in today’s competitive job market. With decades of industry expertise and a comprehensive understanding of both the staffing and security sectors, Lofton excels in connecting organizations with top-tier talent that not only meets the technical requirements of each role but also aligns with your company’s culture and values. Our tailored approach ensures that we effectively address your specific needs, while our commitment to excellence and integrity helps mitigate hiring risks, reduces turnover, and enhances overall employee satisfaction. By partnering with Lofton, business executives and HR managers can streamline their recruitment processes, save valuable time and resources, and ultimately cultivate a workforce ready to drive organizational success.