Last updated: October 2026

Overtime Premium Adjustments: What OT2 Means on Your Pay Stub

A non-discretionary bonus raises your regular rate, so your employer must recalculate overtime pay. Under 29 CFR 778.209, each overtime hour owes half the bonus's hourly increase to the regular rate.

The extra amount owed from that recalculation shows up as a separate line item on your pay stub, under a code like OT2, OTPREM, or REG RATE ADJ. That payment is called an overtime premium adjustment, and it works differently from your regular overtime pay in ways that matter for your taxes.

Why your employer owes this payment

The Fair Labor Standards Act (FLSA) requires employers to include non-discretionary compensation in the "regular rate of pay" used to calculate overtime. When your employer pays a production bonus, attendance bonus, or shift differential, your regular rate for any week you worked overtime must be recalculated to include that additional compensation.

A $500 production bonus paid to someone who worked 200 total hours (including 20 overtime hours) produces a regular rate increase of $2.50 per hour. The overtime premium owed on that increase is $2.50 times 0.5 times 20 hours, which equals $25. That $25 appears on the pay stub as OT2 or whatever code the employer uses.

If your employer pays a truly discretionary bonus (a holiday gift, a spot bonus given at management's sole discretion with no pre-announced criteria), they are not required to include it in the regular rate. Only non-discretionary bonuses trigger the recalculation.

How to find it on your pay stub

There is no standard name for this payment. Every payroll system and every employer can label it differently. Here are example earnings codes to look for:

Pull your last pay statement of the year. Look at the earnings section for any code that is not your regular pay, regular overtime, or PTO.

Why this is 100% overtime premium

Regular time-and-a-half overtime pay is a blend. For every $1.50 of overtime pay at 1.5x, $1.00 is straight-time wages and $0.50 is the overtime premium. That is why the OBBBA calculator divides your total overtime by 3 to isolate the premium portion.

Overtime premium adjustments are different. The employer has already isolated the premium. The recalculation produces only the additional half-time amount owed, with zero straight-time component. When you see $25 under OT2 on your pay stub, all $25 is overtime premium.

Dividing OT2 payments by 3 would be mathematically wrong. It would understate your OBBBA deduction by two-thirds of the OT2 amount.

If your employer labels a payment "OT2" but it actually includes both straight-time and premium components, that is not the same thing. True overtime premium adjustments are always calculated at the half-time rate (0.5x) only. If the code pays at 1.5x or 2.0x, it is a different type of overtime, not a premium adjustment.

What it means if your employer does not pay this

Failing to pay overtime premium adjustments is an FLSA violation that exposes the employer to back-pay claims, liquidated damages, and Department of Labor enforcement actions.

If you earn overtime and receive bonuses but see no separate overtime premium adjustment on your pay stub, your employer may owe you money. The PayrollDetective overtime hub covers how regular rate calculations work and what to do if you suspect your employer is not calculating overtime correctly.

How to enter this in the OBBBA calculator

The No Tax on Overtime Calculator has a field for overtime premium adjustments. Add up all OT2-type payments from paychecks dated in tax year 2025 (not when the hours were worked, but when the payment hit your paycheck) and enter the total.

For tax years after 2025 the deduction is limited to what the employer reported in box 12 of the Form W-2 under code TT.

The calculator adds this amount directly to your overtime premium total with no division. It then applies the standard OBBBA cap ($12,500 for single filers, $25,000 for joint) and any applicable phase-out based on your income.

If your employer already includes overtime premium adjustments in your regular overtime total under one earnings code, do not enter them again. Doing so would double-count the amount. If you are unsure, check your pay stubs for a separate line item or ask your payroll department.

This is not legal or financial advice. Consult a qualified professional for your specific situation.