MONTGOMERY, Ala. (WIAT) — Hourly employees in Alabama will soon no longer pay income taxes on their overtime pay.

Starting in January, all full-time hourly employees in the state will no longer pay Alabama’s 5% income tax on any hours they work over 40. It’s believed to be the first law of its kind in the country.

That’s thanks to a new law passed last session. The governor and state officials participated in a ceremonial bill signing at Hyundai Motor Manufacturing in Montgomery on Thursday.

Those at Hyundai say the majority of their roughly 4,000 employees are hourly and able to get overtime. While this law will have a huge impact on their workforce, it’s not just Hyundai employees who will see the benefits.

“We are number one in this particular area. So we’re very proud of it,” Helena Duncan, Business Council of Alabama President, said.

Bill Sponsor House Minority Leader Anthony Daniels says the legislation rewards hard work and is one solution to Alabama’s labor participation problem.

“A 5% pay raise without your employer having to give it to you is a win-win situation for Alabamians,” Rep. Anthony Daniels (D – Huntsville) said.

Gov. Kay Ivey signed the bill ceremonially, surrounded by lawmakers who pushed for its passage. She says it will let thousands of Alabamians take home more money.

“House Bill 217 celebrates and rewards that hardworking mentality shown by employees across our state,” Gov. Ivey said.

The law has a sunset date in 2026. Daniels says it’s important lawmakers renew the tax exemption during this next session or the following one.

“5% of that time and a half is a lot better than 5% of base pay,” Daniels said.

The tax cut will have an estimated $45 million impact on the education budget, but Daniels says that’s not the full picture. He says when people take home more from their paychecks, they’ll end up spending more too, so the revenue impact may not actually be that high.