DOL Clarifies Treatment of Percentage-Based Bonuses for FLSA Overtime Purposes

A recent DOL opinion clarifies when an employer must include nondiscretionary bonuses in an hourly or non-exempt employee's regular rate of pay for FLSA purposes. Discretionary bonuses generally need not be included when calculating an employee's regular rate of pay for overtime purposes. Nondiscretionary bonuses must be included, meaning that when the bonus is paid, the employer must go back and recalculate the employee's rate by allocating the bonus over the weeks when it was earned. FLSA 2026-6 deals with bonuses calculated as a percentage of the employee's total earnings. With respect to this type of bonus, employers do not have to recalculate the employee's regular rate and overtime after the bonus is paid. That's because the bonus already accounts for overtime compensation, having been based on the employee's total earnings (regular pay plus overtime pay). While DOL opinion letters such as this are not binding precedent, they do provide helpful guidance for employers with respect to their FLSA obligations. For more information on the new deduction for overtime pay, visit Tax Facts Online. Read More: Link to Q8522.2.