Quarterly Bonus and Overtime Pay: DOL Opinion Letter FLSA2026-6

Does a quarterly bonus trigger an overtime recalculation? A recent DOL opinion letter says it depends on how the bonus is structured – and one approach eliminates the need for retroactive regular rate recalculation.

The question came from an employer that pays a quarterly non-discretionary bonus to eligible employees, some of whom work overtime. The DOL responded by issuing Opinion Letter FLSA2026-6.

How the Quarterly Bonus Was Structured

Under the FLSA, non-discretionary bonuses paid to overtime-eligible employees typically require employers to go back and recompute the regular rate for each workweek in the bonus period – then pay any additional overtime premium that results. For a quarterly bonus, that is a significant administrative undertaking.

But an exception exists: A bonus that increases an employee’s total earnings – straight time and overtime combined – by the same fixed percentage already includes the overtime premium on the bonus. No retroactive recalculation required.

The employer here used a bonus pool tied to quarterly sales revenue. Each eligible employee’s share was determined by calculating what percentage their total gross earnings represented of all eligible employees’ combined gross earnings for the quarter. The question was whether that pool-based structure still qualified for the exception.

What the DOL Found

The DOL concluded it did. Because the pool formula incorporates both straight-time and overtime earnings when determining each employee’s share, the overtime component is already embedded in the payout. Requiring an additional overtime adjustment on top of that would amount to paying overtime twice on the same earnings.

DOL Opinion Letter FLSA2026-6: Key Conditions

The percentage of total earnings approach isn’t a free pass. The DOL identified several conditions that must be met:

• Total earnings used in the calculation must include overtime pay – not just straight-time earnings
• The bonus cannot apply a higher percentage increase to straight-time earnings than to overtime earnings. A structure that weights straight time more heavily is not carrying its own overtime cost and recomputation is required
• The calculation cannot include items previously excluded from the regular rate – discretionary bonuses, expense reimbursements, or employer benefit contributions. Including those distorts the base and breaks the proportionality, and
• A bonus that decreases as overtime hours increase also disqualifies – the DOL treats that as evasion of the FLSA’s overtime requirements.

If those conditions are met, the employer distributes the bonus and moves on. No retroactive regular rate recalculation. No additional overtime payment.

Practical Takeaway

For payroll teams managing non-discretionary bonus programs, best practices include:

• Confirm the bonus calculation includes both straight-time and overtime earnings. Exclude overtime and the percentage of total earnings treatment does not apply
• Keep excluded items – discretionary bonuses, expense reimbursements, benefit contributions – out of the earnings base
• Verify the same percentage increase applies to overtime as to straight-time earnings. Dilute the overtime portion and you have FLSA exposure, and
• Confirm payroll is executing the calculation the way the bonus plan describes it. A mismatch between the plan document and actual payroll practice is where compliance breaks down.