Overtime Pay Should Have Included Bonuses: Here’s Why

A new opinion letter looked at whether one company needed to add bonuses into its overtime calculations under federal law.

The answer from the Department of Labor (DOL)? Yes.

That meant the company dropped the ball and had to either change its bonus plan or revise its method of calculating overtime.

Here’s a recap of what the DOL said in its January 5, 2026, opinion letter.

Overtime Was Overlooked

The employer, operating in the waste management industry, paid its drivers a base wage of $12 per hour. Plus, drivers could earn a bonus – it applied to all hours worked during that pay period, with a potential of $9.50 per hour.

The bonus plan rewarded employees for punctuality, attendance, consistency in completing daily safety tasks, driving safety, compliance with traffic laws, proper attire and performance efficiency.

The employer didn’t include the bonus payments in the regular rate of pay for overtime purposes.

But according to Opinion Letter FLSA 2026-2, the company should have done so.

Reason: Under Section 7(e)(3) of the Fair Labor Standards Act (FLSA), the payments were technically incentives and therefore didn’t qualify as discretionary bonuses.

The FLSA states the conditions that must be met for a payment to be considered an excludable discretionary bonus:

• The decision to offer the bonus and its amount must be determined at the employer’s sole discretion
• That determination must occur near the end of the period when the work was performed, and
• The plan the employer uses to calculate any bonus payments can’t constitute a prior contract, agreement or promise.

The company that was the focus of the opinion letter couldn’t even get beyond the first step, given that it used a predetermined plan to incentivize certain work performance.

Calculating the Regular Rate of Pay

As for how to correctly handle overtime calculations, the regular rate of pay would include both the base hourly rate ($12) and bonus hourly rate (potentially $9.50).

So, for someone who earned the full bonus, the regular rate of pay would be $21.50 per hour.

If that nonexempt employee worked 50 hours in a workweek, then according to the FLSA, the company would need to pay $21.50 per hour for the first 40 hours of work and $32.25 per hour for the remaining 10 hours of work in that week.