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February 4, 2026
On January 5, 2026, the Wage and Hour Division (WHD) of the United States Department of Labor (WHD) issued four Opinion Letters addressing questions raised under the Fair Labor Standards Act (FLSA).
This article addresses the second of those four letters and is Part 2 of a 4-part series.
Opinion Letters provide official written interpretations from the WHD that address questions raised by individuals or organizations and explain how laws apply to specific factual circumstances. Opinion Letters are intended to promote transparent and consistent application of the FLSA, including to educate other individuals or entities that may be impacted by the issue presented.
In short, Opinion Letters provide valuable insights for employers and employees alike on important issues related to compensation and overtime rules.
In its second FLSA Opinion Letter (FLSA2026-2), the WHD responds to an inquiry concerning whether the FLSA permits an employer to exclude certain bonus payments from the “regular rate of pay” in the calculation of employee overtime premiums.
The employer is in the waste management business and pays its drivers an hourly rate and classifies the drivers as non-exempt employees. Pursuant to a bonus plan, drivers can earn an increased hourly rate based on safety and performance efficiency that, if earned, apply to all hours worked in that pay period. The bonus plan provides detailed criteria and formulas both to determine whether a bonus is earned and to calculate the hourly bonus amount each employee earns. The employer does not, however, include the bonus payments in each employee’s regular rate for purposes of calculating overtime premiums, and instead, uses only the original base hourly rate.
The FLSA requires employers to pay all non-exempt overtime “at a rate not less than one and one-half times the regular rate at which [the employee] is employed” for all hours worked over 40 hours in a workweek. With limited exceptions, the “regular rate” includes “all remuneration for employment paid to, or on behalf of, the employee.” To calculate the regular rate, the employer must divide the total straight-time earnings by the total hours worked in that same workweek. Then, the employee’s overtime premium is calculated by dividing the regular rate in half (yielding the “half-time” rate) and multiplying that amount by the overtime hours worked. The FLSA allows discretionary bonuses to be excluded from employees’ regular rate of pay for overtime purposes, but non-discretionary bonuses must be included in the regular rate calculation.
The WHD concluded that, based on the facts described in the request, the bonus would not qualify as discretionary, and the employer must include the bonus payments in the regular rate of pay in any workweek for which they are earned. The WHD reiterated that bonuses calculated using pre-determined criteria and formulas are non-discretionary. When calculating non-discretionary bonuses into the regular rate, employers must calculate total straight-time earnings (base wages plus bonuses) for the workweek and divide by total hours worked to determine the regular rate, then calculate and pay the additional half-time premium for overtime hours worked.
Employers with similar bonus plans or other terms that impact hourly rates for non-exempt employees must carefully review those plans and how they may impact overtime obligations. Employers cannot avoid overtime costs by reducing hourly rates and instead paying employees through non-discretionary bonuses. This Opinion Letter provides instructive discussion for employers on how to distinguish between discretionary and non-discretionary bonuses.
This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice. Always consult an attorney with specific legal issues.
