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The Employer Handbook Blog
Does Your Quarterly Bonus Program Create an Overtime Recomputation Obligation?
If your quarterly bonus is calculated as a proportional share of each employee’s total earnings — straight time plus overtime — the DOL says you do not owe any additional overtime on top of it. The overtime premium is already in the math.
TL;DR: In Opinion Letter FLSA2026-6, issued May 28, 2026, the Department of Labor’s Wage and Hour Division confirmed that a quarterly bonus calculated as a proportional share of a bonus pool — where each employee’s share equals the percentage their total earnings (straight time and overtime) represent of all eligible employees’ total earnings — qualifies as a “percentage of total earnings” bonus under the FLSA’s implementing regulations. Such a bonus includes the required overtime premium as an arithmetic fact and requires no recomputation of the regular rate or additional overtime payment when distributed.
📄 Read Opinion Letter FLSA2026-6
The Recomputation Problem — and One Way Around It
When employers pay non-discretionary bonuses to non-exempt employees who work overtime, the FLSA generally requires recomputing the regular rate for each workweek in the bonus period and paying any additional overtime premium that results. For a quarterly bonus, that means running the calculation across every eligible employee’s workweeks in the quarter.
There is an exception: the “percentage of total earnings” bonus. When a bonus increases an employee’s total earnings — both straight time and overtime — by the same fixed percentage, it automatically includes the required overtime premium. No recomputation needed. The DOL has recognized this principle since 1941.
How a Bonus Pool Can Still Qualify
The employer here calculated its bonus through a pool. At quarter-end, it compared each eligible employee’s total gross compensation to the total gross compensation of all eligible employees and paid each a proportional share. The DOL confirmed that structure qualifies as a percentage of total earnings bonus, even framed as a pool share. The mechanism is a pool, but the result is a fixed percentage applied equally to each employee’s combined straight-time and overtime earnings — so the overtime premium on the bonus is already embedded.
Two Structural Choices That Undo the Benefit
The opinion identified two specific designs that disqualify a bonus from this treatment.
First: applying a higher percentage increase to straight-time earnings than to overtime earnings. If the bonus raises regular pay by 5 percent but overtime premium pay by only 3 percent, the ratio is not proportional and recomputation is required. The inverse — a bonus that increases overtime earnings by a greater percentage than straight-time earnings — does not create an additional overtime obligation.
Second: including in the earnings base amounts that were excluded from the regular rate when computing overtime — discretionary bonuses, expense reimbursements, employer benefit contributions. Folding those in distorts the base and breaks the proportionality.
A bonus that decreases as overtime hours increase also disqualifies — that is an evasion of the FLSA’s overtime requirements, not a legitimate bonus design.
Getting the Calculation Right Before Quarterly Payout
Confirm what “total earnings” actually includes in your payroll system. The earnings base must include FLSA-required overtime premiums and exclude items previously excluded from the regular rate. If your payroll vendor’s “gross earnings” figure pulls in discretionary bonuses or expense reimbursements, the calculation is wrong. Audit the inputs before each payout.
Verify the methodology produces equal proportional increases to straight time and overtime. A structure that weights straight time more heavily is not carrying its own overtime cost, and recomputation is required.
Document the design assumptions and confirm payroll executes them accurately. The DOL’s opinion is based on specific representations about how the calculation works. A plan document that says one thing while payroll does another is a common audit finding — and a quick way to lose the protection this letter confirms.
The concept has been settled law since 1941. Execution is where employers get into trouble. Employers who have been running a pool-based bonus for years without auditing the inputs are probably overdue for a closer look.