Our Take
This is a compliance clarification, not a loophole: the DOL is saying equal-percentage bonuses already price in overtime, so don't pay twice—but only if your calculation actually treats all earnings the same.
Why it matters
Payroll teams managing non-discretionary bonus programs face real FLSA exposure if they misinterpret the rule. This letter removes one major administrative burden (retroactive recalculation) but only if your bonus structure meets four strict conditions.
Do this week
Payroll: audit your quarterly bonus formula against the four DOL conditions (total earnings includes overtime, same percentage applied to both, no excluded items in the base, no penalizing overtime) before the next payout cycle so you avoid retroactive liability.
DOL Clarifies Overtime Treatment on Sales-Pool Bonuses
The Department of Labor issued Opinion Letter FLSA2026-6 in response to a question from an employer paying quarterly bonuses tied to company sales revenue. The employer's structure allocated each employee's bonus share by calculating what percentage their total gross earnings (straight-time plus overtime) represented of all eligible employees' combined gross earnings for the quarter.
The DOL concluded that this approach qualifies for a longstanding exception to overtime recalculation rules. When a bonus increases an employee's total earnings by the same fixed percentage across both straight-time and overtime hours, the overtime premium is already embedded in the payout. No retroactive regular-rate recalculation is required.
The rationale is straightforward: if you apply the same percentage increase to both components, you are not undercompensating overtime. Requiring an additional overtime adjustment on top would amount to paying overtime twice on the same earnings.
Four Strict Conditions Determine Whether the Exception Applies
The letter is not a blank check. The DOL identified four hard requirements that must all be met for the exception to hold:
- 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 does not carry its own overtime cost and triggers recomputation.
- 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 proportionality.
- A bonus that decreases as overtime hours increase disqualifies entirely. The DOL treats that as evasion of the FLSA's overtime requirements.
The practical burden shifts from quarterly recalculation to upfront verification. Payroll must confirm the bonus plan document matches what the system actually executes. Drift between the plan and payroll practice is where FLSA exposure breaks down.
Audit Your Bonus Formula Now
If your organization pays non-discretionary quarterly bonuses, run a checklist before the next payout:
- Does your bonus calculation include both straight-time and overtime earnings in the total?
- Is the percentage increase applied to overtime hours identical to the percentage applied to straight-time hours?
- Are discretionary bonuses, expense reimbursements, and benefit contributions excluded from the earnings base used in the allocation formula?
- Does payroll execute the calculation exactly as documented in the bonus plan?
If any answer is no, you cannot rely on the exception. You will need to perform retroactive regular-rate recalculation and pay any additional overtime premium owed. The letter does not create new liability; it simply confirms when existing liability can be avoided through proper structure.