Wage and Hour Division says a pooled quarterly bonus based on total earnings already includes the overtime due on it
As of our last check on November 2, 2026, this is agency guidance, not a rule. It explains how the agency reads the law and does not create a legal requirement on its own.
In short
- What changed
- The Wage and Hour Division (WHD) issued an opinion letter saying that one employer's quarterly bonus pool, split by each employee's share of total straight-time and overtime earnings, already includes the overtime due on the bonus under the Fair Labor Standards Act (FLSA). That employer does not need to recompute the regular rate or pay extra overtime when it pays the bonus.
- Who's affected
- The letter answers one requester's facts. Employers that pay non-discretionary bonuses to non-exempt employees as a percentage of total earnings, either directly or through a pooled share, may find its reasoning useful.
- What to do
- This letter creates no new duties for employers. If you pay a similar bonus, consider checking that your earnings base includes overtime pay and leaves out pay already excluded from the regular rate.
What changed
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From the sourceOpening paragraph
It is our opinion that, under the circumstances presented, your client’s quarterly bonus provides simultaneous payment of any overtime compensation due on the bonus, satisfying the Act’s overtime requirement.
Also: Opening paragraph
when your client distributes the quarterly bonus to its employees, it need not recompute the regular rate or pay additional overtime compensation.
The WHD concluded that the requester's client's quarterly bonus already pays any overtime due on the bonus, so the client need not recompute the regular rate or pay additional overtime when it pays the bonus.
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From the sourceGeneral Legal Principles
Accordingly, it satisfies the requirements of 29 C.F.R. § 778.210 and, therefore, constitutes a percentage of total earnings bonus, even if the bonus plan does not describe the bonus in such terms.
The WHD says a bonus pool divided by each employee's share of all participants' total earnings counts as a "percentage of total earnings" bonus under section 778.210 of title 29 of the Code of Federal Regulations (CFR), even if the bonus plan does not use that term.
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From the sourceGeneral Legal Principles
Either approach is acceptable.
The WHD says two ways of splitting a pool are acceptable: dividing each employee's total earnings by all participants' total earnings and applying that share to the pool, or dividing the pool by all participants' total earnings and applying that percentage to each employee's total earnings.
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Our analysisGeneral Legal Principles
This is not an exception to the FLSA’s overtime pay requirement, but the Division’s longstanding recognition
The letter does not withdraw or replace earlier guidance. It describes its position as the agency's longstanding view rather than a new rule or an exception to the overtime requirement.
Who is affected
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From the sourceNote at end of letter
This opinion is based exclusively on the facts and circumstances described in your request
Also: Note at end of letter
The existence of any other factual or historical background not contained in your letter might require a conclusion different from the one expressed herein.
The opinion rests only on the facts the requester described. Different facts could lead to a different conclusion.
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Our analysisGeneral Legal Principles
Employers generally calculate total earnings bonuses in one of two ways.
Also: General Legal Principles
Non-discretionary bonuses, on the other hand, must be included in the regular rate.
Beyond the requester, the reasoning is most relevant to employers that pay non-exempt employees non-discretionary bonuses calculated from total straight-time and overtime earnings.
What it means in practice
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From the sourceOpinion
so long as the earnings for each employee include any required overtime premiums and do not include any amounts previously excluded from the regular rate of pay when determining those overtime premiums.
The WHD says the earnings base must include any required overtime premiums and must not include amounts already excluded from the regular rate.
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From the sourceGeneral Legal Principles
an employer may not use the percentage of total earnings bonuses “to evade the overtime requirements of the Act[,]”
Also: General Legal Principles
(2) including items within an employee’s earnings that were previously excluded from the employee’s regular rate of pay, such as gifts, discretionary bonuses, expense reimbursements, or employer contributions to employee benefit plans.
The WHD says employers may not use these bonuses to evade overtime, and may not dilute overtime by adding previously excluded items (such as gifts, discretionary bonuses, expense reimbursements or benefit plan contributions) to the earnings base.
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From the sourceGeneral Legal Principles
As long as the resulting percentage increase to each employee’s pre-bonus overtime earnings is no less than the percentage increase to their pre-bonus straight-time earnings, then the principle set forth in sections 778.210 and 778.503 applies
The WHD says employers may weigh other factors, such as seniority or performance, as long as each employee's overtime earnings rise by at least the same percentage as their straight-time earnings.
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From the sourceFootnote 3
so long as each hour worked under 40 in a workweek is valued at one hour and each overtime hour worked is “boosted” to 1.5 hours when determining total hours worked.
If a pool is split by hours worked instead of earnings, the WHD says each overtime hour must count as 1.5 hours.
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From the sourceOpinion
As an initial matter, the Act does not regulate an employer’s determination of the total amount available to employees in a bonus pool.
The WHD says the FLSA does not regulate how an employer sets the size of a bonus pool, so it may be tied to sales, profits or another metric.
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From the sourceFootnote 6
an employer may credit excess premium payments described in sections
Also: Footnote 6
such as overtime pay for work in excess of a daily standard or overtime pay paid at a rate which is greater than 1.5 times the employee’s regular rate of pay, against any overtime obligation attributable to the bonus.
The WHD says employers may credit certain excess premium payments, such as daily overtime or overtime paid above 1.5 times the regular rate, against any overtime owed because of a later bonus.
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From the sourceClosing
This interpretation may be relied upon in accordance with section 10 of the Portal-to-Portal Act
The letter is an official interpretation for purposes of the Portal-to-Portal Act and may be relied on under section 10 of that Act.
What to do
AmendSignal analysis sorts these by whether this document changes them.
Already required
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From the sourceGeneral Legal Principles
The FLSA requires that employers pay non-exempt employees at least the federal minimum wage for all hours worked and overtime compensation “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.
Under the FLSA, as the letter describes it, employers must pay non-exempt employees overtime at not less than one and one-half times the regular rate for hours worked over 40 in a workweek.
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From the sourceGeneral Legal Principles
Non-discretionary bonuses, on the other hand, must be included in the regular rate.
Under the FLSA and its regulations, as the letter describes them, non-discretionary bonuses must be included in the regular rate.
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From the sourceGeneral Legal Principles
“it must be apportioned back over the workweeks of the period during which it may be said to have been earned[,]” and any additional overtime compensation due must be calculated for each workweek.
Under the FLSA regulations, as the letter describes them, when a bonus amount is settled later, it must be spread back over the workweeks in which it was earned and any additional overtime calculated. The letter says this recomputation is not needed for a valid percentage of total earnings bonus.
Worth considering
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Our suggestionOpinion
the bonus must be a percentage of each employee’s total earnings—both straight-time earnings and overtime earnings—that does not dilute the overtime portion of the ratio.
Consider reviewing your bonus formulas to confirm they are based on each employee's total straight-time plus overtime earnings.
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Our suggestionGeneral Legal Principles
(2) including items within an employee’s earnings that were previously excluded from the employee’s regular rate of pay, such as gifts, discretionary bonuses, expense reimbursements, or employer contributions to employee benefit plans.
Consider checking that the earnings base leaves out items already excluded from the regular rate, such as gifts, discretionary bonuses, expense reimbursements and benefit plan contributions.
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Our suggestionFootnote 3
so long as each hour worked under 40 in a workweek is valued at one hour and each overtime hour worked is “boosted” to 1.5 hours when determining total hours worked.
If you split a pool by hours, consider confirming that overtime hours count as 1.5 hours.
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Our suggestionBackground
whatever method your client utilizes for aligning the workweek—whether a rolling 13-week or 3-calendar-month period—is applied evenly and consistently each quarter.
Consider confirming that the method you use to align workweeks with the bonus period is applied the same way every period.
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Our suggestionOpinion
Although we do not know the eligibility requirements for the bonus pool or whether there are any other factors given weight when allocating the pool among participants, we have assumed for purposes of this analysis that there are no additional factors
Before relying on this letter, consider comparing your plan's eligibility and allocation rules with the facts the letter assumed.
Open questions
The source leaves these open. We'll update this record if a later document answers them.
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Does the conclusion still hold if a bonus plan uses eligibility rules or allocation factors beyond each employee's share of total earnings?
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Can employers other than the requester rely on this letter for their own similar bonus plans?
Related changes
History
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FLSA2026-6: Whether a bonus calculated by comparing an employee’s total straight-time and overtime earnings to the total straight-time and overtime earnings of all employees eligible for the bonus is a “percentage of total earnings” bonus under 29 C.F.R. 778.210 that provides for the simultaneous payment of any overtime compensation due on the bonus, thus satisfying the FLSA’s overtime pay requirement. Source (opens in a new tab)