Wage and Hour Division says predetermined safety and performance bonuses must be counted in the overtime regular rate
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 bonuses earned under a plan with set criteria (punctuality, safety, attendance, efficiency) are not discretionary. Under the Fair Labor Standards Act (FLSA), the agency says they must be included in the regular rate for overtime.
- Who's affected
- The letter answers one waste management employer's questions about its drivers. Its reasoning is relevant to any employer that pays non-exempt employees bonuses based on criteria announced in advance.
- What to do
- This letter creates no new duties for employers. If you pay non-exempt employees incentive bonuses under set criteria, consider checking that those bonuses are included in the regular rate and that overtime is calculated per workweek.
What changed
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From the sourceOpening paragraphs
It is our opinion that, under the facts and circumstances set forth in your request, your employer must include the bonus payments you describe in each employee’s regular rate of pay for every workweek said bonuses are earned.
Also: Opening paragraphs
These payments do not qualify as discretionary bonuses excluded by the Act from the regular rate, or fall within any other statutory exclusion.
The WHD says the employer must include the safety, job duties and performance bonuses in each employee's regular rate for every workweek the bonuses are earned, because they are not discretionary and fit no other statutory exclusion.
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From the sourceOpinion, Section A
Section 7(e)(3) of the FLSA requires that three conditions be satisfied for a payment to qualify as an excludable discretionary bonus
Also: Opinion, Section A
Rather, the amount of the bonus is calculated using a predetermined plan to incentivize certain work performance.
The letter explains that a bonus can be left out of the regular rate as discretionary only if three conditions are met, and that this plan fails the first two: the bonus amount comes from a predetermined plan, not the employer's sole discretion at or near the end of the period.
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From the sourceOpinion, Section A
Thus, because the policy automatically triggers the bonus upon meeting the criteria, the employer has effectively “abandoned” its discretion with respect to the fact and amount of the payment.
The WHD says that because the plan automatically triggers the bonus once criteria are met, the employer has given up its discretion, even if people might disagree on whether a particular criterion was met.
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From the sourceOpinion, Section B
The employer actually paid $27.50 for each overtime hour: $21.50 in straight-time earnings plus a $6.00 premium.
Also: Opinion, Section B
Thus, the correct overtime shortfall is $4.75 per hour, not $14.25.
The letter corrects the requester's math: because the bonus was also paid for each overtime hour, the overtime shortfall in the requester's example is $4.75 per overtime hour, not $14.25.
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From the sourceOpinion, Section B
His regular rate for the workweek is therefore $17.60 ($880.00 ÷ 50 hours) and the half-time rate is $8.80 ($17.60 × 0.5).
The letter gives a worked example: a regular rate of $17.60 (total straight-time earnings divided by hours worked), with an extra half-time payment of $8.80 for each overtime hour.
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From the sourceClosing paragraphs
This interpretation may be relied upon in accordance with section 10 of the Portal-to-Portal Act
The letter is an official interpretation by the WHD Administrator that may be relied on under section 10 of the Portal-to-Portal Act.
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Our analysisOpinion, Section A
see also WHD Opinion Letter FLSA2004-11 at 3 (Sept. 21, 2004)
The letter applies existing law and cites an earlier 2004 opinion letter in support. It does not say that it withdraws or replaces any earlier guidance.
Who is affected
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From the sourceBackground
You represent that your employer operates in the waste management industry and pays its employee drivers a rate of $12.00 per hour.
Also: Background
The maximum bonus amount is $9.50 per hour.
The requester's employer operates in the waste management industry and pays its drivers $12.00 per hour, plus bonuses of up to $9.50 per hour.
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From the sourceNote
This opinion is based exclusively on the facts and circumstances described in your request
Also: Note
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 gave, and different facts might lead to a different conclusion.
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Our analysisOpinion, Section B
But if a bonus plan neither satisfies the requirements of 29 U.S.C. § 207(e)(3), nor fits within another statutory exclusion, any bonus payment made must be included in the employee’s regular rate for overtime purposes.
The reasoning is relevant to any employer that pays non-exempt employees bonuses under predetermined criteria, because the letter states the general principle that such bonuses count toward the regular rate unless an exclusion applies.
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From the sourceBackground
Based on the practices described, we presume that your employer classifies its drivers as non-exempt
Also: Footnote 1
You did not request—and so this letter does not provide—an opinion on whether these drivers qualify for the overtime exemption in 29 U.S.C. § 213(b)(1)
The WHD presumed the drivers are non-exempt and did not decide whether they fall under the motor carrier overtime exemption.
What it means in practice
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From the sourceOpinion
Accordingly, the employer has failed to pay in full the overtime premium
The WHD concludes that the requester's employer has not paid the full overtime premium to employees who received the bonus.
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From the sourceOpinion, Section B
the employer can allocate the bonus based on the hours worked in each of the relevant workweeks and calculate any overtime premium pay due for each separate workweek.
When a bonus is calculated per hour, the WHD says the employer can allocate it to the hours worked in each workweek of the pay period and figure overtime separately for each workweek.
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From the sourceOpinion, Section B
Notably, employers may structure bonuses to require employees to meet certain conditions, including adherence to safety protocols, codes of conduct, or performance targets
The letter says employers may still tie bonuses to conditions such as safety protocols, codes of conduct or performance targets. Such bonuses still count toward the regular rate unless an exclusion applies.
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From the sourceFootnote 2
Business costs, however, cannot be passed along to an employee to the extent that doing so (whether through payroll deduction or otherwise) results in an underpayment of the minimum wage or an employee’s overtime premium pay.
The letter notes that business costs, such as vehicle damage, cannot be passed on to an employee if doing so results in underpaying the minimum wage or overtime premium pay.
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Our analysisOpinion, Section B
The employer actually paid $27.50 for each overtime hour: $21.50 in straight-time earnings plus a $6.00 premium.
When the bonus has already been paid for overtime hours, the amount owed is the missing half-time portion on the bonus, not a full time-and-a-half on it. This matters when an employer estimates possible underpayments.
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 “regular rate” includes “all remuneration for employment paid to, or on behalf of, the employee,” with limited exceptions.
Also: Opinion, Section B
But if a bonus plan neither satisfies the requirements of 29 U.S.C. § 207(e)(3), nor fits within another statutory exclusion, any bonus payment made must be included in the employee’s regular rate for overtime purposes.
Under Fair Labor Standards Act section 7(e), the WHD says any bonus that is not a discretionary bonus and fits no other statutory exclusion must be included in the employee's regular rate for overtime purposes.
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From the sourceGeneral Legal Principles
The FLSA requires that employers pay at least the federal minimum wage for all hours worked and overtime pay “at a rate not less than one and one-half times the regular rate at which [the employee] is employed” to all non-exempt employees for all hours worked over 40 hours in a workweek.
Under Fair Labor Standards Act sections 6 and 7(a)(1), employers must pay non-exempt employees at least the federal minimum wage for all hours worked and overtime at no less than one and one-half times the regular rate for hours over 40 in a workweek.
Worth considering
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Our suggestionOpinion, Section A
Thus, because the policy automatically triggers the bonus upon meeting the criteria, the employer has effectively “abandoned” its discretion with respect to the fact and amount of the payment.
Consider reviewing your bonus plans for non-exempt employees to identify bonuses whose payment and amount follow criteria announced in advance, since the WHD treats these as non-discretionary.
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Our suggestionGeneral Legal Principles
To calculate the regular rate, the employer must divide the total straight-time earnings by the total hours worked in that same workweek.
Consider checking that overtime calculations divide total straight-time earnings, bonuses included, by total hours worked in each workweek, and pay half that rate as the premium for each overtime hour.
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Our suggestionFootnote 2
Business costs, however, cannot be passed along to an employee to the extent that doing so (whether through payroll deduction or otherwise) results in an underpayment of the minimum wage or an employee’s overtime premium pay.
Consider reviewing any bonus adjustments or deductions for vehicle or property damage to make sure they do not push pay below the minimum wage or reduce overtime premium pay.
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Our suggestionOpinion, Section B
Thus, the correct overtime shortfall is $4.75 per hour, not $14.25.
If bonuses have been left out of the regular rate, consider working with your legal or compliance advisers to estimate any overtime shortfall, using the half-time method the letter describes.
Open questions
The source leaves these open. We'll update this record if a later document answers them.
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How should an employer allocate a non-discretionary bonus that is not calculated per hour and cannot easily be tied to specific workweeks?
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Do drivers like those in the letter qualify for the motor carrier overtime exemption?
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How far back must an employer go to pay overtime shortfalls from bonuses left out of the regular rate?
Related changes
History
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FLSA2026-2: Whether section 7(e) of the FLSA permits an employer to exclude certain bonus payments from an employee's regular rate of pay. The letter also addresses how to include these payments in the calculation of employee overtime premiums if the payments must be included in an employee's regular rate of pay. Source (opens in a new tab)