Must Discretionary Bonuses Be Included in Overtime Calculations?

In Opinion Letter FLSA 2026-2, the DOL addressed whether an employer was properly excluding performance-based incentive bonuses paid to non-exempt employees from overtime calculations.  It concluded that non-discretionary bonuses that include some subjective elements must be factored into the regular rate of pay for overtime calculations.  

The DOL concluded that even if some of the criteria for an incentive bonus are left to the employer’s discretion, such as if the employer determines whether a vehicle is returned in a clean condition, a bonus is non-discretionary, because by setting the conditions to meet the incentive, the employer abandoned its discretion to not award the bonus. 

 Editor’s Note:  This type of issue often arises in compliance reviews and is one of the most commonly-attacked errors committed by employers. 

This article is part of our March 2026 Newsletter. 

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