Labor & Employment Law Daily Wrap Up, EXPERT INSIGHTS—DOL Opinion Letter Confirms Bonuses Under Predetermined Pay Plans Must Be Included in Regular Rate, (Jan 9, 2026)

By Nicole S. LeFave and Brian Rho of Littler Mendelson

On January 5, 2026, the U.S. Department of Labor’s Wage and Hour Division issued Opinion Letter FLSA2026-2, addressing whether certain “Safety, Job Duties, and Performance” bonuses may be excluded from an employee’s regular rate of pay when calculating an employee’s overtime premium under Section 7(e) of the Fair Labor Standards Act (FLSA). The short answer: they cannot, at least under the circumstances analyzed in the opinion letter.

The opinion letter involves a pay plan for waste-management drivers that included a base hourly rate plus incentive bonuses tied to safety, job performance, and completion of duties. These bonuses were formula-driven and could add up to $9.50 per hour when specific criteria were met. Once those criteria were satisfied, the amount of the bonus was quantifiable under the plan and automatically earned by the employee.

The DOL confirms in this opinion letter that Section 7(e)(3) of the FLSA allows exclusion only of truly discretionary bonuses—those determined at the employer's sole discretion, at or near the end of the measurement period, and not promised in advance. Here, the employer previously set the terms and formula for earning the bonus, creating a predetermined plan that employees could reasonably expect. According to the DOL, this structure means the employer "abandoned" its discretion over both the fact and the amount of payment.

As the FLSA’s regulations explain, “If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it.” 29 C.F.R. §778.211(b). Even if there is some judgment involved in applying the criteria—such as deciding whether a vehicle was returned in “clean” condition—that does not render the bonus discretionary. Eligibility and amount are based on terms set before the work was performed, not the employer’s sole discretion.

The opinion letter also provides an example of how to calculate overtime to include these types of bonuses. If an employee works 50 hours in a week at a base rate of $12 per hour and earns $9.50 per hour in bonuses for all hours worked, the total straight-time compensation is $1,075 (($12 per hour × 50 hours) + ($9.50 bonus per hour × 50 hours)). The regular rate is then $21.50 per hour ($1,075 ÷ 50 hours). The overtime premium is one-half of that regular rate—$10.75—for each of the 10 overtime hours, adding $107.50 in additional pay (10 hours × $10.75) for that workweek. This example underscores the importance of properly including non-discretionary bonuses in the regular rate to avoid underpayment.

In short, this opinion letter reinforces a longstanding principle: if a bonus is promised in advance and triggered by conditions set by the employer, it must be included in the regular rate for overtime purposes. Employers should review their bonus programs to ensure compliance, particularly where bonuses are tied to safety, job duties, or similar metrics.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Nicole S. LeFave and

Brian Rho

Littler Mendelson

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Attorneys: Nicole S. LeFave and Brian Rho (Littler Mendelson).

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