When a non-exempt employee gets a bonus, you can't just pay overtime on their base hourly rate. The Fair Labor Standards Act requires you to include the bonus in the "regular rate" — the actual effective hourly rate including all non-discretionary compensation. Skip this step and you're underpaying overtime. The DOL recovers millions in violations over this every year.
Under FLSA, the "regular rate" is defined as total weekly compensation divided by total hours worked, with certain exclusions (more on those below).
For overtime purposes, the regular rate sets the base for the 1.5× multiplier. If bonuses increase the regular rate, they increase the overtime rate too.
Non-discretionary bonuses must be included. These are bonuses promised in advance based on objective criteria:
Discretionary bonuses can be excluded. Truly discretionary means:
An annual holiday bonus given as a gift, with no preset formula, can usually be excluded from regular rate. But if there's any pattern — same amount every year, or based on tenure — the DOL may classify it as non-discretionary regardless of what the employer calls it.
Note: step 3 uses 0.5 × regular rate (not 1.5 × regular rate) because the straight-time portion is already included in step 1. The "premium" is just the additional half.
Tom earns $20/hour and earned a $100 production bonus for the week. He worked 48 hours.
Compare to the (incorrect) shortcut without bonus inclusion: 40 × $20 + 8 × $30 + $100 = $800 + $240 + $100 = $1,140. The employer would underpay Tom by $8.32 this week. Across 50 weeks, that's $416 — and 6× that in DOL liquidated damages if discovered.
Sarah earns $25/hour and gets a $1,300 quarterly attendance bonus covering 13 weeks. During the quarter she worked 600 hours total, including 60 OT hours spread across the weeks.
Two methods are acceptable under FLSA:
Bonus per week: $1,300 / 13 = $100
Then retroactively recalculate each week's regular rate including the $100 weekly allocation. For each week:
This applies to every week with OT in the quarter. The cumulative back-pay is owed alongside the bonus.
Some bonuses (especially production-based) are allocated based on the proportion of hours worked each week. The math is similar but uses hours-weighted allocation instead of equal weekly allocation.
Mike earns $18/hour base plus a $2/hour night-shift differential. He worked 30 hours on day shift and 20 hours on night shift (50 hours total, 10 OT).
FLSA allows specific exclusions from regular rate (Section 7(e)):
The DOL looks at substance, not labels. If a bonus has any objective criteria or any pattern of regularity, it's non-discretionary regardless of what the company says.
This shortcuts the entire regular rate calculation and underpays workers. Even if the difference is small per week, it accumulates and creates liquidated damages exposure.
If a bonus covers a period that includes overtime hours, the bonus retroactively changes the regular rate for those weeks. The retroactive OT adjustment must be paid.
Sales commissions are generally non-discretionary and must be included in regular rate. There's a specific exemption for "outside sales" employees who are exempt entirely, but for non-exempt commissioned employees, the regular rate math applies.
If you (as employer or employee) realize OT was underpaid:
While our Hours Calculator doesn't directly model bonuses, you can compute the corrected regular rate manually (total comp / total hours) and enter that as the hourly rate to see correct OT pay.
Published May 2026. Spot an error? Email contactus@calculatehours.net.