February 24, 2026

Department of Labor Issues Clarifications on Overtime Calculations

By Leona Hansen

At the start of the year, the U.S. Department of Labor (DOL) issued several opinion letters addressing wage and hour issues, including important clarifications on how employers must calculate overtime.

Bonus Payments and Overtime

One letter focused on when bonus payments should be included in an employee’s regular pay rate for the purposes of calculating the employee’s overtime pay rate.

Under the Fair Labor Standards Act (FLSA), non-exempt employees must be paid one-and-one-half times their regular rate of pay for all hours over 40 worked within a 7-day workweek. 

The FLSA considers most types of compensation to be part of an employee’s regular rate of pay, with limited exceptions. One exception is for discretionary bonuses. Employers may exclude discretionary bonuses from their employees’ regular pay rate. However, a bonus is “discretionary” only if it meets criteria set by the FLSA and its rules, not merely because the employer calls it discretionary.

In its letter, the DOL addressed a bonus plan under which employees could earn bonus payments each pay period based on specific performance goals (such as punctuality and performance efficiency) and a set formula. The employer had treated these payments as discretionary and excluded them from overtime calculations.

The DOL disagreed, explaining that once an employer establishes set criteria or a formula that determines whether a bonus will be paid and in what amount, the bonus is no longer discretionary. Because the employer has effectively committed to the payment under defined terms, the bonus must be included in the regular rate when calculating the overtime rate.

Excluding Mandatory Pre-Shift Time from Hours Worked

In a separate letter, the DOL addressed whether a collective bargaining agreement (CBA) could exclude a mandatory 15-minute pre-shift “roll call” from the calculation of hours worked by the employees. The proposed agreement required employees to attend the roll call before their scheduled shifts but sought to exclude that time when calculating hours worked.

The DOL opined that the roll call could not be excluded from hours worked. The FLSA requires employers to compensate employees for all hours worked, and to pay overtime rates to non-exempt employees for all hours worked over 40 in a workweek. “Hours worked” generally includes all time an employee is required to be on duty, on the employer’s premises, or at a prescribed workplace. Because the roll call was mandatory, it constituted hours worked and counted toward overtime.

Important Takeaway(s) for Employers

Employers should review their overtime pay practices, including how they calculate employees’ regular rate of pay and hours worked. If you have questions about overtime calculations or would like assistance reviewing your current overtime practices, please reach out to Chaim Book at cbook@booklawllp.com, Sheryl Galler at sgaller@booklawllp.com, or Rebecca Nathanson at rnathanson@booklawllp.com.