DOL Guidance Clarifies When Percentage-Based Bonuses May Avoid Overtime Recalculations
- The U.S. Department of Labor (DOL) has issued guidance addressing when employers must include nondiscretionary bonuses in a non-exempt employee’s regular rate of pay under the Fair Labor Standards Act (FLSA). The guidance is important for employers that offer bonus programs tied to employee earnings because, if properly structured, certain percentage-based bonuses may avoid later overtime recalculations.
- Must Bonuses Generally Be Included When Calculating an Employee’s Regular Rate? A discretionary bonus generally does not have to be included when calculating an employee’s regular rate of pay. A bonus is discretionary only if both the amount of the bonus and whether to pay the bonus at all are determined in the employer’s sole discretion, and the employee was not promised the bonus in advance. By contrast, a nondiscretionary bonus must be included when calculating an employee’s regular rate. Once the amount of a nondiscretionary bonus is determined, the employer generally must allocate the bonus back over the weeks in which it was earned, recalculate the employee’s regular rate for those weeks, and pay any additional overtime due as soon as practicable based on the increased regular rate.
- What Does the DOL Guidance Say? According to the DOL, when a bonus is properly structured as a percentage of total earnings, including overtime compensation, employers generally do not need to go back and recalculate the employee’s regular rate and overtime pay after the bonus is paid. In that circumstance, the bonus already proportionally accounts for overtime compensation. The Opinion Letter does not mean that all bonus programs are exempt from overtime recalculations. The DOL emphasized that the bonus must be based on the employee’s total earnings, including overtime compensation, to qualify for the exclusion. The formula cannot reduce or dilute overtime compensation, and employers cannot structure bonus plans to avoid overtime obligations. In addition, amounts excluded from the regular rate—such as certain discretionary bonuses, gifts, expense reimbursements, or benefit-plan contributions—generally should not be included in the earnings used to calculate the bonus.
DOL Clarifies When Meal Breaks May Be Unpaid
- The DOL has also issued guidance addressing when employers may treat meal breaks as unpaid under the FLSA. The FLSA does not require employers to provide meal breaks. However, if an employer provides a meal break and treats that time as unpaid, the break must qualify as a bona fide meal period.
- When Must a Meal Break Be Paid? The central issue in most meal-break cases is whether employees are required to work during the break or are actually relieved from duty. The break must be spent predominantly for the employee’s benefit, rather than the employer’s. If the employer receives the predominant benefit of the break time, the time must be paid. Whether a particular break satisfies that standard is a highly fact-sensitive inquiry. Thirty minutes is typically sufficient for a bona fide meal period. Employees must be relieved from work duties, but employers are not required to allow employees to leave the premises for the break to remain unpaid.
- What Does the DOL Guidance Say? Opinion Letter FLSA2026-7 involved an employee working at a large, secured facility with controlled access points and parking located a significant distance from work areas. The employee claimed that, because of the time required to walk from the work area through security and to the parking lot, some employees had only 10-15 minutes remaining in their 30-minute meal break, creating a “coercive dynamic” that discouraged employees from taking breaks off-site. The DOL concluded that the employer provided a bona fide meal period because the employee was relieved from work duties during the 30-minute break and could use that time to eat or engage in personal activities on-site. The DOL also explained that an employer need not exclude time voluntarily spent traveling off-site to obtain or eat a meal from the allotted break period and may require employees to take meal breaks on the employer’s premises.
- Employers should nevertheless remain mindful that state and local wage and hour laws may impose more protective meal-break requirements than federal law.
VETS-4212 Filing Reminder for Federal Contractors: Sept. 30 Deadline Nears
- The annual VETS-4212 filing season is underway. The Department of Labor’s Veterans’ Employment and Training Service (VETS) began accepting reports on Aug. 1, 2026, and covered federal contractors and subcontractors must submit their reports by Sept. 30, 2026.
- VETS-4212 Reporting at a Glance. Under the Vietnam Era Veterans’ Readjustment Assistance Act, covered federal contractors and subcontractors must report annually on their employment of protected veterans. Form VETS-4212 captures data on the number of protected veterans in a contractor’s workforce and among its new hires.
- Who Must File? Generally, the reporting requirement applies to federal contractors and subcontractors that have received a covered federal contract or subcontract valued at $200,000 or more, regardless of employee count. The Federal Acquisition Regulation reporting threshold increased from $150,000 to $200,000 effective Oct. 1, 2025, following an inflation adjustment to acquisition-related thresholds, according to VETS guidance.
- Covered contractors and subcontractors may file their reports electronically through the Department of Labor’s VETS-4212 Reporting Application, which is the agency’s preferred submission method. Importantly, the DOL does not accept requests for filing extensions.
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