FLSA2009-27 * — Year-end non-discretionary bonus and section 7(e) Please see Opinion Letter FLSA2018-9.

U.S. Department of Labor Wage and Hour Division
Washington, D.C. 20210

FLSA2018-9
January 5, 2018
Dear Name*:
This letter responds to your request that the Wage and Hour Division (“WHD”) reissue Opinion
Letter FLSA2009-27. On January 16, 2009, then-Acting WHD Administrator Alexander J.
Passantino signed the opinion letter as an official statement of WHD policy. On March 2, 2009,
however, WHD withdrew the opinion letter “for further consideration” and stated that it would
“provide a further response in the near future.”
We have further analyzed Opinion Letter FLSA2009-27. From today forward, this letter, which
is designated FLSA2018-9 and reproduces below the verbatim text of Opinion Letter
FLSA2009-27, is an official statement of WHD policy and an official ruling for purposes of the
Portal-to-Portal Act, 29 U.S.C. § 259.
I thank you for your inquiry.

Bryan L. Jarrett
Acting Administrator

Dear Name*:
This is in response to your request for an opinion regarding whether a year-end non-discretionary
bonus based on a percentage of straight-time and overtime earnings from the preceding year
complies with 29 C.F.R. § 778.210 (treatment of bonuses for purposes of computing the regular
rate) if the employer excludes from the calculation payments earned by the employees
throughout the year which are excludable from the regular rate under section 7(e) of the Fair
Labor Standards Act.
∗
Based on the information provided, it is our opinion that an employer
may exclude previous payments properly excluded from the regular rate under section 7(e) when
calculating a year-end bonus which is based on a percentage of an employee’s total straight-time
and overtime earnings.

∗
Unless otherwise noted, any statutes, regulations, opinion letters, or other interpretive material cited in this letter
can be found at www.wagehour.dol.gov.

You describe a scenario in which an employer makes certain payments to its non-exempt
employees throughout the year (such as travel expenses and discretionary bonuses) that are
properly excluded from the regular rate pursuant to section 7(e) of the FLSA. At the end of the
year, as part of its annual bonus program, the employer calculates the non-discretionary bonus to
its employees based on a percentage of straight-time earnings and overtime earnings. In
calculating the described year-end bonus, the employer excludes from the bonus calculus any
payments to employees during the year that were properly excluded from the regular rate
pursuant to section 7(e). You believe that the employer’s approach is consistent with statutory
and regulatory authority, but not with the position taken by the Department in Wage and Hour
Opinion Letter WH-241 (Nov. 26, 1973), which you describe as standing for the proposition that
“‘all remuneration for employment’ must be included when calculating a percentage bonus under
[29 C.F.R.] § 778.210, regardless of whether or not the remuneration was properly excluded
from the regular rate under § 7(e).” You state that the letter should be rescinded because it
improperly exceeds the scope of 29 C.F.R. § 778.210 and is inconsistent with the intent of
section 7(e) and 7(h) of the FLSA. As discussed below, we agree that the quoted statement in
Wage and Hour Opinion Letter WH-241 does not accurately describe an employer’s obligation
with regard to non-discretionary bonus payments or the treatment of payments properly
excludable under section 7(e).
Section 7(a) of the FLSA requires that all overtime be paid at “one and one-half times the regular
rate” at which the employee is employed. Section 7(e) of the Act provides that “the ‘regular
rate’ at which the employee is employed shall be deemed to include all remuneration for
employment paid to, or on behalf of, the employee, but shall not be deemed to include” certain
payments set forth at section 7(e)(1) - (7). See 29 C.F.R. §§ 778.108, 778.200-.224. The
regulations expressly recognize that non-discretionary bonuses must be included as part of an
employee’s “regular rate.” See 29 C.F.R. §§ 778.208 - 778.210. Section 778.210 illustrates that
in some instances an employer’s non-discretionary bonus payments may be made in a manner
that properly compensates employees for their overtime without requiring additional
computation:
In some instances the contract or plan for the payment of a bonus may also provide for the
simultaneous payment of overtime compensation due on the bonus. For example, a contract
made prior to the performance of services may provide for the payment of additional
compensation in the way of a bonus at the rate of 10 percent of the employee’s straight-time
earnings, and 10 percent of his overtime earnings. In such instances, of course, payments
according to the contract will satisfy in full the overtime provisions of the Act and no
recomputation will be required. This is not true, however, where this form of payment is
used as a device to evade the overtime requirements of the Act rather than to provide actual
overtime compensation, as described in §§ 778.502 and 778.503.
29 C.F.R. § 778.210. Thus, under section 778.210, a bonus paid as a predetermined percentage
of an employee’s straight time and overtime compensation increases the straight-time and
overtime earnings by the same percentage, and thereby includes proper overtime-premium
compensation without need for additional computation. Where a bonus is computed in this
manner, the employee receives proper overtime compensation as an arithmetic fact. See 29
C.F.R. § 778.503. It is our opinion that a bonus program such as you describe satisfies the
conditions set forth in section 778.210 because the same predetermined percentage would be

applied to the employee’s straight time and overtime earnings. See, e.g., Wage and Hour
Opinion Letter FLSA2006-8NA (May 11, 2006); Wage and Hour Opinion Letter FLSA2006-
4NA (Feb. 17, 2006); Wage and Hour Opinion Letter FLSA2004-11 (Sept. 21, 2004); Wage and
Hour Opinion Letter (Feb. 5, 2001) (copy attached); Wage and Hour Opinion Letter WH-253
(Feb. 22, 1974) (copy attached); Wage and Hour Opinion Letter WH-75 (Aug. 17, 1970) (copy
attached). Wage and Hour Opinion Letter WH-241 is withdrawn to the extent that it is
inconsistent with section 778.210 and the cited opinion letters.
A simple side-by-side comparison of two different pay calculations for a pay period in which an
employee receives a non-discretionary bonus, one made under a bonus program using a ten
percent non-discretionary year-end bonus, and the other using a contemporaneously paid ten
percent non-discretionary bonus, demonstrates that the two methods yield the same result. For
both scenarios, assume that the non-exempt employee earns $10.00 an hour in straight time,
works 50 hours during the week in question, and is paid a ten percent non-discretionary bonus
that must be included in the regular rate and a $50.00 discretionary bonus that may be excluded
from the regular rate.
Scenario 1 (year-end bonus):
Straight-time compensation (50 × $10) $500.00
Overtime compensation (10 × $5) $50.00
Non-discretionary bonus (10% × $550) $55.00
Discretionary bonus $50.00

Total compensation $655.00
Scenario 2 (contemporaneous bonus):
Straight-time compensation (50 × $10) $500.00
Non-discretionary bonus (10% × $500) $50.00
Overtime compensation (10 × $5.50 [$550 ÷ 50 × .5]) $55.00
Discretionary bonus $50.00

Total compensation $655.00
As demonstrated above, year-end bonus payments computed in this manner automatically
include the overtime payments due under the FLSA. Although for simplicity we have used the
example of a single work week, the same principle would apply if the method described in
section 778.210 were applied to a bonus covering a longer period. Therefore, a year-end bonus
program that is computed in this manner meets the requirements of section 778.210, and no
additional overtime calculations or payments must be made.
This opinion is based exclusively on the facts and circumstances described in your request and is
given based on your representation, express or implied, that you have provided a full and fair
description of all the facts and circumstances that would be pertinent to our consideration of the
question presented. Existence of any other factual or historical background not contained in your

letter might require a conclusion different from the one expressed herein. You have represented
that this opinion is not sought by a party to pending private litigation concerning the issues
addressed herein. You have also represented that this opinion is not sought in connection with
an investigation or litigation between a client or firm and the Wage and Hour Division or the
Department of Labor.
We trust that this letter is responsive to your inquiry.
Sincerely,

Alexander J. Passantino
Acting Administrator
*Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. §
552(b)(7).