On May 28, 2026, the U.S. Department of Labor’s Wage and Hour Division (DOL) issued an opinion letter confirming that certain types of bonus plans structured as revenue-based bonus pools do not require employers to retroactively recalculate nonexempt employees’ regular rates of pay and recompute overtime after the bonus is paid. See Opinion Letter FLSA2026-6. This can reduce payroll complexity and lower the risk of wage-hour noncompliance, but only if the plan is designed carefully.
What Is a Percentage of Total Earnings (PTE) Bonus?
Normally, if a nonexempt employee earns a nondiscretionary bonus over more than one workweek, the employer must retroactively reallocate the bonus back across the relevant workweeks and pay extra overtime based on the increased regular rate. This retroactive reallocation and recomputation process (which can be a payroll headache and a compliance nightmare, particularly for employers with large workforces) is unnecessary for a PTE bonus.
A PTE bonus is a bonus that rises in step with an employee’s overall earnings for the period, including overtime earnings. For example, if a bonus formula effectively gives an employee an extra 10% of total earnings for the quarter, and that total already includes overtime pay, then the bonus increases both straight-time earnings and overtime earnings by the same percentage. Therefore, the overtime built into the bonus is already paid.
Why the Opinion Letter Matters
In opinion letter FLSA2026-6, the DOL evaluated a bonus plan structured as a quarterly, revenue-based bonus pool. Specifically, at the end of each quarter, the employer established a bonus pool based on the company’s quarterly sales revenue. The employer generated a gross earnings report that included each participating employee’s total compensation for the quarter, factoring in full straight-time and overtime earnings. Each employee’s portion of the bonus pool was then determined by calculating their gross earnings as a percentage of the gross earnings of the entire eligible group. For example, if an employee’s total quarterly pay accounted for 5% of the group’s aggregate compensation, they were automatically awarded 5% of the total bonus pool. Distributing a pool this way ensured that every participant automatically received the exact same percentage increase to their individual total earnings.
While DOL has previously allowed employers to distribute a PTE bonus pool by comparing an individual’s metrics to the group’s total metrics, those pools were usually based on total hours worked, total earnings, or a fixed payroll allocation. What makes FLSA2026-6 noteworthy is that the DOL approved a pool funded by sales revenue, an external, fluctuating business metric. The opinion letter clarifies that employers can link a compliant PTE bonus directly to company financial performance, waiting until the end of the quarter to see how much revenue was generated (the amount of the bonus pool) and then calculate bonus allocations after the fact. According to the opinion letter, this kind of revenue-based bonus pool structure can still qualify as a PTE bonus, so long as the formula yields the same fixed percentage increase to each employee’s total earnings (including overtime earnings).
This allows employers to retain greater control over incentive compensation. For example, offering a traditional PTE bonus equal to 10% of an employee’s quarterly earnings might put financial strain on a company during a market downturn. That is not the case when the bonus pool is tied to the company’s quarterly sales revenue.
Where Employers Can Get into Trouble
Not every bonus plan qualifies as a PTE bonus.
The opinion letter assumes that the employer’s gross earnings report that captures each participating employee’s total compensation for the quarter includes required overtime premiums and does not include amounts excluded from the regular rate, such as gifts, discretionary bonuses, and expense reimbursements. The DOL opinion letter also assumes that the employer is using a fixed and consistent time period to define its quarter (the sales revenue measurement period used for the bonus pool).
Additionally, DOL warned that employers cannot use a pool-based bonus structure to evade the FLSA’s overtime requirements. A plan may fail as a PTE bonus if it reduces the overtime component, applies a higher percentage to straight-time pay than to overtime pay, or uses inputs that distort the relationship between straight-time and overtime earnings.
In short, the details of bonus plan design matter. A plan that looks close enough in concept may still create liability if the math does not add up.
What Employers Should Do Now
Employers with PTE bonus programs should:
- Confirm whether their bonus plan is based on total earnings that include overtime pay, not only straight-time compensation;
- Check that excluded items are not being folded into the figures used for the bonus formula;
- Make sure the same methodology is applied consistently across employees and periods;
- Review the written bonus plan to ensure it accurately describes how payroll calculates the bonus;
- Verify that payroll systems are configured with distinct earnings codes to prevent automated, unnecessary retroactive overtime calculations on compliant PTE bonuses.