Do bonuses and commissions have to be included when overtime is calculated?
Often, yes. For covered non-exempt employees, overtime is generally based on the employee’s regular rate, not simply the base hourly rate. Certain nondiscretionary bonuses, commissions, shift differentials, and incentive payments may have to be included when calculating overtime.
Truly discretionary bonuses, certain gifts, expense reimbursements, and other payments specifically excluded by the Fair Labor Standards Act may be left out. The employer’s label does not decide the issue.
If your employer pays overtime at 1.5 times your base rate while ignoring required commissions or bonuses, your overtime rate may be too low.
Jurisdiction note: This article provides general information for employees in New Jersey and Pennsylvania. Federal FLSA rules are central to the regular-rate calculation, but state wage laws, exemptions, commission rules, collective bargaining agreements, and specific pay plans may also affect the result.
Five questions to ask about your overtime rate
- Are you non-exempt and working more than 40 hours in a workweek?
- Did you receive commissions, incentive pay, attendance bonuses, production bonuses, shift differentials, or other extra compensation?
- Was the payment promised or formula-based?
- What workweeks did the payment cover?
- Did the employer recalculate overtime after the payment was earned?
What is the “regular rate”?
The regular rate is the hourly rate used to calculate overtime for a non-exempt employee. It is not always the same as the employee’s stated hourly wage.
The U.S. Department of Labor explains that the regular rate generally includes all remuneration for employment unless a specific statutory exclusion applies. The usual starting formula is:
Overtime is then calculated using that regular rate. If the employee already received straight-time pay for all hours, the additional overtime premium may be one-half of the regular rate for each hour over 40. Other pay methods can require different calculations.
Nondiscretionary bonuses usually count
A bonus is generally nondiscretionary when the employer promises it in advance or employees understand that they can earn it by meeting stated conditions.
Examples may include bonuses tied to:
- Attendance;
- Production;
- Quality;
- Safety goals;
- Sales targets;
- Individual or team performance;
- Meeting a deadline; or
- Remaining employed through a stated period.
When a nondiscretionary bonus covers more than one workweek, the payment may need to be allocated back over the period it covers so that additional overtime can be calculated for overtime weeks.
Example
Suppose a non-exempt employee earns $20 per hour, works 45 hours in a week, and receives a $100 production bonus attributable to that same week. If the bonus must be included in the regular rate, overtime cannot simply be calculated using $20 as though the bonus did not exist.
The exact arithmetic depends on how straight-time and overtime were paid, but the principle is simple: compensation that belongs in the regular rate can increase the overtime premium.
When is a bonus truly discretionary?
Under the FLSA, a bonus is discretionary only when the employer retains discretion both over whether to make the payment and over the amount until at or near the end of the period, and there is no prior promise or agreement causing employees to expect it regularly.
That means calling a payment a “discretionary bonus” in a policy does not necessarily make it excludable.
Warning signs that a bonus may actually be nondiscretionary include:
- A written formula;
- A published target;
- A promised percentage;
- A regular attendance bonus;
- A production threshold;
- A sales incentive plan;
- A promised retention payment; or
- A longstanding practice employees rely on.
Commissions can increase overtime too
Commissions paid to non-exempt employees are generally included in the regular rate unless a specific exemption or exclusion applies.
This matters for inside sales employees, call-center employees, loan or financial-service workers, sales support teams, account representatives, and other employees who receive commission-based compensation but do not satisfy an overtime exemption.
For some commissioned employees of retail or service establishments, a separate FLSA exemption may apply if all statutory requirements are satisfied. Employees should not assume that “commissioned” automatically means “exempt.”
What if a commission is paid monthly or quarterly?
When a commission cannot be identified with a particular workweek, FLSA rules may require the employer to allocate the payment over the period in which it was earned and then determine whether additional overtime is due for overtime workweeks in that period.
A lump-sum commission check therefore does not necessarily end the overtime calculation.
Other payments that may affect overtime
Depending on the facts, the regular rate may also include:
- Shift differentials;
- Hazard pay;
- On-call premiums;
- Nondiscretionary incentive pay;
- Piece-rate earnings;
- Day-rate earnings; and
- Other compensation tied to hours, services, production, or performance.
Certain vacation, holiday, sick-leave, expense, benefit-plan, premium-pay, gift, and discretionary payments may be excluded when statutory requirements are satisfied.
How to spot an overtime-rate problem
What to save
- Pay stubs showing regular and overtime rates;
- Bonus and commission plans;
- Sales or performance statements;
- Bonus announcements and eligibility rules;
- Shift-differential policies;
- Timecards;
- Payroll reports;
- Emails explaining how overtime is calculated; and
- A week-by-week comparison of compensation and overtime hours.
Look especially for pay stubs where the overtime rate stays exactly the same even in weeks or periods when substantial nondiscretionary incentive pay was earned.
Can an employer fix the problem later?
Employers sometimes make a later “true-up” payment after a bonus or commission becomes calculable. A proper true-up may satisfy the overtime obligation if it correctly allocates the payment and covers the additional overtime due.
Save the calculation. A unexplained lump-sum adjustment does not tell you whether the correct regular rate was used.
What if you were fired before the bonus or commission was paid?
That can raise two separate questions: whether the compensation itself was earned, and whether it should have been included in the regular rate for overtime. Swartz Swidler’s guide on being fired before a bonus addresses the first issue.
Common ways employers undercalculate the regular rate
Regular-rate mistakes are often hidden because the employee still sees an overtime line on the pay stub. The problem is that the overtime line may be based on an artificially low rate.
Common patterns include:
- Paying 1.5 times only the stated hourly rate while ignoring commissions;
- Ignoring a monthly or quarterly production bonus when recalculating overtime;
- Leaving a shift differential out of the overtime calculation;
- Treating a promised attendance bonus as “discretionary” simply because the policy uses that word;
- Failing to true up overtime after a later commission payment; or
- Using a flat overtime rate that does not change when includable compensation changes.
How to audit your own pay
Start with one pay period in which you worked overtime and also earned extra compensation. Identify the total number of hours worked, the base wages, the extra compensation, and the overtime premium actually paid.
Then ask whether the extra payment should have been included in the regular rate. If it should have been included, compare the employer’s overtime calculation with the regular-rate method. Repeat the process for several pay periods to determine whether the issue is isolated or systematic.
Do not simply multiply every bonus by 1.5. Overtime calculations depend on whether straight-time compensation was already paid, the period the bonus covers, and the employee’s pay method.
New Jersey and Pennsylvania claims may add state-law rights
Federal FLSA law supplies the core regular-rate rules, but New Jersey and Pennsylvania employees may also have state wage claims. State law can affect filing periods, damages, wage-payment remedies, and how compensation is enforced.
New Jersey wage claims may reach farther back than the federal FLSA in qualifying cases. Pennsylvania claims may involve the Pennsylvania Minimum Wage Act and Wage Payment and Collection Law depending on the issue. Employees should not assume the federal limitations period is the only deadline that matters.
What to do if you think your overtime rate is wrong
- Save complete pay records. One pay stub rarely shows the whole pattern.
- Get the bonus or commission plan. Determine whether the payment was promised and what period it covers.
- Identify overtime weeks. Regular-rate errors matter most in weeks over 40 hours.
- Request the payroll formula. Ask how the employer calculated the overtime rate.
- Preserve your complaint. Wage complaints may be protected from retaliation.
Frequently asked questions
Does every bonus count toward overtime?
No. Truly discretionary bonuses and certain other excluded payments may be left out. Formula-based or promised bonuses commonly must be included.
Does my employer get to decide whether a bonus is discretionary?
The legal requirements control. A label alone does not make a payment discretionary.
Do sales commissions count in the regular rate?
Generally yes for non-exempt employees unless a specific exemption or exclusion applies.
Can a salary plus commission employee still get overtime?
Yes. Salary or commission pay does not automatically create an overtime exemption.
What if my bonus covers a quarter?
The employer may need to allocate the bonus back over the period it covers and calculate additional overtime for overtime weeks.
Does holiday pay count?
Certain payments for periods when no work is performed may be excluded from the regular rate. Premium pay for actual holiday work follows separate rules.
Do shift differentials count?
They commonly do. Overtime should not automatically be calculated on the base rate alone when includable shift premiums were earned.
Can overtime be averaged over two weeks?
Generally no. Overtime is calculated by workweek.
How far back can an overtime claim go?
Federal FLSA claims generally use a two-year limitations period, potentially three years for willful violations. State-law periods may differ.
What records should I bring to a lawyer?
Bring pay stubs, timecards, bonus and commission plans, incentive statements, and a calculation showing the overtime weeks affected.
Related Swartz resources
- Unpaid overtime attorneys
- FLSA wage-and-hour claims
- Fired right before your bonus?
- How to prove workplace retaliation
Talk with Swartz Swidler about an incorrect overtime rate
If you received commissions, bonuses, shift differentials, or other incentive pay and your employer calculated overtime only from your base rate, your overtime may have been underpaid.
