DOL Reminder: Bonuses Usually Must Be Included in Overtime Pay
The Department of Labor just released an opinion letter addressing the issue of whether certain performance-based bonuses must be included in overtime calculations. This is not new law but a good reminder. If your company uses incentive compensation structures for non-exempt employees, this guidance applies to you.
DOL Says Most Performance Bonuses Must Be Included in Overtime Calculations Because They Are Not “Discretionary”
Many employers believe that calling a payment a “bonus” means it doesn't count toward overtime. The DOL’s opinion reiterates that this view is incorrect in most cases.
Under 29 U.S.C. § 207(e)(3), a bonus is only excludable from the regular rate as discretionary only if three conditions are met:
The fact and amount are determined at the employer's “sole discretion”
The determination happens “at or near the end of the period”
It's not made “pursuant to any prior contract, agreement, or promise”
The DOL explained that when an employer establishes criteria and formulas for calculating bonuses, the employer generally has abandoned its discretion. Once employees meet the targets, they earn the bonus. According to DOL, that constitutes incentive pay, not a discretionary bonus, and it must be included in the regular rate for overtime calculations.
The key principle is that bonuses aren’t discretionary if employees can anticipate earning them based on meeting specific performance metrics. The label “bonus” doesn't control the analysis. The structure does.
For mortgage loan originators, LO compensation rules under Regulation Z often make discretionary bonuses even more complicated for other reasons. Other requirements also can create problems with regard to bonuses to underwriters.
What This Means for Your Non-Exempt Compensation Plans
Mortgage lenders frequently structure non-exempt compensation to include performance-based incentives:
Processing and similar support – Bonuses tied to loan volume, turnaround time, quality scores, or customer satisfaction
Operations centers – Bonuses rewarding accuracy, speed, or compliance targets
Call center and customer service – Bonuses based on call volume, resolution rates, or quality audits
Under the DOL's analysis, these incentive structures likely are non-discretionary, and the payments must be included in the regular rate when calculating overtime premiums.
This guidance provides important clarification on how the DOL analyzes performance-based compensation structures. When bonus criteria are communicated in advance and tied to measurable performance metrics, those payments fall outside the discretionary bonus exclusion and must be included in overtime calculations. For mortgage companies, this means that incentive plans designed to drive specific behaviors (loan quality, processing speed, customer satisfaction) will generally need to be treated as non-discretionary for overtime purposes, even if structured as “bonuses.”
Practical Steps for Mortgage Companies
Review your non-exempt compensation structures and confirm your overtime calculations are correct:
Audit incentive plans
Identify which bonus payments are truly discretionary versus performance-based. Review how these payments are currently being treated for overtime purposes.
Verify overtime calculations
Ensure non-discretionary bonuses are included in the regular rate when calculating overtime premiums. This may require recalculating how you determine the regular rate for affected employees.
Update payroll systems
Confirm your payroll system can properly allocate bonuses to the correct workweeks and recalculate overtime premiums accordingly, particularly if bonuses are paid over different periods than other compensation.
Train HR and payroll teams
Make sure your teams understand that the label does not determine the treatment. The structure and terms of the bonus plan control the analysis.
Consider multi-state complications
If you operate across state lines, remember that some states impose their own overtime calculation requirements that may differ from federal law.
Key Takeaways
The DOL's guidance clarifies an area of wage-and-hour law that affects common compensation practices across mortgage operations. Performance-based bonuses tied to predetermined criteria generally must be included in the regular rate for overtime calculations, regardless of how labeled.
For mortgage companies with distributed operations teams and multi-state workforces, getting overtime calculations wrong creates exposure that can include back wages, liquidated damages, and attorneys’ fees. Now is the time to review your incentive structures and ensure compliance.
Want to discuss your bonus plans, overtime calculations, or multi-state wage-and-hour compliance? Contact troy@garrishorn.com.