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On September 30, 2025, the US Department of Labor (DOL) issued an opinion letter demonstrating how to calculate overtime pay for nonexempt employees who are paid extra compensation like shift differentials, premiums, and incentive bonuses. The DOL opinion letter was in response to a query on whether emergency pay premiums inflated the regular rate for overtime purposes, to which they replied in the affirmative.
Except for emergency/hazardous work premiums, any premium of more than 150% of the hourly rate usually does not have to be folded back into the period of time it covered in order to refigure the employee's actual hourly rate and may be creditable against overtime owed. Any other premium usually must be included, and overtime is then owed on that revised hourly rate.
First and foremost, employers must make sure that they properly classify employees as exempt or nonexempt. This is by far the most common mistake we see day in and day out. You can make every employee in the organization a nonexempt employee. That just means you have to record all of their hours and pay overtime for every hour worked over 40 in your 7-day workweek. What you cannot do is treat everybody as an exempt salaried employee, because a large majority of your employees will not meet any one of the narrow exempt categories. If you are paying any nonsupervisory employee a salary, without regard to overtime, then you are best served checking that out and making sure you are not accruing overtime liability due to a misclassification.
In sum, for all your nonexempt employees, you need to be aware of any additional compensation they receive over and above their stated hourly rate. There is a very good chance that same inflates the hourly rate for purposes of correct overtime payment.
The calculation is simple. An employee makes $10 an hour and received a $100 bonus for perfect attendance at the end of the calendar month. The employee worked 200 hours that month, with 40 of those hours being overtime hours. 200 hours times $10 equals $2000. That was the employee's total monthly base pay. Now you have to add the $100 bonus to that $2000, for a total of $2100. $2100 divided by 200 hours equals $10.50. Thus, the employee averaged $10.50 per hour worked, not the $10 that you paid the overtime on. As such, the employer owes an additional $0.25 (half-time) for each hour of overtime worked. The employee is now owed an additional $8.00 in overtime for that month.
Additional overtime like that noted above can add up quickly given higher compensation and large employee numbers. Factor in liquidated damages, attorney's fees, and a 3-year statute of limitations, and employers could be looking at paying two to three times what they owe in overtime.
Employers should always question themselves when it comes to how their employees are compensated. Red flags should always be up if non-exempt employees receive any compensation over and above their basic hourly rate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
