Employers who pay bonuses, commissions, or shift differentials must ensure they recalculate overtime rates correctly. Many businesses mistakenly assume that once an employee’s overtime is paid, they’re in the clear. However, failing to true-up overtime calculations after additional earnings can result in wage theft claims, DOL audits, and massive financial penalties.
This guide explains how overtime true-ups work, where employers go wrong, and how to stay compliant.
What Is an Overtime True-Up & When Is It Required?
An overtime true-up is a retroactive adjustment to an employee’s overtime rate when they receive additional earnings beyond their base hourly wage. Bonuses, commissions, and shift differentials can all increase an employee’s regular rate of pay, meaning previous overtime payments may need to be adjusted.
Understanding the Difference: Contingent vs. Discretionary Bonuses
Not all bonuses require overtime true-ups. The distinction between contingent (non-discretionary) bonuses and discretionary bonuses determines whether employers need to recalculate overtime pay.
Bonus Type | Definition | Requires Overtime True-Up? |
|---|---|---|
Contingent (Non-Discretionary) Bonus | Bonuses tied to specific performance goals, productivity, retention agreements, or company profitability. Employees expect to receive these bonuses if they meet predetermined criteria. | ✅ Yes, these bonuses must be included in the regular rate of pay when calculating overtime. |
Discretionary Bonus | Bonuses given at the employer’s sole discretion without any prior agreement or expectation. Examples include holiday bonuses and surprise rewards not tied to measurable performance. | ❌ No, these bonuses do not count toward the regular rate of pay and do not require overtime adjustments. |
📌 Key Takeaway: If a bonus is expected and tied to performance metrics, it must be included in overtime calculations. If it’s a spontaneous reward with no expectation, no overtime adjustment is needed.
📌 Example: If an employee earns a $500 quarterly productivity bonus, their regular hourly rate increases for that quarter, meaning previous overtime pay must be retroactively increased.
📌 Practice Tip: Employers should conduct quarterly payroll reviews to ensure all overtime payments are trued-up correctly to avoid back pay liabilities.
How to Calculate an Overtime True-Up
Step | Calculation |
|---|---|
Step 1: Determine the Adjusted Regular Rate of Pay | Add the total additional earnings (bonuses, commissions, shift differentials) to the employee’s base pay for the period. Divide the new total earnings by total hours worked (including overtime hours). |
Step 2: Recalculate the Overtime Pay Rate | Multiply the adjusted regular rate by 1.5 to determine the correct overtime rate. |
Step 3: Calculate the Overtime True-Up Payment | Subtract previously paid overtime from the new corrected overtime amount. Pay employees the difference in a retroactive adjustment. |
Example Calculation:
Calculation Item | Formula & Amount |
|---|---|
Base hourly rate | $20/hour |
Quarterly bonus earned | $500 |
Total hours worked in the quarter | 500 hours (including 50 OT hours) |
Adjusted regular rate | ($20 × 500 + $500) ÷ 500 = $21/hour |
New OT rate | $21 × 1.5 = $31.50/hour |
Previously paid OT rate | $20 × 1.5 = $30/hour |
Underpaid OT per hour | $31.50 - $30 = $1.50/hour |
Total OT underpayment | $1.50 × 50 OT hours = $75 owed to the employee |
✅ Final Retroactive Payment Owed: $75
📌 Practice Tip: Employers should automate overtime true-up calculations through payroll software to prevent manual errors.
Employer Mistakes & Costly Penalties
Scenario 1: Employer Fails to True-Up Bonus Overtime
A retail business provides employees with a quarterly productivity bonus based on performance metrics, but fails to adjust overtime pay for employees who worked extra hours during that period. A DOL audit results in major penalties.
Calculation Item | Formula & Amount |
|---|---|
Employees affected | 50 |
Each earned a quarterly productivity bonus | $1,000 |
Average OT hours per employee in bonus period | 20 |
Total OT adjustment per employee | $1.50 × 20 = $30 |
Total back pay for 50 employees | $30 × 50 = $1,500 |
Liquidated damages (double the amount) | $1,500 |
WTPA penalties for improper pay statements | $250 × 50 = $12,500 |
Final total cost | $16,000, plus attorney’s fees and additional penalties. |
📌 Practice Tip: Employers should apply automated retroactive OT adjustments when bonuses are processed to avoid these errors.
Scenario 2: Commission Payments Ignored in Overtime Calculation
A sales company pays employees monthly commissions but fails to recalculate overtime rates, leading to an underpayment lawsuit.
Calculation Item | Formula & Amount |
|---|---|
Employees affected | 30 |
Each earned commissions over 3 months | $2,500 |
Average OT hours per month per employee | 15 |
Total OT adjustment per employee | $2.00 × 15 × 3 = $90 |
Total back pay for 30 employees | $90 × 30 = $2,700 |
Liquidated damages (double the amount) | $2,700 |
WTPA penalties for improper pay statements | $250 × 30 = $7,500 |
Final total cost | $12,900, plus attorney’s fees and additional penalties. |
📌 Practice Tip: Employers should review all commission-based earnings each pay period to prevent retroactive pay disputes.
Final Thoughts: Keep Fighting the Good Fight
At Jacobs & Associates, we believe that overtime calculations should be clear, fair, and fully compliant with the law. Employers who properly track overtime true-ups protect their businesses from DOL penalties, lawsuits, and reputational harm.
By implementing clear policies, payroll training, and compliance audits, businesses can prevent wage theft lawsuits and avoid financial liabilities.
If you need guidance on overtime pay compliance, payroll best practices, or defense against a DOL audit, reach out for expert legal support.
Keep Fighting the Good Fight.
