Earlier this year, the Department of Labor (DOL) issued opinion letters offering employers guidance regarding certain wage and hour matters under the Fair Labor Standards Act (FLSA). While these opinion letters are nonbinding, courts often defer to these letters when presented with similar issues. The letters also offer employers valuable insight into the DOL’s interpretation of the FLSA and assist employers with implementing certain wage and hours practices in the workplace. Is your workplace compliant?
Reclassification from Exempt to Nonexempt Status
In the first opinion letter of 2026 (FLSA2026-1), the DOL responded to a licensed clinical social worker’s (LCSW) request for an opinion on (1) whether her role as a LSCW meets the criteria for the FLSA’s learned professional exemption; and (2) if so, whether her employer was, nevertheless, permitted to reclassify her as a nonexempt employee and pay her on an hourly basis.
The LCSW had been employed by her employer since 2018. She was previously classified as a salaried exempt professional, and her primary duties included conducting clinical assessments, developing treatment plans, providing crisis intervention, and collaborating with interdisciplinary care teams. Following internal restructuring, the employer eliminated her supervisory responsibilities and started paying her on an hourly basis. This change prompted the reclassification to nonexempt status.
The DOL noted that the LCSW’s core responsibilities, even without her supervisory duties, likely satisfy the “duties” test for the learned professional exemption, such that she could still be classified as exempt, if the salary basis requirements were met.
The letter, however, emphasized that employers are not obligated to claim an available exemption. Employers may lawfully classify an otherwise exempt employee as nonexempt, provided they comply with minimum wage and overtime requirements. The FLSA strictly prohibits misclassifying nonexempt workers as exempt to avoid overtime obligations, but the reverse—treating potentially exempt employees as nonexempt—is permissible.
This approach allows employers to adapt to structural changes, such as removing supervisory roles or adjusting compensation structures, without violating the law. It also allows employers to pay an employee based on the quantity of work performed by the employee without violating the FLSA.
The key takeaway is that employers that have employees who would otherwise qualify for a white-collar exemption under the FLSA, may—but are not required to—claim the exemption. If the practical considerations of claiming the exemption do not make business sense, employers may choose to classify an employee who would otherwise qualify for an exemption as nonexempt.
Bonus Payments and Regular Rate of Pay
In its second opinion letter (FLSA2026-2), the DOL clarified the treatment of bonus payments under the FLSA. The DOL concluded that certain performance-based bonuses must be included in an employee’s “regular rate of pay” when calculating overtime premiums, rejecting an employer’s practice of excluding them.
The inquiry involved a waste management company that paid nonexempt drivers a base rate of $12 per hour. Drivers could earn additional pay through a “Safety, Job Duties, and Performance” bonus plan, which rewards punctuality, attendance, safety compliance, and efficiency metrics, with bonuses capped at $9.50 per hour. Despite these bonuses being earned based on objective, predetermined criteria communicated in advance, the employer had been calculating overtime using only the base rate.
Section 7 of the FLSA requires overtime on an employee’s regular rate of pay for hours worked over 40 in a workweek. The regular rate includes all remuneration for employment except for narrowly defined exclusions, such as discretionary bonuses. The DOL determined that the “Safety, Job Duties, and Performance” bonus plan did not qualify as discretionary. Rather, the bonus was earned through a formula-based plan with clear, advance notice of the criteria. As a result, it must be included in the regular rate for every workweek in which it is earned.
The regular rate is computed by dividing total straight-time earnings (base pay plus bonuses) by total hours worked. Overtime premiums are then paid at 1.5 times this rate for excess hours. For example, an employee working 50 hours with a full $9.50 hourly bonus earns $1,075 in straight-time pay ($21.50 regular rate), requiring overtime pay of $32.25 per hour for the 10 extra hours. Partial bonuses follow the same principle.
You should review incentive plans to ensure compliance because improper exclusion of nondiscretionary bonuses can lead to back wages, penalties, and violations of federal law.
Jodi R. Bohr is a shareholder with Milligan Lawless, P.C., and a contributor to Arizona Employment Law Letter. She practices employment and labor law, with an emphasis on counseling employers on HR matters, litigation, and workplace investigations. She may be reached at jodi@milliganlawless.com or 602-792-3549.