What Is an FLSA True Up and How Is It Calculated?

An FLSA true up is the retroactive overtime adjustment an employer owes when a non-discretionary bonus, commission, or similar payment raises an employee’s regular rate of pay for workweeks in which overtime was already paid at a lower figure. Because the Fair Labor Standards Act requires overtime at one and a half times the regular rate, any earned payment that lifts that rate after the fact creates a shortfall the employer has to correct. The correction is almost always a half-time premium on the bonus portion, and it is the first thing Department of Labor auditors check.

What Triggers a True Up

The regular rate is not the number on an offer letter. Federal law defines it as total compensation for the workweek divided by total hours worked, with only a handful of specific exclusions.¹ The statute lists eight categories that can be left out, including gifts, certain benefit plan contributions, vacation and holiday pay, and truly discretionary bonuses.² Everything else has to be folded in.

That “everything else” is where true-ups come from. Production bonuses, attendance incentives, commissions, and shift differentials all belong in the regular rate before overtime is calculated.³ When any of these are paid on top of a base rate and cover a period longer than one workweek, the true-up is how the FLSA requires you to reconcile past overtime.

Discretionary vs. Non-Discretionary Bonuses

The line here is narrower than most employers assume. A bonus qualifies as discretionary only when the employer keeps sole control over both whether to pay it and how much, and makes that decision at or near the end of the period without any prior promise or agreement. The moment a bonus is announced in advance, tied to a formula, or promised for hitting a target, it becomes non-discretionary and must be included in the regular rate.⁴

Labels do not save you. Call something a “discretionary holiday bonus” all you want; if employees receive it every December based on production numbers, DOL investigators will treat it as non-discretionary. Attendance bonuses, retention bonuses tied to staying through a specific date, and individual or group production bonuses all count as earned wages that feed the regular rate.⁵

How to Calculate the True Up

The math is simpler than it looks once you separate it from the original paycheck. You are not rebuilding wages from scratch. You are finding the extra overtime premium owed because the bonus lifted the regular rate above the figure used the first time. Federal regulations describe the method in three steps.⁶

Divide the gross bonus by the total hours the employee worked during the period the bonus covers. That gives you the hourly increase the bonus creates.
Multiply that hourly increase by 0.5. You owe only the extra half, because the straight-time value of the bonus was already delivered in the lump sum itself.⁷
Multiply the half-time premium by the total overtime hours worked during the bonus period. The result is the true-up owed.

When a bonus can be allocated to specific workweeks, such as a weekly production incentive, you run the calculation week by week. When it cannot be broken down that way, for example an annual bonus, you may spread the bonus evenly across all hours worked in the entire period and apply a single half-time premium rate to total overtime hours.⁶

A Worked Example

An employee earns $10.00 per hour and works 43 hours in a week, including 3 overtime hours. The employer owes a $50.00 non-discretionary bonus for that week for helping finish a special order early.⁷

Straight-time compensation: $10.00 × 43 = $430.00
Add the bonus: $430.00 + $50.00 = $480.00
Recalculated regular rate: $480.00 ÷ 43 = $11.16 per hour
Half-time premium: $11.16 × 0.5 = $5.58
Additional overtime premium owed: $5.58 × 3 = $16.74
Total due for the week: $480.00 + $16.74 = $496.74

Without the true-up, the overtime hours would have been paid at 1.5 × $10.00, or $15.00 each, instead of the correct rate based on $11.16. The $16.74 closes that gap. Stretch this across a quarterly or annual bonus with dozens of overtime hours and the numbers grow quickly.

Use Hours Worked, Not Hours Paid

The denominator is hours actually worked. Vacation, sick leave, holidays, and other paid time off do not count as hours worked under the FLSA. If an employee was paid for 2,080 hours in a year but actually worked 1,920 because of PTO, the bonus gets divided by 1,920. Using the higher number shrinks the per-hour bonus value and shortchanges the employee on the premium.

Payroll systems that default to “hours paid” produce the wrong answer here. Any week containing PTO has to be scrubbed so that only working hours feed the calculation. Skipping that step is exactly the kind of miscalculation that shows up in a DOL audit.

The Percentage-of-Earnings Bonus That Skips the True Up

One bonus structure avoids retroactive math entirely. If a plan is set up before work begins to pay a fixed percentage of the employee’s total earnings, covering both straight-time and overtime earnings at the same rate, the overtime premium is already built in.⁸ A plan paying 10% of straight-time earnings and 10% of overtime earnings satisfies the FLSA with no separate true-up.

Two conditions apply: the plan must exist before the work is performed, and it cannot be a device to avoid paying full overtime. If a percentage plan is adopted specifically to underpay overtime rather than to provide genuine bonus compensation, the DOL will disregard the structure and require a standard recalculation.⁸ Employers who pay large annual bonuses and want to skip 52 weeks of retroactive math sometimes restructure their plans this way with counsel.

Salaried Non-Exempt Employees

True-ups apply to salaried non-exempt employees too. Under the fluctuating workweek method, overtime is paid at 0.5 × the average hourly rate rather than 1.5, because the salary already covers straight time for all hours worked. When a non-discretionary bonus enters the picture, the logic is the same: add the bonus to the salary, divide by hours worked to get the average hourly rate, multiply by 0.5, and apply the result to overtime hours.⁹ The starting numbers are different; the mechanics are not.

Withholding and Recordkeeping

A true-up is treated as supplemental wages for federal income tax purposes. Employers can withhold at the flat 22% supplemental rate rather than running the payment through the employee’s regular W-4 calculation. For employees receiving more than $1 million in supplemental wages in a calendar year, the rate on the excess jumps to 37%.¹⁰ Social Security and Medicare taxes apply as they do to any other wages. Coding the true-up as a separate supplemental line, rather than aggregating it with the regular check, avoids over-withholding and produces a clearer pay stub.

Federal regulations require detailed payroll records for each covered employee, including the regular hourly rate for every overtime workweek, total straight-time earnings, total overtime premium pay, and the nature of any additions to or deductions from wages.¹¹ When a true-up changes the regular rate and overtime premium for prior weeks, the corrected figures need to appear in those records. Payroll records must be kept at least three years; supporting documents like time cards and wage rate tables, at least two.¹² Archiving the true-up worksheet alongside the original payroll data gives you the audit trail an investigator will ask for.

What Happens If You Skip It

Failing to run a required true-up is an overtime violation under the FLSA. The regulation is direct: once the bonus amount can be determined, it must be apportioned back over the workweeks in which it was earned, and any additional overtime premium must be paid.⁶

An employer who violates the overtime provisions owes the full amount of unpaid overtime plus an equal amount in liquidated damages, effectively doubling the liability.¹³ Liquidated damages can be avoided only by proving to a court that the employer acted in good faith with reasonable grounds for believing its pay practices were lawful, a defense courts grant rarely.¹⁴ Employees can file claims for unpaid overtime going back two years, or three years if the violation was willful.¹⁵ Repeated or willful violations also carry civil money penalties of up to $2,515 per violation, adjusted annually for inflation.¹⁶ Each affected employee in each affected workweek can be counted separately, which is how a few hundred dollars in missed premiums per employee turns into six- or seven-figure exposure across a workforce.

1
eCFR. 29 CFR 778.109 – The Regular Rate Is an Hourly Rate
2
Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours
3
U.S. Department of Labor. Fact Sheet 56A – Overview of the Regular Rate of Pay Under the Fair Labor Standards Act
4
eCFR. 29 CFR 778.211 – Discretionary Bonuses
5
eCFR. 29 CFR 778.208 – Inclusion and Exclusion of Bonuses in Computing the Regular Rate
6
eCFR. 29 CFR 778.209 – Method of Inclusion of Bonus in Regular Rate
7
U.S. Department of Labor. Fact Sheet 56C – Bonuses Under the Fair Labor Standards Act
8
eCFR. 29 CFR 778.210 – Percentage of Total Earnings as Bonus
9
U.S. Department of Labor. Fact Sheet 82 – Fluctuating Workweek Method of Computing Overtime
10
Internal Revenue Service. Publication 15 (Circular E), Employer’s Tax Guide
11
eCFR. 29 CFR 516.2 – Employees Subject to Minimum Wage or Minimum Wage and Overtime Provisions
12
U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act
13
Office of the Law Revision Counsel. 29 USC 216 – Penalties
14
Office of the Law Revision Counsel. 29 USC 260 – Liquidated Damages
15
Office of the Law Revision Counsel. 29 USC 255 – Statute of Limitations
16
U.S. Department of Labor. Civil Money Penalty Inflation Adjustments