California employers can’t rely on federal law to pay OT on flat bonus

The California Supreme Court has rejected federal law on overtime calculations for flat sum bonuses, ruling that state law requires a more worker-friendly calculation. An employer offered a flat bonus of $15 per day of weekend work for employees who worked a full shift on a Saturday or Sunday. Because a flat bonus effectively increases an employee’s regular rate, employees who work overtime are entitled to an additional boost in their pay because overtime must be paid on the bonus. To calculate overtime due for the bonus, the employer followed federal law by dividing the bonus amount by the total number of hours worked during the workweek (to get the regular rate for the bonus) and then multiplying that by 0.5 (to get the overtime premium for hours that were required to be paid at one and one-half times the regular rate). The overtime premium for the bonus was multiplied by the number of overtime hours, and that extra amount was included with the paycheck.

How the Overtime Should Have Been Calculated

The court rejected that approach, overruling a lower court decision on which we previously reported. The California Supreme Court said that because a flat bonus doesn’t increase based on the number of hours worked, the company should divide the bonus by only the non-overtime hours worked during the workweek. This will result in a higher regular rate for the bonus. Also, to calculate the overtime premium, the employer must use 1.5, not 0.5, as the multiplier for the regular bonus rate during the overtime hours (Alvarado v. Dart Container Corporation of California, Cal, March 2018).

Tips for Employers

Overtime Calculations for Nonexempt Employees

This decision focuses on hourly employees who receive a flat sum bonus. The court noted that if a nonexempt employee is paid a salary, California Labor Code section 515(d) would require the employer to divide a flat sum bonus by 40 hours for each workweek, regardless of how many non-overtime hours are worked during the week.

Type of Bonus Matters

The court also observed that it might reach a different conclusion for hourly workers if a bonus roughly increases in proportion to the number of hours worked (such as production bonuses, piecework bonuses, or commissions). If you pay employees a flat bonus, contact your Vigilant employment attorney immediately for assistance in considering alternative bonus methods (such as a percentage of gross wages) or applying the court’s new calculation to your flat bonus plan.

California Overtime Laws

California wage and hour laws are tricky. For additional guidance, contact your Vigilant employment law attorney. Not a member? Call us today to learn how we can help you stay compliant with flat fee employment law advice. Members and non-members can consult our free legal guide, Effect of Bonus Payment Plans on Overtime Pay for Hourly Employees, for additional details and guidance.