No extra OT owed for bonus based on % of earnings in California
Termination & ResignationWage and Hour
An employer’s award of a bonus based on a percentage of overtime earnings didn’t require any extra overtime payments, ruled a federal district court in California. The decision illustrates how a dispute over 12 cents can literally turn into a federal case. During one particular workweek, an employee earned $4.745 in overtime. The employer provided a bonus incentive plan based on company and individual performance. At that time the employee’s bonus was 5 percent of overtime pay, resulting in a bonus payment of 24 cents for that workweek. After being terminated, the employee sued the company, claiming the 24 cents should have been included in his regular rate. Doing so would have entitled him to an additional 12 cents of pay, assuming his overtime pay was based on one-and-one-half times the regular rate. The court ruled that in this instance, California follows federal law. A bonus that is based on a percentage of overtime pay automatically takes the overtime premium into account, so there’s no requirement for an employer to pyramid its overtime calculations and pay overtime on the overtime (Harris v. Best Buy Stores, ND Cal, Feb. 2018).
Tips for Employers: If the employee had won this case, his employer would have had to pay the employee’s attorney fees, even if only 12 cents has been awarded. It’s essential to ensure total compliance with California’s strict wage and hour laws, so you’re not a target of plaintiffs’ attorneys. For further guidance, see our Legal Guides, “Effect of Bonus Payment Plans on Overtime Pay for Hourly Employees” and “Effect of Bonus Payment Plans on Overtime Pay for Nonexempt Salaried Employees”.