The California Supreme Court has agreed to review a recent decision determining how overtime is calculated in the state. In Alvarado v. Dart Container Corp. of California, the California 4th District Court of Appeal addressed a gap in state law about how employers could calculate overtime on bonuses.
The issue in the case involves non-discretionary bonuses. These bonuses are basically extra wages paid to an employee for performing extra services. In the Alvarado case, the defendant Dart Container Corp. paid employees a $15 bonus each time they completed a shift on Saturdays or Sundays, regardless of how many hours the employee worked.
Non-discretionary bonuses must be paid on the same payroll period when the work is performed. Ordinarily, the payment of such a bonus affects the amount of overtime an employer owes to an employee. This is because the bonus retroactively increases that worker’s regular rate of pay for that period. Overtime is calculated using a worker’s regular rate of pay as a starting point. Since the bonuses increase a worker’s rate of pay, the bonuses also increase the amount of overtime that the employee should be paid.
The plaintiff in the case, Hector Alvarado, argued that Dart Container Corp.’s method of calculating overtime diluted his regular rate of pay, reducing the amount of money he was owed. The defendant calculated overtime hours using a formula contained in the Code of Federal Regulations.
Alvarado argued that his employer should have used a different formula contained in the California Division of Labor Standards Enforcement Manual. This manual helps guide employers on how to stay within the boundaries of the state’s Labor Code. However, the manual is not a set of laws and is not legally binding on employers.
The 4th District Court of Appeal held that since the manual is not legally binding, and since there is no California law regulating how overtime is calculated when using flat fee bonuses, the employer was correct to follow the formula contained in the Code of Federal Regulations.
While the appellate case was a victory for the employer, it may be short lived. Since the California Supreme Court agreed to review the case, it is likely that the rules for calculating overtime on bonuses will soon be clarified further. Employees who receive overtime based on bonus pay should be sure to watch for the outcome of the Supreme Court case and ensure that their pay is being calculated correctly.
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