How Is Overtime Calculated on Flat Sum Bonuses in California, and Why Does It Matter?

Wages Concept. Folders in Catalog.Although you may not realize it, how overtime should be calculated on bonuses of a flat amount has been hotly contested in California employment law.  This may seem like an issue that only accountants or human resources professionals should care about.  But as an employee, it’s important that you know the result of flat sum bonuses on the overtime you are paid so that you can hold your employer accountable if they are not handled properly.

In a recent California appellate case, Hector Alvarado filed a lawsuit against his employer, Dart Container Corporation of California.  Alvarado alleged that he had worked full scheduled shifts on Saturdays and Sundays.  Under Dart’s attendance bonus policy, completing each scheduled weekend shift entitled an employee to a flat $15 bonus.

Under California law, overtime is calculated based on an employee’s regular rate of pay.  The issue in Alvarado’s case was the effect of various $15 bonuses on his regular rate of pay.

Dart used a formula from the Code of Federal Regulations to calculate overtime on Alvarado’s bonuses.  In his lawsuit, Alvarado argued that Dart should have used a formula from California’s Division of Labor Standards Enforcement. The DLSE Manual generally cited “public policy” to support its treatment of flat sum bonuses.  It did not contain any supporting law, cases, or regulations.

The court rejected Alvarado’s argument, finding that DLSE’s Manual, which was more employee-friendly, was not adopted using rulemaking procedures and that it was therefore not binding.  It is important to note that the court did not throw out all DLSE guidance, only that which was not supported by California laws, cases, or regulations.

The difference to Alvarado of one attendance bonus was only about $3 per week.  So what makes this case a big deal for employees?

  • The payment of overtime bonuses can trigger the payment of retroactive overtime;
  • If an employee separates, an employer would be exposed to increased waiting time penalties if its calculation of overtime bonuses is too low; and
  • The amounts can have a cumulative effect over time on any benefit based on salary, such as retirement pay.

Needless to say, not all flat sum bonuses are a mere $15.  An employee could take a much more significant hit, depending on the size of the bonus. Contact Labor Law Office, APC today to speak with a professional Wage Attorney in Sacramento for more information.

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Labor Law Office, APC

2740 Fulton Avenue, Suite 220
Sacramento, CA 95821

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2017-12-13T21:46:34+00:00 March 3rd, 2016|Wage and Hour|