NEW RULE: Calculating Overtime for California Employees Who Get Flat Rate Bonus Payments
The California Supreme Court recently released an opinion that will result in workers receiving more overtime pay in pay periods in which they work overtime and receive a flat sum bonus. This is a very favorable ruling for workers and it applies retroactively – meaning workers can claim the back overtime they are owed going back up to 4 years.
If you were paid overtime and received flat rate bonus payments – but are not certain how the bonus was factored into your overtime rate, you should consult with an overtime pay rights lawyer who represents workers, not employers.
What’s the Issue with Overtime Pay and Bonuses?
The legal question before the court was – what is the proper number of hours to use when calculating the overtime pay rate in a pay period (work week) in which a bonus is received? The employer claimed that the employee’s total compensation should be divided by the number of hours the employee actually worked during the pay period, including overtime hours. The employee in the case asserted that total compensation should be divided by the number of non-overtime hours the employee worked during the pay period – which results in a higher per hour rate on which overtime is calculated.
The court noted that the flat sum bonus at issue was payable even if the employee didn’t work any overtime hours during the pay period. Thus, the bonus should be treated as being earned as a result of only the non-overtime hours in the pay period – “as if it were earned on a per-hour basis throughout the relevant pay period.” This led the court to conclude that only the non-overtime hours an employee works should be considered when calculating the bonuses’ per-hour value.
A flat sum bonus is “factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.”
What’s a Flat Rate Bonus?
While this decision was limited to flat sum or flat rate bonuses “comparable to the attendance bonus at issue”, it is not clearly established at this point to what extent this more generous calculation might apply when employees get other types of non-hourly compensation. What types of bonus payments are considered “comparable” to a flat-sum or flat-rate attendance bonus under California wage law is not exactly clear. However, any bonus that is not based on the number of hours worked and does not tend to increase in size in rough proportion to the number of hours actually worked by an employee appears to warrant a similar type of analysis.
Any non-discretionary bonuses paid to non-exempt employees who work overtime should be looked at to insure workers have been properly paid the full amount due to them.
The bonus in the case was an attendance bonus of $15 per day paid to any employee who worked a full weekend shift on a Saturday or Sunday. The bonus was paid regardless of the number of hours the employee had worked during the workweek – whether they worked overtime or not. So, any bonus (regardless of its label) that is a fixed dollar amount for some type of accomplishment must be looked at carefully, if it is paid in pay periods in which overtime is due. The California Labor Commission manual specifically mentions flat sum bonus payments such as “$300 for continuing to the end of the season, or $5.00 for each day worked”.
Why? Because California Overtime Pay Laws are More Favorable to Employees.
This decision reflects a long history of employee-friendly California overtime pay laws. As the court put it, “California has a longstanding policy of discouraging employers from imposing overtime work,” and a “state policy favoring an eight-hour workday and a six-day 40-hour workweek” that is more protective of workers’ wage and hour rights than is federal law. This, when taken together with California’s longstanding position that its labor laws are to be liberally construed in favor of workers, led the court to conclude that only non-overtime hours should be used in calculating the value of flat-sum bonus payments.