Factoring a Flat Sum Bonus Into An Employee's Overtime Pay Rate

Under California law, an employer is obligated to pay an overtime premium for work in excess of eight hours in a day, 40 hours in a weeks, or for any work at all on a seventh consecutive day. See Alvarado v. Dart Container Corp. of California, 4 Cal.5th 542, 553 (2018), as modified at 2018 Cal. LEXIS 2979 (April 25, 2009). Such work must be compensated at 1.5 times the employee's "regular rate of pay," or, if the employee works in excess of 12 hours in a day or in excess of eight hours on a seventh consecutive working day, at two times the employee's regular rate of pay. Id.

Significantly, for the purposes of determining overtime wages, an employee's "regular rate of pay" is not the same as the employee's normal hourly wage rate (i.e., his or her "straight time" rate). Id. at 554. Rather, "[r]egular rate of pay, which can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned." Id.

In Alvarado, the California Supreme Court was faced with the question of how to determine the per-hour value of a flat-rate attendance bonus of $15 for each weekend work shift. It concluded that, because the attendance bonus at issue was payable even if the employee worked no overtime hours at all during the relevant pay period, its per-hour value should be based on the number of nonovertime hours the employee actually worked during the pay period, rather than the number of nonovertime and overtime hours actually worked during the pay period or the number of nonovertime hours that exist in the pay period (regardless of the number of hours the employee actually worked). Id. at 549, 562.

For example, if an employee's straight time rate is $20/hour and he worked 42 hours in a pay period and received one $15 attendance bonus, his overtime compensation would be calculated as follows:

Step 1: Calculate Overtime Attributable to Straight Time Pay

$20/hour x 1.5 (overtime multiplier) = $30/hour x 2 hours (overtime actually worked) = $60.00

Step 2: Calculate Overtime Attributable to Bonus Pay

$15 / 40 hours (nonovertime hours actually worked) = $0.37/hour (per-hour value of bonus) x 1.5 (overtime multiplier) = $0.55/hour x 2 hours (overtime actually worked) = $1.10

Step 3: Calculate Total Overtime Compensation by Adding Totals from Steps 1 and 2

$60.00 + $1.10 = $61.10 total overtime compensation

If you have any questions about the foregoing or other employment related concerns or questions, please contact Brianna L. Frazier, Esq., or any of the attorneys at Shulman Bastian Friedman & Bui LLP at (949) 340-3400.

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