California: State Supreme Court Sets Formula to Calculate Overtime on Flat, Non-Production Bonuses

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March 5, 2018

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In Alvarado v. Dart Container Corp., the California Supreme Court stated that when calculating the per-hour value of a flat, non-production bonus for purposes of overtime, the total compensation must be divided by the number of non-overtime hours the employee actually worked during the pay period.

There, the employee was paid an attendance bonus of $15 for working on a weekend, and claimed that the employer’s use of the FLSA overtime calculation method was not the method most favorable to the employee. Because the regular rate of pay is averaged over the relevant pay period, the court stated that the attendance bonus should also be averaged across the entire pay period. In order to obtain the rate most favorable to the employee, the court rejected calculations that would be based on including overtime hours worked or on non-overtime hours that exist in a pay period (regardless if worked).

The court indicated this formula applies retroactively, which opens employers up to exposure for failure to correctly pay overtime if this identified method was not used. Employers may consider having bonus structures reviewed by legal counsel before implementation to ensure compliance with wage and hour rules.

Action Items

  1. Review the court’s opinion here.
  2. Review overtime calculations consistent with this ruling.
  3. Consult with legal counsel regarding wage corrections, if any.
  4. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2018 ManagEase

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