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California SC Decides How to Factor Bonus into Overtime

April 16, 2018 by

California law requires employers to pay non-exempt employees for all hours worked over eight in a day, or forty in a week, at a premium rate of 1.5 times the “regular rate” of pay – thus “time and a half.” The California Supreme Court has now answered a thorny question about how to handle bonus pay for purposes of measuring the “regular rate” of pay.

In Alvarado v. Dart Container Corp. of CA, (3/5/2018) the Court explained that because a flat sum bonus is not paid based on hours worked, the bonus must be apportioned to the regular hourly rate to determine the “regular rate” of pay. The question for the Court in Alvarado was whether the bonus should be allocated to all hours worked, including overtime hours, or only to the nonovertime hours worked. The Court concluded that consistent with California’s longstanding policy of protecting the interests of employees and discouraging employers from imposing overtime work, a flat sum bonus should be divided by the number of nonovertime hours actually worked in the relevant pay period.

Notably, the Court’s decision is contrary to established federal law, which apportions a flat bonus to the regular rate of pay based on all hours worked including overtime hours. The Court correctly pointed out that the federal approach results in a progressively decreasing regular rate of pay as the number of overtime hours increases, undermining the state’s policy of discouraging overtime work.

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