Dental and Medical Counsel Blog

Overview of CA Supreme Court Overtime Calculations Involving Flat-Sum Bonuses Decision

May 2, 2018
shutterstock_178218281

As you may know, the Fair Labor Standards Act (FLSA) requires that non-discretionary bonuses are included in an employee’s regular rate of pay for overtime purposes. As a reminder, non-discretionary bonuses are: dependent on an employee’s hours worked or on the quality or quantity of the outcome of the employee’s work, determined through the employee’s service or his or her productivity or efficiency, predetermined by specific criteria, and employees know how to earn it.

Back in March of this year, the California Supreme Court unanimously ruled in favor of employees regarding the calculation of a flat sum non-discretionary bonus during a single pay period. In order to appreciate the impact of this decision, an understanding of a few basic concepts should be had. A flat-sum bonus is a bonus set at a set rate regardless of the amount of time that an employee has worked. To make these calculations, the regular rate of pay must be calculated first. While this amount can change in each pay period, the regular rate of pay includes the hourly rate of pay, non-discretionary bonuses, and any other specific types of compensation that the employee may earn.

In addition, there is a baseline of general requirements for overtime in California. For instance, employers in California must pay a rate of 1.5 times the regular rate of pay for non-exempt employees if they have worked over 40 hours in one work week, have worked over eight hours in one workday, or have worked eight hours on the seventh consecutive workday in the same workweek. On top of that, California employers are required to pay non-exempt employees twice their regular rate of pay for any time over twelve hours worked in a workday or if an employee has worked over eight hours on the seventh consecutive workday in the same workweek.

In this recent ruling, the Supreme Court specifically ruled to adopt the California Division of Labor Standards Enforcement (DLSE) formula, which allows a flat-sum bonus to be divided only by non-overtime hours worked in order to calculate the regular rate of pay. As a result, the regular rate of pay amount would be larger than the amount calculated under the FLSA, which includes overtime hours in the calculation as well. The main differences regarding the FLSA and the California DLSE formulas are more clearly demonstrated via the calculation examples in the matrix below.

Fair Labor Standards Act (FLSA) Formula

California Division of Labor Standard Enforcement (DLSE) Formula

First: Straight-time compensation is made up of the straight-time hourly wages for all hours of work plus any bonuses.

 

($14 hourly rate x 50 hours worked) + $200 bonus = $900

First: The flat-sum bonus should be divided by the number of non-overtime hours that have been worked.

 

$200 divided by 40 hours = $5.00 per-hour bonus

Second: Divide that amount by the total number of hours worked. This is the regular rate of pay.

 

 

$900 straight-time pay divided by 50 hours worked = $18

Second: Multiply that number by 1.5; also multiply the hourly wage by 1.5. Add those totals together. This is the overtime pay rate.

 

$5.00 x 1.5 = $7.50

 

$14 x 1.5 = $21

 

$7.50 + $21 = $28.50 (new overtime rate)

Third: Multiple the regular rate of pay by .5, then multiply that by the total number of overtime hours.

 

$18 x .5 x 10 overtime hours = $90

Third: Multiply the overtime pay rate by the total number of overtime hours.

 

$28.50 x 10 overtime hours = $285.00 in overtime compensation owed for hours 41-50

Fourth: Calculate the total compensation amount.

 

$90 overtime pay + $900 straight-time pay = $990

Fourth: Calculate hourly wages, bonuses, and overtime compensation to achieve total compensation.

 

$560 in hourly wages for hours 1-40 ($14 x 40 hours) + $200 bonus + $285.00 in overtime compensation for hours 41-50 = $1045.00 in total compensation

 

You should consult with legal counsel to help you determine whether or not this ruling affects any bonuses that you provide your employees. While the above may seem confusing, a discussion with your legal counsel can ease any additional concerns that you may have regarding how this new ruling may affect your practice.

 Contact Us Today for a Complimentary Consultation!

Img

Subscribe to Our Blog

Stay updated with industry news!