Do you receive bonuses at work based on how productive you are or how much you sell? If so, does your employer pay you overtime at a rate that takes those bonuses into account?

Under California Law, employers are required to pay at least time-and-a-half an employee’s regular rate of pay for all hours worked in excess of eight in one workday or forty in a single workweek.[1] But for employees who earn non-discretionary bonuses (e.g. Sales Reps), the regular rate of pay should not only includes the employee’s hourly rate of pay, it must also include any such bonuses earned during that period. A non-discretionary bonus is a predetermined bonus paid at regular intervals, usually either a percentage of sales or a fixed amount, which must be paid upon the completion of certain conditions.[2]

To calculate the regular rate of pay for employees who earn non-discretionary bonuses, employers in California must divide the amount of the bonus by the total number of hours worked during that period, and then add it to the employee’s base hourly rate of pay.[3] Employers must then pay the employee overtime at a rate of at least time-and-a-half this regular rate. However, “’flat sum’ bonuses (in which an employee receives a ‘flat’ amount that does not vary based on productivity) are divisible by no more than 40 hours, rather than all hours worked in a workweek.”[4]

For Example:

Employee is employed at an hourly rate of $12, plus sales bonuses. Employee worked 45 hours last week (one extra hour each day) and earned a sales bonus of $90.

To calculate employee’s regular rate, employer must divide the amount of the bonus ($90) by the total hours worked (45). Then, employer must add this amount ($2) to employee’s hourly rate of pay ($12), which gives employee a regular rate of $14 for last week.

Finally, to calculate employee’s overtime rate, employer must multiply the regular rate ($14) by at least time-and-one-half. So for last week, employer must pay employee overtime at a rate of at least $21 per hour. Therefore, employee’s wages would be calculated to include both regular pay and overtime pay:

40 hours at $14 an hour equals $560

5 hours at $21 an hour equals $105

Thus, employee would earn a total wage of $665.

Often times, California employers fail to account for the bonus compensation when calculating the “regular rate” for purposes of overtime compensation. Failing to account for the bonus compensation violates California law and entitles the employee to among other things, statutory penalties, from the employer.

*If you believe your employer is miscalculating your overtime rate, contact an experienced employment attorney at the JCL LAW FIRM, APC, at 1-888-498-6999 for a free consultation. *

[1] Labor and Employment in California: A Guide to Employment Laws, Regulations, and Practices, Ch. 2, Section 2-7 (Matthew Bender, 2d Ed.)

[2] See Black’s Law Dict. (2nd ed. 1910)

[3] Wilcox, California Employment Law, Ch. No. 3 , § 3.16 (Matthew Bender)