Anyone who deals with payroll has probably gotten a headache or two trying to understand out how bonuses figure into overtime calculations.
Under both state and federal law, non-discretionary bonuses must be included in an employee’s “regular rate of pay” in order to calculate overtime pay. Unfortunately, differences between federal regulations and California law have long made determining the regular rate a confusing process. A recent California appeals court decision provides some guidance for employers—well, sort of.
In Marin v. Costco Wholesale Corp, employees brought a class action lawsuit alleging that Costco’s method for including bonuses in overtime calculations violated California law. Costco rewarded its long-term employees with semi-annual bonuses, provided that the employee remained in Costco’s employment at bonus time and had worked at least 1,000 hours in the six months preceding the bonus cutoff date. Because the bonuses were paid semi-annually, the overtime calculation pay-rate had to be done retroactively when the bonuses were paid, as required by state and federal law, rather than for each employee’s weekly paycheck.
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The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Reversing a $5.3 million dollar judgment against Costco, the Court of Appeals held that the employer’s method of calculation—which used the same overtime pay rate for all employees who met the 1,000 hour minimum—did not violate either California or federal law. The Court of Appeals concluded that there are no rules in California for how to include bonuses in overtime pay rate calculations.
What does this mean for you? If you’re following the federal formula for calculating bonus overtime, it means you’re probably not in danger of running afoul of California law. It also means that you should review your pay policies to make sure that, at a minimum, bonus amounts are in fact being included in overtime calculations.
We’ll have the full story on this case in a future issue of California Employer Advisor. Start your free 7-day trial subscription today and get more overtime resources for California employers.
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