The Supreme Court has agreed to review the Court of Appeal's decision in Alvarado v. Dart Container Corp. of California (2016) 243 Cal.App.4th 1200 (SC S232607/E061645, review granted, 5/11/16), concerning overtime calculations and the "regular rate of pay" for employees paid flat sum bonuses.
In Alvarado, the employer calculated overtime as follows:
1. Multiply the number of overtime hours worked in a pay period by the straight hourly rate (straight hourly pay for overtime hours).
2. Add the total amount owed in a pay period for (a) regular non-overtime work, (b) for extra pay such as attendance bonuses, and (c) overtime due from the first step. That total amount is divided by the total hours worked during the pay period. This amount is the employee’s “regular rate.”
3. Multiply the number of overtime hours worked in a pay period by the employee’s regular rate, which is determined in step 2. This amount is then divided in half to obtain the “overtime premium” amount, which is multiplied by the total number of overtime hours worked in the pay period (overtime premium pay).
4. Add the amount from step 1 to the amount in step 3 (total overtime pay). This overtime pay is added to the employee’s regular hourly pay and the attendance bonus.
Plaintiff contends that this method fails to pay proper overtime in violation of Labor Code sections 510 and 1194 by not including shift differential premiums and bonuses in calculating overtime rates.
Defendant prevailed on a motion for summary judgment. The court found that there was no legal basis for plaintiff’s proposed formula because federal law did not conflict with the employer's method and there was no California law providing a formula for calculating overtime on bonuses, and plaintiff’s proposed formula was based solely on California public policy and void regulations from the Division of Labor Standards Enforcement (DLSE) Manual which have no force or effect.
Plaintiff contended that Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 applies and under that holding, the defendant’s formula dilutes and reduces the regular rate of pay by including overtime hours when calculating the regular rate of pay used to compute overtime on plaintiff’s flat sum bonuses.
The question presented on review is:
What is the proper method for calculating the rate of overtime pay when an employee receives both an hourly wage and a flat sum bonus?
You can follow the progress in Alvarado here.