Vacation Pay Policy Found to Violate Labor Code Section 4850
Whereupon the District Court Dismisses All Remaining Claims

Bonus Calculations and Regular Rates of Pay

Where a bonus payment is considered a part of the regular rate at which an employee is employed, it must be included in computing his regular hourly rate of pay and overtime compensation. No difficulty arises in computing overtime compensation if the bonus covers only one weekly pay period. The amount of the bonus is merely added to the other earnings of the employee (except statutory exclusions) and the total divided by total hours worked. Under many bonus plans, however, calculations of the bonus may necessarily be deferred over a period of time longer than a workweek. In such a case the employer may disregard the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained. Until that is done he may pay compensation for overtime at one and one-half times the hourly rate paid to the employee, exclusive of the bonus. When the amount of the bonus can be ascertained, it must be apportioned back over the workweeks of the period during which it may be said to have been earned. The employee must then receive an additional amount of compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocable to the bonus for that week multiplied by the number of statutory overtime hours worked during the week. 29 C.F.R. § 778.209(a).

Applying that standard, the Court of Appeal in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 reviewed the bonus/overtime payment plan of Costco, and reversed a $5.3 million class action judgment.

This case concerns the lawfulness of defendant Costco Wholesale Corporation’s formula for computing overtime compensation on semi-annual bonuses paid to hourly employees. The trial court determined that defendant’s bonus overtime formula for the class of employees who qualify for the maximum base bonus (plaintiffs) violates California law, and ordered use of a different formula.  We conclude that defendant’s formula violates neither California nor federal law, and reverse the judgment with directions to enter judgment for defendant.

The description of the bonus and overtime payment plan goes on for several pages. If you have a bonus/overtime case that could be affected by the holding in Marin v. Costco, you can download the full text of the opinion here in PDF or Word format. A petition for rehearing is pending. A petition for review would appear likely.

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