96 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com rate of pay for each overtime hour worked, instead of the half-time premium used in the example above. See Cal. Lab. Code § 515(d). Thus, if an employee is compensated by a weekly salary of $1,000 and works 50 hours in a week, overtime pay is calculated as follows: (1) $1,000 / 40 hours = $25; (2) $25 * 1.5 overtime premium = $37.50; (3) $37.50 * 10 overtime hours = $375 in overtime compensation. 4. Flat-Sum Bonuses The California Supreme Court’s decision in Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542 (2018) held that employers must pay overtime for “flat-sum bonuses” using a different formula than that applicable to most regular rate of pay calculations. A flat-sum bonus is one that does not increase or have the potential to increase roughly in proportion to an employee’s hours worked—for example, a flat attendance bonus. Crediting a flat-sum bonus over all hours worked, including overtime hours, would dilute the value of the bonus. Thus, the bonus is not credited to overtime hours. Instead of using the total hours worked during the bonus earning period in the denominator of the calculation, the regular rate for flat-sum bonuses is calculated by dividing the bonus by the number of non-overtime hours worked during the bonus earning period. This amount is multiplied by 1.5 (not 0.5) and is paid for each overtime hour worked. Unfortunately for employers processing payroll for employees in multiple states, this formula differs significantly from the FLSA formula. In contrast to the California approach of dividing by the total straight-time hours and multiplying by 1.5, the FLSA formula applicable to flat-sum bonuses uses the total hours worked in the denominator and requires payment of only a half-time premium. As a result, the additional overtime due on a flatsum bonus in California is more than three times the amount due under the FLSA. For example, an employee may work 40 regular hours in a week with two additional hours of overtime. The employee is compensated at $20 per hour for the 42 hours of work and also receives a flat-sum bonus of $60 for the work done in that workweek (for a total of $900). The additional overtime premiums are calculated separately for hourly pay and the flat-sum bonus as follows: (1) hourly pay overtime premium: $20.00 x 0.5 = $10 x 2 hours = $20 (2) flat-sum bonus overtime premium: $60/40 = $1.50 * 1.5 * 2 overtime hours = $4.50. Thus, under California law, the total overtime pay is $24.50. Under the FLSA, the formula would be $900/42 hours worked ($21.43) * 0.5 = $10.72 * 2 hours = $21.44.
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