California Supreme Court Rules on Overtime Calculations with Retroactive Application

On March 5, 2018, the Cal­i­for­nia Supreme Court ruled in Alvara­do v. Dart Con­tain­er Cor­po­ra­tion of Cal­i­for­nia (Alvara­do) that when cal­cu­lat­ing over­time in pay peri­ods when an employ­ee earns a flat rate bonus, employ­ers must divide the total com­pen­sa­tion earned in a pay peri­od by only the non-over­time hours worked. This means, accord­ing to the Alvara­do deci­sion, the cor­rect cal­cu­la­tion of over­time asso­ci­at­ed with a flat sum bonus is the amount of the bonus divid­ed by the reg­u­lar hours worked by the employ­ee, mul­ti­plied by 1.5 (not a 0.5 mul­ti­pli­er, which the employ­er used in the case):

(Over­time Hours x Reg­u­lar Rate x 1.5) + (Bonus/Regular Hours Worked x Over­time Hours Worked x 1.5) = Total Over­time Com­pen­sa­tion in California

This deci­sion applies retroac­tive­ly; thus all Cal­i­for­nia employ­ers who pay flat rate bonus­es must ensure imme­di­ate com­pli­ance with these cal­cu­la­tions or risk incur­ring penal­ties and liability.

Read Alvara­do

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