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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