Founder and Managing Partner
Just a few days ago the California Court of Appeal, in Alvarado v. Dart Container Corp., sided with employers, holding that employers can calculate overtime on flat sum bonuses using the federal formula, despite the Division of Labor Standards Enforcement (DLSE) advising a more employee-friendly calculation.
This decision is a rare win for employers and affirms The Scali Law Firm’s advice regarding the calculation of bonus overtime. While we recommend that our clients follow the most conservative approach in wage and hour calculations, this decision confirms that DLSE guidance is not binding when it is unsupported by California law or regulations.
In Alvarado v. Dart Container Corp., the Court of Appeal addressed whether Mr. Alvarado, a warehouse associate for Dart Container Corp. (“Dart”), was properly paid overtime on a flat $15 attendance bonus he earned for any Saturday or Sunday on which he worked a full shift.
As there is no California law for calculating overtime on a flat sum bonus, Dart followed the federal formula set forth in the Code of Federal Regulations, 29 C.F.R. § 778.110, for calculating overtime on a production bonus:
For example, an employee earning $10 per hour, and working 46 hours in the workweek (including a Saturday) was calculated as follows:
- Take the number of overtime (“OT”) hours worked and multiply by the straight hourly rate
- 6 OT hours at $10 / hour = $60
- Determine the Regular Rate of Pay based on all wages and all hours worked (including OT):
- 40 x $10 = $400
- $15 attendance bonus
- $60 in OT compensation
- = $475 / 46 hours of work = $10.33 [Regular Rate]
- Then Calculate the OT Premium (additional pay owed to equal 1.5 times hourly wage for OT)
- 6 OT hours x ($10.33 / 2) = 6 x $5.165 = $30.99 additional OT wages owed
- Total Pay
- $475 + $30.99 = $505.99
Comparatively, the DLSE recommended that California employers determine the regular rate by dividing the bonus by the maximum regular hours worked (not total hours worked, which includes overtime).
- $400 in regular hourly wages (for 40 hours)
- 6 OT hours = $60 additional in straight time wages
- $60 x 0.5 = $30 in OT premium
- Divide flat sum bonus by regular hours (to get bonus regular rate) and multiply by 1.5 to get bonus OT rate
- $15 flat sum bonus / 40 hours = $0.375 per hour (regular rate)
- $0.375 per hour x 1.5 = $0.5625 x 6 OT hours = $3.375 Bonus Overtime
- $15 attendance bonus
- TOTAL: $460 in straight time wages + $30 OT premium + $15 attendance bonus + $3.375 Bonus OT = $508.37
Mr. Alvarado argued that this formula offered in the DLSE’s Manual was more employee-friendly and more in line with California public policy, and therefore was the correct formula for calculating bonus overtime. However, public policy considerations alone were insufficient to create a conflict between California and Federal law, and in the absence of controlling California law, Dart was compliant in following the federal calculation method described above in determining overtime owed.
However, had the DLSE formula been supported by any California law or regulation (in addition to public policy considerations), the Court of Appeal likely would have found in favor of the employee, Mr. Alvarado. Accordingly, this decision does not signify that DLSE opinions or guidance are unenforceable; instead, the distinction is much more subtle, depending upon whether the guidance is supported by clear California legal authority. Generally, California law is more protective of employees and often does have explicit instructions regarding calculations, which are different from those under federal law.
A noteworthy point is that the difference in the calculations under the above two formulas is a mere three dollars and change per week. However, employers must remember that any amount of wages owed and not paid to an employee at separation with the company exposes the employer to waiting time penalties under Labor Code section 203. These penalties equal the employee’s daily rate of pay multiplied by the number of days that the employee was not paid after separation (up to a maximum of 30 days).
In light of the nuances in interpreting California wage and hour law, please contact an experienced wage and hour attorney for assistance in calculating overtime owed.