Calculation of the overtime rate for a non-exempt employee, requires that employers first calculate the employee’s “regular rate of pay.” Under federal law, the regular rate is determined by dividing the employee’s total weekly remuneration (except for remuneration that is specifically excluded) by the total number of hours actually worked by the employee that week. However, California requires a different calculation that, depending on the nature of the compensation, may only be divided by some, but not all, of the total hours worked in the week.

California law separates “flat-sum bonuses” from “production bonuses,” both of which may be paid on a weekly basis. When calculating the regular rate for a flat sum bonus the employer is to divide the bonus solely by the employee’s non-overtime hours in the week. However, a production bonus—one that varies based on output or hours worked—is to be divided by all hours worked in the week (both overtime and non-overtime) to calculate the regular rate.

In an unpublished decision of the Ninth Circuit, Bowen v. Target Corp. discussed calculation of the regular rate for shift differentials and holiday premiums. The Court of Appeals found shift premiums directly correlate to the total number of weekly hours worked, and will necessarily increase as an employee works overtime, therefore, must be calculated on all weekly hours worked, and not merely in respect of non-overtime hours.

If you are uncertain how to properly calculate the regular rate of pay of any employee, you are urged to discuss the matter with your employment counsel as this type of wage and hour mistake can result is expensive litigation.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.