Q: I WORK in the service industry and I often receive performance bonuses on top of my hourly rate. I also work a lot of hours (50 to 60 hours!) per week. My friend recently saw my paystub and said my overtime pay is wrong because it doesn’t include my bonus. Is this right? How should my overtime be computed?
A: Your friend is right as your overtime pay should consider your hourly wages, plus the amount of your performance bonus. This will result in a higher overtime rate and will increase your take-home pay.
The overtime pay required by law is computed on the basis of the employee’s “regular rate” of pay. If the employee receives only an hourly rate, then the hourly rate is the regular rate. Employees may be paid in more than one way, for example, an hourly rate and a bonus..
However, if the employee is paid an hourly rate plus some other type of compensation, and the employee works overtime too, then the employee’s “regular rate” for purposes of computing overtime, must be determined.
Therefore, employees who receive a nondiscretionary bonus for their productivity or performance, will need to have their bonus included in the computation of any overtime pay. The bonus is apportioned over the workweeks in which the bonus was earned. For example: The employee receives an hourly rate of $15 per hour, and receives a performance bonus of $2000 in a 6-month period (or 26 weeks). The employee’s normal overtime rate would be $22.50. However, since the bonus is part of the employee’s wages, then the employee’s overtime rate should be $25.38, not $22.50. The difference of $2.88 per hour may become significant when spread over a long time.
Other situations where the overtime rate is increased based on the methods of compensation include instances when employees are additionally paid shift differential pay, piece rate pay, or commissions (generally for inside salespersons or employees at retail or service establishments).
Whether the difference is cents or several hundred dollars, California has consistently upheld the public policy of paying employees’ overtime pay correctly. Consider the following cases:
Hourly employees at the Sutter West Bay Hospitals sued their employer in a class action claiming that, among other things, the employer failed to include the hourly employees’ non-discretionary performance bonuses in the calculation of their employees’ overtime pay. Thus, the employees were not correctly paid for their overtime work, as required under California laws.
West Covina Corporate Fitness, which operates a Gold’s Gym fitness facility, was sued in a class action by its employees, who are claiming that their employer did not include their commission wages in computing their overtime pay. The employees claimed that by excluding their commissions, the employer reduced the actual amount of overtime pay that they were legally entitled to.
These two lawsuits, and no doubt, many others, continue to be pending in court.
Determining the correct amount of your overtime compensation under the law can be highly technical and may become confusing. However, correct application of the law may mean more wages to benefit you and your family.
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The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com.
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C. Joe Sayas, Jr., Esq. is an experienced trial attorney who has successfully obtained significant recoveries for thousands of employees and consumers. He is named Top Labor & Employment Attorney in California by the Daily Journal, consistently Aselected as Super Lawyer by the Los Angeles Magazine, and is a member of the Million Dollar-Advocates Forum.