California Bonus Overtime Calculation: What Are the Rules?

California labor law dictates that bonuses and other benefits may need to be considered when calculating overtime rates of pay.

What Are Bonuses?

Bonuses vary from company to company but are generally additional payments to workers. Some bonuses may be performance-based, meaning that they are tied directly to the employee’s job performance. This may involve meeting certain revenue goals or other benchmarks. Other bonuses may be discretionary, meaning they are distributed based on managers’ decisions.

Types of bonuses include:

• Annual Bonus: A bonus given on an annual basis, usually based on company performance
• Spot Bonus: A bonus that’s given to individuals who go above and beyond their job description. This can include working extra hours, helping on a project, or other accomplishments.
• Signing Bonus: A bonus paid to new employees after they accept a position.
• Retention Bonus: A bonus given to employees during an acquisition, merger, or restructuring to entice workers to remain with the company
• Referral Bonus: A bonus given to employees who refer candidates who are hired by the company
• Holiday Bonus: A bonus given during a holiday – typically the Christmas season – as recognition for a year of hard work

Commissions may also be considered a type of bonus, though these payments are based on an employee’s individual performance. Commission payments are most often seen in sales-based roles, though account management, real estate, finance, and recruiting jobs may also have these bonuses.

What Are California Overtime Rules?

California has some of the strictest labor laws in the country – providing exceptional protections and benefits to workers in the state. Overtime laws are no exception.

Overtime wages in California are paid at one and one-half times an employee’s regular rate of pay for:

• All hours worked over 40 hours in a single workweek
• All hours worked over eight hours and up to 12 hours in a single workday
• The first eight hours of work on the seventh consecutive day of work in a workweek

Unlike other states, California overtime also includes something known as “double time.” This increased wage rate is paid at double an employee’s regular pay rate for:

• All hours worked over 12 hours in a single workday
• All hours worked over eight hours on the seventh consecutive day of work in a workweek

What Are the Rules for California Bonus Overtime Calculation?

Both federal and state regulations require companies to consider bonuses and other forms of compensation when calculating overtime pay. Since overtime rates are based on the regular rate of pay, the regular rate must include bonuses.

According to the U.S. Department of Labor, the regular rate of pay is calculated by dividing the total compensation for the week by the total hours worked in the week.

California labor laws have similar regulations. According to the California Department of Industrial Relations, a nondiscretionary bonus must be considered when calculating the regular rate of pay for computing overtime.

“To properly compute overtime on a flat sum bonus, the bonus must be divided by the maximum legal regular hours worked in the bonus-earning period, not by the total hours worked in the bonus-earning period,” according to the state’s Department of Industrial Relations. “This calculation will produce the regular rate of pay on the flat sum bonus earnings. Overtime on a flat sum bonus must then be paid at 1.5 times or 2 times this regular rate calculation for any overtime hour worked in the bonus-earning period.”

This is different from the federal calculation which divides the bonus and regular rate of pay by the number of hours actually worked.

The California Department of Industrial Relations notes that piece or commission wages must also be considered when calculating an employee’s regular rate of pay. If an employee is paid two or more rates during the same workweek – for example, a premium weekend wage – regular rates of pay must be calculated by taking the weighted average of these wages.

What Do I Do If I’ve Been Denied Proper Overtime?

It can be complicated for employees to know if they are being paid fair overtime wages if their regular rate of pay includes several types of compensation and bonuses. A qualified attorney may be able to help employees who are concerned about getting the wages they are owed.

If you think you were denied proper overtime wages based on bonuses you’ve received, you may be able to take legal action. California law requires companies to consider nondiscretionary bonuses when calculating overtime. If your employer failed to follow these regulations, you may be able to file a wage and hour claim.