Your California overtime rate may be higher than 1.5 times your basic hourly wage. For non-exempt employees, the California regular rate can include qualifying bonuses, commissions, shift differentials, piece-rate earnings, and other compensation. If an employer leaves these earnings out, overtime and meal or rest break premiums may be underpaid.
The regular rate of pay is the rate used to calculate statutory overtime. It is not always the same as an employee’s base hourly wage.
California’s Labor Commissioner explains that the regular rate may include hourly earnings, salary, piecework earnings, and commissions. When employees earn other forms of compensation, those amounts may increase the rate on which overtime is based.
For example, an employee earning $22 per hour may have a regular rate above $22 if they also receive a qualifying production bonus or sales commission.
For a non-exempt employee, potentially includable compensation can include:
California guidance specifically states that supplementary commissions, bonuses, and piece-rate compensation can require an upward adjustment to overtime.
The key question is not what payroll calls the payment. The question is whether the payment legally belongs in the employee’s regular rate.
A nondiscretionary bonus generally must be included when it is tied to predetermined criteria such as production, attendance, performance, proficiency, or remaining employed for a specified period.
For example, a promised $300 bonus for reaching a monthly production target is different from an unexpected holiday gift.
Both California and federal guidance treat performance-based and other promised incentive bonuses as nondiscretionary compensation that generally belongs in the regular-rate calculation.
A genuinely discretionary bonus may be excluded when the employer retains discretion over both whether to pay it and its amount until near the end of the relevant period, and the employee has no prior promise creating an expectation of payment.
California distinguishes certain flat-sum bonuses from production bonuses.
For a qualifying flat-sum bonus, the bonus is divided by the maximum legal regular hours worked during the bonus-earning period—not by all hours including overtime. The resulting bonus rate is then used to calculate additional overtime.
A production bonus is generally handled differently because it rewards increased output for hours worked. California guidance divides that type of bonus by total hours worked during the earning period and calculates the additional overtime premium from that amount.
Using the wrong formula can reduce an employee’s overtime payment.
Commissions may also increase overtime for non-exempt employees.
California specifically identifies commissions as part of the types of remuneration used to calculate the regular rate.
This can become complicated when commissions are paid later than the workweek in which they were earned. Payroll may initially calculate overtime using only base compensation and then need to make an additional adjustment once the commission amount becomes known.
Employees should review commission statements and subsequent payroll adjustments rather than assuming the original overtime payment was final.
A common payroll mistake is:
Hourly rate × 1.5 = overtime rate
That may be correct for an employee whose only compensation is an hourly wage. It may be too low for someone who also earns qualifying commissions or bonuses.
The correct calculation generally starts with the employee’s legally determined regular rate of pay, which can vary as additional compensation changes. A recent California appellate decision reiterated that the regular rate can differ from the employee’s ordinary straight-time rate because nondiscretionary compensation must be included.
Yes. California Labor Code section 226.7 requires premium compensation when required meal, rest, or recovery periods are not provided. In Ferra v. Loews Hollywood Hotel, the California Supreme Court held that the “regular rate of compensation” used for these premiums has the same meaning as the regular rate used for overtime.
That means qualifying nondiscretionary bonuses and commissions can increase a meal or rest break premium above the employee’s base hourly wage.
Review your pay stubs and look for warning signs such as:
California guidance specifically notes that overtime may require an upward adjustment when commissions, bonuses, or other qualifying wages are earned.
Preserve pay stubs, bonus plans, commission agreements, sales records, timecards, schedules, and payroll-adjustment statements.
A California unpaid overtime lawyer can review whether bonuses, commissions, and other compensation were properly included. The California employment and injury attorney team at The Ghol Firm represents employees from its Beverly Hills office.
The California regular rate can be higher than an employee’s basic hourly wage. Nondiscretionary bonuses, commissions, shift differentials, piece-rate earnings, and other qualifying compensation may increase the rate used for overtime.
The same concept can also affect meal and rest break premium payments. Employees who earn variable compensation should compare their bonus and commission records with overtime rates, premium payments, and later payroll adjustments.
Nondiscretionary bonuses generally are. Truly discretionary payments that satisfy the applicable legal requirements may be excluded.
Commissions are generally among the forms of remuneration included when calculating the regular rate for non-exempt workers.
Not always. If you receive only hourly wages, they may be the same. Bonuses, commissions, shift differentials, or other includable compensation can make the regular rate higher.
They can. Under Ferra, qualifying nondiscretionary compensation must be reflected in the regular rate of compensation used for missed meal and rest break premiums.
If you also earned includable bonuses, commissions, or other compensation, the overtime rate may have been understated. Reviewing pay stubs, compensation plans, and payroll adjustments can help identify the discrepancy.
If you reported illegal conduct and were fired, demoted, written up, suspended, or pressured to resign, contact The Ghol Firm for a free consultation. No fees unless we win.
