California overtime is not always calculated from an employee’s base hourly wage. For non-exempt employees, certain commissions, nondiscretionary bonuses, incentive payments, and other compensation may increase the regular rate of pay used to calculate overtime.
This means an employee earning $20 per hour may have an overtime rate higher than $30 per hour if qualifying bonuses or commissions must also be included.
The regular rate is the compensation rate used to calculate statutory overtime. It is not necessarily the same as an employee’s base hourly rate.
California’s Labor Commissioner explains that the regular rate may include hourly earnings, salary, piece-rate earnings, commissions, and other qualifying compensation. A non-exempt employee generally receives time-and-a-half based on the regular rate for qualifying overtime hours and double time in certain circumstances.
That distinction matters because calculating overtime using only the base wage can produce an overtime underpayment.
The key distinction is usually whether the bonus is nondiscretionary or discretionary.
A nondiscretionary bonus is generally tied to predetermined requirements or incentives. Examples can include bonuses based on:
California’s DLSE states that nondiscretionary bonuses based on hours worked, production, proficiency, or incentives to remain employed are generally included in the regular rate.
A truly discretionary bonus is different. Certain gifts or special-occasion payments that are not tied to hours, production, or efficiency may be excluded. Simply calling compensation a “discretionary bonus,” however, does not necessarily determine its legal treatment.
California has a specific method for certain flat-sum bonuses.
A flat-sum bonus may be a fixed amount earned for satisfying a condition, such as an attendance incentive. California does not simply divide this type of bonus by every hour worked, including overtime.
Instead, DLSE guidance provides that a qualifying flat-sum bonus is divided by the maximum legal regular hours worked during the bonus-earning period to determine the bonus component of the regular rate. The additional overtime attributable to that bonus is then calculated for the applicable overtime hours.
This California-specific treatment can make the employee’s Overtime Bonuses higher than a payroll system that simply spreads the bonus across every hour worked.
A production bonus rewards increased output or productivity and is calculated differently.
California guidance generally allocates a production bonus across the total hours worked during the bonus-earning period. That produces an additional regular-rate component, after which the appropriate additional overtime premium is calculated.
This distinction is important because using the flat-sum formula for a production bonus or the production formula for a flat-sum bonus can create an incorrect overtime rate.
They can.
Commissions are among the types of remuneration California identifies as part of the regular rate for non-exempt employees.
For commission-based compensation, employers may calculate the regular rate by dividing applicable earnings for the workweek by the hours worked, subject to the rules governing that compensation structure. An additional overtime premium may then be owed for overtime hours.
A common payroll problem occurs when an employee receives a base hourly wage plus commissions but the employer always calculates overtime as exactly 1.5 times the base hourly rate. When includable commissions were earned, that calculation may be too low.
Bonuses and commissions are not always known when the employee initially receives an overtime paycheck.
When qualifying compensation becomes calculable later, the employer may need to allocate it back to the period in which it was earned and make an additional overtime payment or “true-up.” California guidance states that overtime attributable to certain bonuses may be paid in the pay period following the end of the bonus-earning period.
Commission calculations can involve a similar issue when a commission earned over multiple workweeks is not determined until later. Current employee-focused guidance emphasizes allocating commissions to the workweeks in which they were earned rather than simply treating all of the commission as earnings from the week it was paid.
Being paid a salary does not automatically eliminate overtime rights.
A salaried employee who is non-exempt may still be entitled to overtime. California calculates a regular hourly rate from the salary and then applies applicable overtime rules. Additional includable compensation may affect that calculation as well.
Review several pay periods and compare your base wage with the overtime rate shown on your wage statement.
Possible warning signs include:
California guidance recognizes that an overtime rate may need an upward adjustment when additional compensation such as commissions or bonuses is earned.
Keep copies of your:
These records can help determine whether the correct California regular rate was used and whether retroactive overtime remains unpaid.
A California overtime Attorney can review how your employer calculated the regular rate, bonuses, commissions, overtime premiums, and later payroll adjustments.
The Ghol Firm represents California employees who believe their overtime or other earned compensation was underpaid.
California overtime may be worth more than 1.5 times an employee’s base hourly wage. Nondiscretionary bonuses, commissions, production incentives, and other qualifying compensation can increase the regular rate used for overtime calculations.
Flat-sum bonuses, production bonuses, and commissions can require different calculation methods, and compensation paid later may require a retroactive overtime adjustment. Employees who suspect an underpayment should compare their pay stubs, incentive plans, commission records, and overtime rates carefully.
Nondiscretionary bonuses generally are. Truly discretionary bonuses and certain other excluded payments may not be included in the regular rate.
They can. Commissions are one of the types of compensation that may be included when calculating the regular rate for a non-exempt employee.
Not necessarily. If an employer promises a bonus based on predetermined performance, production, attendance, or similar criteria, it may be nondiscretionary even if the employer labels it a “bonus.”
The employer may need to allocate qualifying commission earnings to the workweeks in which they were earned and recalculate overtime for those periods.
Yes. The overtime multiplier is applied to the legally determined regular rate, which may be higher than the employee’s base hourly rate when additional compensation must be included.
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.
