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Flat-Sum Bonuses and Overtime Calculations

Bryan Little, Farm Employers Labor Service

May 30, 2018

An article on FELS website (CA Supreme Court Issues Employee-Friendly Overtime Formula, March 3, 2018) which also appearid in the March/April 2018 issue of FELS Newsletter inaccurately described the overtime calculation method approved in the California Supreme Court’s opinion in Alvarado v. Dart Container.

That opinion determined the methodology California employers must use for calculation of the regular rate of pay where an employee is paid a flat-sum bonus. This rate is used in turn for calculating overtime premium pay.

The article errantly reported that employers must divide all compensation (minus vacation pay, split-shift premium pay, missed meal and rest period pay) by straight-time hours worked.  This is incorrect.

Alvarado dealt with the correct treatment of flat-sum bonuses (for example, a fixed bonus for working on a weekend day.) Per Alvarado, an employer must divide the amount of a flat-sum bonus paid to the employee by the total number of straight-time hours worked by the employee in that pay period.  Alvarado has no impact on the further calculation of the regular rate of pay, which employers should continue to calculate by dividing all compensation (minus exclusions described in the above paragraph) by all hours worked to correctly calculate the regular rate of pay.

A simple example helps illustrate the flat-sum bonus overtime calculation requirements imposed by Alvarado:

  • Assume an hourly employee is eligible for overtime at 1½ times the employee’s regular rate of pay after eight hours worked in a workday or 40 hours worked in a workweek. The employee works 50 hours in a workweek, which is also the pay period, and is paid at a regular rate of $20 per hour. This yields an overtime rate of $30 per hour. The employee also earns a $40 flat-sum bonus for reporting for work on Saturday. So:
    • 40 straight-time hrs. x $20/hr. = $800
    • 10 overtime hrs. x $30/hr. = $300
    • Flat-sum bonus = $  40
  • Per Alvarado, the employer must pay the employee an overtime premium based on the amount of the flat-sum bonus for each overtime hour the employee worked by first calculating the hourly straight-time value of the bonus, and then by paying the overtime premium on that amount:
    • $40 ÷ 40 hrs. = $1/hr. straight-time flat-sum bonus value
    • $1/hr. straight-time flat-sum bonus value x 1.5 = $1.50/hr. additional overtime premium pay for the flat-sum bonus
    • $1.50/hr. x 10 overtime hrs. = $15 total flat-sum bonus overtime value
    • $15 flat-sum bonus overtime value + $300 overtime = $315 total overtime
  • The employee’s total compensation is the sum of his straight-time hours, his overtime hours @ 1.5x his regular rate of pay, the overtime value of the flat-sum bonus, and the flat-sum bonus itself:
    • 40 straight-time hrs. x $20/hr. = $800
    • 10 overtime hrs. x $30/hr. = $300
    • Flat-sum bonus overtime value=    $  15
    • Flat-sum bonus = $  40

Total:                                                         $1155

FELS regrets any inconvenience this error may have cause Newsletter readers or FELS website users.  Please direct any questions or comments to This email address is being protected from spambots. You need JavaScript enabled to view it. or call 800-753-9073.