United States: California Supreme Court Rejects Federal Regulation On How Overtime Is Computed On Non-Production Flat Sum Bonuses

Last Updated: March 22 2018
Article by William C. Sung

On March 5, 2018, the California Supreme Court issued an important decision in Alvarado v. Dart Container Corporation ("Alvarado") changing how employers must calculate overtime pay on certain types of bonuses. This decision will impact all California employers who provide non-production flat rate bonuses, such as attendance and longevity bonuses, to their employees, and will likely create a new wave of wage and hour litigation in the state.

Federal Regulation vs. DLSE Enforcement Position

Under both California and federal law, overtime is computed based on an employee's regular rate of pay, which includes different kinds of remuneration such as non-discretionary bonuses. Under federal regulations, an employee's regular rate of pay on all types of bonuses is calculated by taking total compensation in a given workweek, including any bonus, and dividing by the total hours worked for that workweek, including overtime hours. Next, the regular rate is multiplied by 0.5 for overtime hours to arrive at the applicable overtime premium rate and then multiplied by the number of overtime hours worked for the overtime premium pay due. If the bonus covers a period longer than a workweek, once the amount of the bonus can be ascertained, it must be apportioned back over the period during which it is earned.

However, the California Division of Labor Standards Enforcement ("DLSE") has for decades taken a contrary position in its Policies and Interpretations Manual ("DLSE Manual"). The DLSE Manual provides two methods of computing overtime depending on whether the bonus is a "production" or a "flat sum" bonus. For a production bonus, the DLSE uses the federal method described above: Dividing the bonus by the total hours worked, including overtime hours, during the period to which the bonus applies for the regular rate, and multiplying the regular rate by 0.5 for overtime hours and 1.0 for double time hours. For a flat sum bonus, the regular rate is determined by dividing the bonus by the non-overtime hours worked during the period to which the bonus applies and using multipliers of 1.5 for overtime and 2.0 for double time.

This conflict between federal regulations and the state labor commissioner enforcement position has for years created confusion among employers on how to compute overtime on bonuses. 

Alvarado v. Dart Container Corporation

This conflict was at the heart of the dispute in Alvarado, where the employer computed overtime on weekly attendance bonuses based on the federal regulation (divisor is total hours worked including overtime and multipliers are 0.5 and 1.0), while the plaintiff argued that the calculation should be based on the DLSE's formula for flat sum bonuses (divisor is non-overtime hours worked and multipliers are 1.5 and 2.0). The employer obtained summary judgment in its favor before the trial court and the plaintiff appealed.

On January 14, 2016, the California Court of Appeal in a published decision resolved this conflict when it rejected the DLSE's dual-formula policy and held that the federal formula for computing overtime also applied to flat sum attendance bonuses. The Court of Appeal found that there was no state law or regulation that provides a formula for computing overtime on bonuses (and the provisions in the DLSE Manual, although deserving of consideration, did not have the force of law), and the employer therefore lawfully applied the federal formula. The plaintiff appealed this decision to the California Supreme Court.

However, the California Supreme Court rejected the Court of Appeal's holding and adopted the DLSE's dual-formula. Based on this ruling, the federal formula for computing overtime is no longer permissible if an employee is paid a non-production bonus, such as a flat sum attendance bonus. The Court concluded that the flat sum attendance bonus should be factored into an employee's regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the pay period (as opposed to the total number of hours worked, including overtime) and using a multiplier of 1.5 for overtime hours or 2.0 for double time hours (not 0.5 or 1.0 respectively) to determine the employee's overtime pay due on the bonus. Over defense counsel's strenuous objections, the Supreme Court explicitly held that this new controlling interpretation of the law is to be applied retroactively. 

Note that the Supreme Court distinguished a flat sum attendance bonus with "[o]ther types of nonhourly compensation, such as a production or piecework bonus or a commission, [which] may increase in size in rough proportion to the number of hours worked, including overtime hours, and therefore a different analysis may be warranted." It has therefore suggested that the federal method of calculating overtime on bonuses may still be applicable for production bonuses and commissions. 

In light of the California Supreme Court's decision in Alvarado, all California employers who provide non-discretionary bonuses to their employees must evaluate whether they are in compliance with Alvarado. Your Lewis Brisbois employment law attorney is available to counsel your business on this decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Masuda, Funai, Eifert & Mitchell, Ltd.
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Masuda, Funai, Eifert & Mitchell, Ltd.
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions