Court of Appeal: How to Calculate Overtime on a Bonus

The First District Court of Appeal held that Costco properly calculated overtime on a production bonus in Marin v. Costco, opinion here.

I am frequently asked how bonuses and commissions affect overtime calculations. Basically, the "half time" (or whole-time in the case of double-time overtime) is due on the bonus, once the bonus is allocated to the hours that were necessary to generate it. You worked 1000 total hours including 20 overtime hours during a bonus period. The bonus is $2000. The incremental hourly rate is $2000/1000 hours = $2.00 per hour. That is the amount of wages on which no overtime previously was paid. So, you owe: 1/2 * $2.00 per hour * 20 overtime hours worked = $20.00.

Get it? The court of appeal did. That's the federal formula, and the formula the DLSE endorses. The court did not mention that California law endorses the use of federal overtime calculation rules. But it does. The plaintiffs wanted the overtime to be calculated by dividing the bonus over the straight time hours and then paying time and one-half on that figure. That would have resulted in double counting. In addition, it would have ignored the simple fact that the employee had to work all hours to earn the bonus - straight plus overtime.

So, if your eyes are crossed, welcome to wage and hour law. The opinion is linked above. It's got a detailed explanation of the rule and the arguments in favor and against.

Enjoy your holiday!

Greg