Overtime Pay on a Flat Sum Bonus

The California Supreme Court recently clarified how an employer is to pay overtime on single lump sum bonuses. The Court stated that the DLSE’s interpretation of the overtime calculation with the flat sum bonus in a single pay period accurately reflected valid sections of the Labor Code.

In this decision, a flat sum bonus should be factored into an hourly employee’s regular pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period.  The outcome should then be multiplied by the overtime rate (example; 1.5 or time and a half) to get what overtime the employee is owed.

Example

($100 bonus) / 24 actual non-overtime hours worked = $4.17

Overtime from Bonus = $4.17 x 1.5 x 1 overtime hour worked = $6.26

Overtime from Hourly Wages = $10 x 1.5 x 1 overtime hour worked = $15

Total Overtime = $21.26

Total Compensation

$240 regular wages (24 hours x $10)

+ $21.26 overtime wages

+ $100 bonus

$361.26 total pay

To ensure this reflects the most current requirements are being followed, we recommend reviewing your payroll setup such as your custom calculations to determine if updates are required.

Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.