In California, calculating overtime pay isn’t just about paying employees time-and-a-half for hours worked beyond 40 in a week. California’s labor laws require employers to include more than just an employee’s base salary when calculating overtime.
Understanding how to factor in these elements is essential for both employers and employees to comply with the law.
What counts as part of regular earnings?
Under California law, regular earnings extend beyond base pay. Commissions, non-discretionary bonuses, and certain allowances all count as part of your regular rate of pay. These additional payments must factor into your overtime calculation.
For example, if you earn a sales commission as part of your job, your commission gets added to your regular earnings when calculating overtime. This means your overtime pay may increase based on these additional earnings.
How to calculate overtime correctly
To calculate overtime correctly, combine your base pay with applicable commissions and bonuses to determine your “regular rate of pay.” Then, calculate overtime by multiplying your regular rate by 1.5 for any hours worked beyond 8 in a day or 40 in a week. For example, if your regular rate is $20 per hour and you earn $500 in commissions in one week, your overtime rate would reflect the higher regular rate that includes those commissions.
Discretionary vs. non-discretionary bonuses
A key factor in determining how bonuses affect overtime pay is whether they are discretionary or non-discretionary. Discretionary bonuses, such as holiday gifts, do not factor into overtime pay calculations. However, non-discretionary bonuses—those tied to performance or set by an employer’s policy—do.
Additional compensation considerations
Other forms of compensation, such as shift differentials or piece-rate pay, also impact overtime calculations. Shift differentials, which provide extra pay for working undesirable hours, must be included in your regular rate of pay for overtime. Similarly, if you’re paid by the piece (e.g., for each unit produced), include that amount in your overtime rate.
Understanding how California law affects overtime calculations helps prevent mistakes and ensures fair compensation for employees.