Have you turned a blind eye to how you calculate your employees’ overtime or additional compensation? On March 5, 2018, the California Supreme Court ruled on how employers are required to calculate overtime, specifically in regard to flat-sum bonuses. RTR Consulting gives you the details about the new overtime ruling and what it means for your business.
A Look at the Law
According to California law, non-exempt employees are required to receive overtime. Rather than the overtime being based on the employee’s normal hourly pay, it must be based on what is called their “regular rate of pay.” The State of California Department of Industrial Relations (DIR) defines this term as, “…the compensation you normally earn for the work you perform. The regular rate of pay includes a number of different kinds of remuneration, such as hourly earnings, and commissions.”
Examining a Specific Case
Alvarado v. Dart Container Corp. of California is a case that demonstrates an employer using the formula incorrectly to calculate its employees’ overtime compensation. Alvarado argued that overtime is calculated differently to comply with the state’s standards. The California Supreme Court ruled in his favor because the fixed amount calculated was not relevant to the number of overtime hours worked.
For non-exempt employees, California now requires an employer to calculate overtime with a different equation. The DIR provides various formulas on their website to help employees and employers calculate their correct “regular rate of pay” based on their specific situation and wages. The Supreme Court’s ruling may further affect how overtime is calculated in California, which is why it is crucial to review your payment plan if you offer additional compensation to employees.
The Real Costs
There are costs associated with inappropriately handling employee pay. One of the most common consequences is a lawsuit, which is expensive even in victories. They can also deteriorate employee morale and retention, adding more complications to running your business and retaining employees. It can be difficult to stay informed on the latest changes in California law when you are focused on trying to successfully manage your company. Your business should not have to budget for making these types of mistakes, especially when it comes to paying your employees fairly under state law.
RTR Consulting has more than 20 years devoted to developing effective and efficient Human Resources policies, procedures, and best practices for small to medium-sized businesses. Contact us today to learn more about how to protect your business with changing legislation.
Stay tuned for next week’s blog to get a better understanding of the Supreme Court’s new perspective on Fair Labor Standards Act (FLSA) Exemptions.