In a favorable decision for employers, a California court of appeal reversed an Alameda County trial court’s decision in favor of Costco employees and upheld the company’s method of calculating overtime pay for a bonus. In Marin v. Costco, a class action brought on behalf of Costco’s hourly nonexempt employees, plaintiffs challenged Costco’s semi-annual bonus paid to hourly employees. Costco applied a standard formula to calculate the bonus based upon the employee’s number of hours paid (including vacation and other non-work hours). Recognizing the requirement under both federal and California laws to pay overtime pay on top of the bonus amount, Costco calculated the overtime on the bonus by dividing the employee’s bonus by the number of paid hours to determine a regular hourly bonus rate, and then multiplied the number of overtime hours worked during the bonus period by one-half of that regular bonus rate (i.e., regular hourly bonus rate X overtime hours X .5 = overtime pay). Plaintiffs contended that California’s DLSE Manual required Costco to calculate the regular bonus rate by dividing the bonus amount by the number of straight time hours worked during the bonus period, and then multiplying the number of overtime hours by 1.5 times that regular bonus rate (i.e., regular bonus rate X 1.5 times the number of overtime hours = overtime pay), a calculation that would have yielded more overtime compensation. The court rejected plaintiffs’ argument, ruling that the DLSE Manual has no force of law, and held that Costco’s formula complied with California and federal overtime laws. This is a complex decision based upon the specifics of Costco’s bonus formula, and employers are cautioned to consult counsel about their own overtime calculation on bonuses for nonexempt employees.
- How-to guide How-to guide: Overview of US employment law (USA) Recently updated
- How-to guide How-to guide: How to draft the key provisions of an employee handbook (USA) Recently updated
- How-to guide How-to guide: How to draft an employment contract (USA) Recently updated