“Detention is Killing Us” Say Carriers

By Brett Strauss, General Counsel, SDP Payroll

Due to the new rules and regulations created by California AB-1513 (Piece-Rate Legislation), a few employers in the transportation industry have reached out to SDP to get our opinion on potentially abandoning piece-rate compensation all together and adopting a new compensation structure that includes an hourly rate and a flat sum bonus. The feedback that I’ve received is that most employers feel that their employees are going to resist the change from piece-rate to hourly so a flat sum bonus could be implemented as a way to keep the employee wages in the same “ballpark.”

Employers that do choose to adopt a compensation plan that includes a flat sum bonus must be aware that currently, there is a difference of opinion between the FLSA and California as to how an employee’s rate of overtime pay should be calculated under this type of compensation structure.

Alvarado v. Dart Container Corp. of California, CA Supreme Court review granted, May 11, 2016
The Supreme Court of California recently granted to review to determine the proper method for calculating the rate of overtime pay when an employee receives both an hourly wage and a flat sum bonus. Should the employer follow the FLSA regulations, or those set forth by the California DLSE?

The Court of Appeals concluded that the defendant’s calculation was consistent with the FLSA, and that because California law does not specify a formula for overtime applied to bonuses, the defendant’s methodology was permissible. In the absence of a state law or regulation providing an alternative formula, the defendant was permitted to follow federal law. The FLSA and California law do not differ substantially on this issue. We’ll now have to wait to see if the California Supreme Court agrees.

 In this case, the defendant employer paid employees an “attendance bonus” of $15 per day for every employee who was scheduled for and worked a full weekend shift. The dispute arose over the proper method for calculating overtime attributable to the bonus payment. Defendant followed the methodology set forth in the federal regulations, while Plaintiff contended the company should have followed the methodology set forth in the DLSE Manual.

 What’s the difference you might ask?

Assume an example of an employee who earned $15 per hour and then worked 90 hours in a pay period, 10 hours of which constituted overtime. The employer paid the employee $60 in attendance bonuses for the pay period.

Under the FLSA methodology, the calculation would be as follows:

(1) Regular Rate of Pay: (Total straight time owed for all hours worked + bonuses for period) /

(total hours worked during period)

(90 hours x $15 per hour = $1,350 straight time pay) + ($60 in bonuses) = $1,410

$1,410 / 90 hours worked = $15.67/hour RROP

 

(2) Overtime pay owed: (Overtime hours worked x RROP x 0.5)

(10 x $15.67 x 0.5) = $78.35

 

(3) Total Compensation owed for period:

$1,350 straight time + $60 bonuses + $78.35 OT = $1,488.35

 

Under the DLSE methodology, the calculation would be as follows:

(1) Total Straight Time: (Total regular hours times hourly rate)

(80 hours x $15) = $1,200

 

(2) Total Overtime for Hours Worked: (OT hours by OT rate)

(10 x $15 x 1.5) = $225 overtime

 

(3) Additional OT Payment Attributable to Bonus: (Bonus / straight time hours) x 1.5 x OT Hours

($60/80 x 1.5 x 10) = $11.25 overtime owed based on bonus

 

(4) Total Compensation owed for period: (Pay for straight time + bonus + overtime pay on overtime hours + overtime pay on bonus)

($1,200 + $60 + $225 + $11.25) = $1,496.25

 

For more information, you may contact Brett R. Strauss, Esq., General Counsel at SDP Payroll at (909) 257-9017 or Brett.Strauss@sdppayroll.com.  Please visit SDP’s website for additional employment law updates and free HR/Employer Solutions seminars.

 

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