In Alvarado v. Dart Container Corporation of California, the California Supreme Court determined how employers must calculate an employee’s overtime pay rate when the employee earns a bonus during a single pay period. While the holding was fairly fact specific, it is a reminder on an often ignored (but critical) issue in California employment law: the computation of an employee’s overtime rate of pay.

Alvarado involved a putative class action filed by a former Dart employee. Plaintiff alleged that he was a member of a group of Dart employees who, in addition to being paid on an hourly basis, also received a $15 per day flat sum “attendance bonus” if they worked on a Saturday or Sunday. The thrust of plaintiff’s complaint was that Dart had improperly factored the attendance bonus into his regular rate of pay, resulting in an improper calculation of his overtime rate of pay and, in turn, an underpayment of overtime pay.

The trial court granted Dart’s motion for summary judgment, which was affirmed by the Court of Appeal. The Supreme Court, however, reversed the Court of Appeal’s decision and found that Dart had used the incorrect calculation in factoring in the attendance bonus. Specifically, the Court held that the flat sum bonus at issue should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period.

In addition to clarifying how flat sum bonuses should be factored into an employee’s regular rate of pay, the Supreme Court also confirmed the value of the Department of Labor Standards Enforcement’s so-called “underground interpretive regulations.” These are regulations that did not comply with the California Administrative Procedures Act.

Dart is important because it informs employers how to factor in flat sum bonuses during a single pay period. Almost as important, however, the case confirms that calculating an employee’s overtime pay rate isn’t always as simple as multiplying the employee’s hourly rate by 1.5 and that there are significant legal consequences for employers making this type of (relatively) small and innocuous error.