California overtime law requires that overtime be calculated on the employee’s regular rate of pay — not simply their base hourly wage. The regular rate of pay is a blended rate that includes base wages and virtually all other compensation earned during the pay period. When employers fail to account for that additional compensation, every overtime hour worked during that period is underpaid.
This is one of the most common — and most overlooked — wage violations in California.
What Is the Regular Rate of Pay?
The regular rate of pay is not the same as an employee’s hourly wage. In plain terms, it is a calculation of everything an employee earned during a pay period — not just their base wages — divided by the total hours worked. California law requires that overtime be calculated on this blended rate, not simply on the base hourly wage alone.
Under California law, the regular rate of pay must include:
- Base hourly wages
- Non-discretionary bonuses earned during the pay period
- Commission payments earned during the pay period
- SPIFs (Sales Performance Incentive Funds) and similar incentive payments earned during the pay period
- Piece-rate compensation
- Shift differentials
- Certain other forms of additional compensation
The key word is earned. It does not matter whether the bonus, commission, or SPIF was actually paid during that pay period. If it was earned during the period, it must be factored into the regular rate of pay for that period when calculating overtime.
Why This Matters
Consider an employee who earns $25 per hour and worked overtime during a pay period in which they also earned a $500 performance bonus.
An employer who calculates overtime at $37.50 per hour — one and one-half times the $25 base rate — is almost certainly underpaying. The $500 bonus must be factored into the regular rate of pay calculation, which increases the overtime rate above the simple 1.5x base formula.
Multiply that underpayment across every overtime hour worked during every pay period in which a bonus, commission, or SPIF was earned — and the total owed can be substantial.
Bonuses, Commissions, and SPIFs Are Not Excluded
Employers sometimes treat bonuses, commissions, and SPIFs as separate from overtime calculations. That is often wrong.
Discretionary bonuses — bonuses given at the employer’s sole discretion with no prior promise or expectation — may be excluded from the regular rate calculation. But most bonuses are not truly discretionary. If a bonus is tied to performance metrics, productivity targets, hours worked, or any criteria the employee can influence, it is almost certainly non-discretionary and must be included.
Commission payments earned during a pay period must also be included in the regular rate calculation, even if the commission is paid in a later period.
SPIFs — Sales Performance Incentive Funds — are incentive payments commonly used in retail, technology, and other sales-driven industries. Employers often treat SPIFs as separate from base compensation, but if a SPIF was earned during a pay period in which the employee worked overtime, it must be factored into the regular rate of pay calculation for that period.
California courts have addressed this issue directly. In Martinez v. Sierra Lifestar, Inc., the California Court of Appeal held that an employer’s failure to include a nondiscretionary bonus in the regular rate of pay — affecting overtime, double time, and missed meal and rest break premiums — was a classwide question applicable to all 135 affected workers. One employer’s payroll shortcut became a class action.
This Applies to Salaried Non-Exempt Employees Too
Overtime miscalculation is not limited to hourly workers. Salaried employees who are non-exempt under California law — and who receive bonuses, commissions, SPIFs, or other additional compensation — are subject to the same regular rate of pay rules.
If a non-exempt salaried employee earns a bonus or commission, the regular rate of pay calculation must account for it, and any overtime owed must be recalculated accordingly.
What Employees Should Know
If you receive overtime pay and you also receive bonuses, commissions, SPIFs, shift differentials, or other forms of additional compensation, your overtime may be underpaid — even if your employer has never missed an overtime payment.
The error is not always obvious from a pay stub. Employers may be paying overtime at the correct number of hours while using the wrong rate to calculate what those hours are worth.
ShortLegal evaluates wage-and-hour claims — including regular rate of pay violations — to determine whether an employee has been paid what California law requires.
Time Matters
Wage claims in California are subject to statutes of limitations. The time to bring a claim is limited. If you believe your overtime may have been miscalculated, contact ShortLegal as early as possible.
Phone: 619-272-0720