I just attended another HR legal update this week and, yet again, learned something new. If you didn't already realize it, California law may say one thing but the outcome in court cases are constantly giving us new ways to comply.

According to a 2007 California Supreme Court ruling, bonuses must be part of your overtime pay calculation. The exception was if the bonus met the regulatory definition of discretionary bonus … which is not that easy to meet. If you have a plan where an employee can expect to earn X dollars or percentage based on certain criteria, then you probably don't have a discretionary bonus plan.

So what does this mean? If your hourly employees work overtime, you need to pay that overtime based on both their hourly rate and earned bonus amount. Here's an example of this: your non-exempt employee earns $50,000 for the year and periodically works overtime hours. There is also a $10,000 end-of-year bonus based on goals. The overtime rate would be calculated on the $50,000 plus the $10,000.

This means the $50,000 (if the employee was full-time) would be $24.04/hour and typically the overtime hours would be paid at $36.06 (1.5 times that hourly rate). However, since the bonus is "expected" you instead pay the overtime hours at $43.27 ($60,000 broken down to an hourly rate and then 1.5 times that rate). This calculation is called "expected" wages.

I know, confusing and a real pain to calculate! However, if an employee ever takes you to court for non-payment of full wages, you'll likely get hit for this if you don't consider bonuses. As a side note, this doesn't affect exempt employees since they don't get overtime pay.

Of course if you prefer to have a discretionary bonus plan that wouldn't fall into "expected" wages, I highly recommend you have an employment attorney review your plan to make sure it meets the regulatory definition. Or you could hide a few $100 bills around the office and tell your employees that if they find one, it's their discretionary bonus. However, that might have a negative effect on productivity since the employees would spend all their time on the hunt.