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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
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Experience:  Significant experience in all areas of employment law.
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I am in California, we are planning to set up "Efficient Bonus

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I am in California, we are planning to set up "Efficient Bonus Plan" for our hourly pay employee, for example:
$8.00/Hr base rate, $2.00/Hr efficient bonus which will py employee if he or she finish work within 8 hours, and it will be deducted(against) overtime payment. If employee worked 50 hours week, and will be paid $8.00 x 40hrs+$12 x 10=$440.00
Efficient bonus: $2. x 40hrs - $4.(OT)x10=$40.00
Total pay: $440+$40=$480.00
Please advise if this plan is legal in California.

Good morning and thank you for entrusting me to assist you. My name is XXXXX XXXXX I will do everything I can to answer your question.

California law is extremely protective of an employee's right to overtime and hostile toward any policy by which overtime is "offset" by another form of compensation. By way of example, the Legilslature just amended Labor Code 515 for 2013 to now prohibit "flat rate" daily pay that takes into account earned overtime, even if the employee agrees in advance that their flat pay takes it into account, and even if the flat rate pay amonts to more than minimum wage plus overtime the employee otherwise would have earned. (See also Arechiga v. Dolores Press (2011) 192 Cal.App.4th)

Obviously, you are not proposing a "flat rate" daily pay structure, but you are proposing a pay structure that partially offsets an employee's right to overtime. Given the obvious parallel to flat pay that offsets overtime which has now been expressly outlawed in California, the bonus structure you have desribed would most likely be found unlawful if ever scrutinized by a CA court. For this reason, I think it would be a bad idea to employ the sort of policy you have described.

A much better policy would be to keep the bonus purely discretionary and separate from any overtime obligations that may accrue. Maintaining full discretion to award the bonuses (rather than tying them to specific performance goals and guaranteeing specific amounts) will still enable you to pay the employees what is an essentially predetermined total daily rate (you can make the bonus as large or small as you want to reach the pay level you deem appropriate), but you will not run into legal problems with "offsetting" overtime, since you are still paying overtime in accordance with the law and just adding a bonus--in whatever amount you determine is appropriate--on top of that as a performance incentive.

I realize that from your perspective, the distinction between your compensation structure and the one I have just described may not seem signifiant, but I can assure you that from a legal perspective it absolutely is.

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes and kindest regards.

I just wanted to check in with you since this question is still open. Can I provide any clarifciation with regard to the above? If so, please let me know and it will be my pleasure to assist you further.
Customer: replied 3 years ago.

Yes, please.


And I also would like to know if the efficient bonus plan was legal before 2013 in California? please advise

Thank you for your reply, Song. It is my pleasure to assist you further.

The amendment to Labor Code 515 that prohibits flat rate pay agreements taking into account overtime did not go into effect until 2013, but it was the legislature's reaction to the Arechiga v. Dolores Press case from two years prior. In other words, courts were applying the same reasoning two years before actual amendment of the law, and so it is reasonable to assume courts would have reached the same conclusions regarding the legality of your proposed compensation structure since 2011.

Again, please feel free to let me know if you have any further concerns. Have a wonderful evening.

Customer: replied 3 years ago.

Hi Patrick,


Thank you for your prompt answer.


We also plan to set pcs rate for our production employee inside the pant and outside field, please advise how do we do to exemption from overtime pay.




Thank you again. Since this is a separate question, site rules require it to be asked separately in a new question thread, but I am happy to provide a brief answer here.

If by "pcs rate" you mean "piece rate," (as in, a specific amount of money for each unit produced or action performed), there is no overtime exemption for piece rate production employees. You will need to pay overtime calculated in one of the two following ways:

First and less common would be to pay 1.5 times the meployee's piece rate for each item/unit produced during overtime hours. That is, if the employee is paid $1.00 per widget they make, then you could pay $1.50 per widget for widgets produced after the employee has worked 8 hours in the day or 40 hours in the week.

The problem with this method and the reason most employers avoid it is that it requires the employer to track when each piece is produced. In addition, if pieces take a long time to produce, it can mean that the overtime rate is paid for the entire piece, even though only a portion was worked in overtime hours.

The more common way of paying overtime for piece rate work is by computing the employee's "regular rate of pay." The general rule for computing the regular rate of pay for piece work is that you take the total compensation that the employee is paid during a week and divide it by the total number of hours worked in that week. This rate is the employee's "regular rate of pay" on which overtime is computed.

I hope this helps clarify. If I have answered your questions, I would be very grateful for a positive rating so that I may receive credit for my efforts. Very best wishes to you.

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