“Our Bonus Is Discretionary” — California Overtime Doesn’t Care What You Call It
Most California employers who pay team bonuses call them discretionary. The label feels right. The bonuses are not guaranteed in the offer letter, they fluctuate by quarter, and leadership decides the amount. In practice, that label does very little legal work.
California overtime is calculated on the “regular rate of pay,” and the regular rate is not just the base hourly or salary amount. Under Labor Code section 510 and the applicable Industrial Welfare Commission Wage Orders, the regular rate includes most non-discretionary compensation paid to an employee for work performed. The key word is function, not label.
California courts look past what an employer calls a bonus and examine whether it was tied to attendance, hours worked, sales volume, productivity targets, or company performance metrics. When any of those factors drive the payment, even loosely, courts treat the bonus as non-discretionary compensation that must be folded into the regular rate before overtime is calculated. Calling the bonus a “gift” or a “discretionary award” in the policy language does not change that analysis.
A California appellate court recently revived a proposed class action on exactly this pattern: an employer distributed bonuses broadly across the workforce, tied them to measurable criteria, then excluded them from overtime calculations. The trial court had denied class certification. The appellate court reversed, finding that because the same bonus structure applied uniformly, the employer’s defenses could be evaluated on a class-wide basis, which is the certification standard under California law.
The class-certification angle matters for SMBs. A uniform compensation policy that produces an overtime calculation error does not generate one claim. It generates a claim for every affected employee across every affected pay period. That exposure compounds faster than most owners expect.
The defensible posture is straightforward in principle and harder in practice: audit the bonus program now, before a demand letter arrives. If a bonus is tied to any measurable criteria, assume it must be included in the regular rate. Rebuild the overtime calculation. Determine whether a gap exists. Document the analysis.
If you want to know where your business stands, contact Michael Trust Law for a no-charge initial consultation. The facts determine what needs to be addressed — and how much of a conversation that takes.
This post shares general information based on common patterns I see in California workplaces. It is not legal advice, does not create an attorney-client relationship, and outcomes depend on specific facts. No lawyer can guarantee a result. Past results do not guarantee or predict future outcomes. AI may have been used to create this post. All content reviewed by a CA attorney before publication.