When employers calculate overtime, and what the regular rate will be for the overtime, they must ensure that they include all “extra” payments, like commissions, or earned or promised bonuses, when they pay the overtime.  Failure to do so is a violation of the Fair Labor Standards Act.  To prove the point (hopefully not!), Quest Diagnostics has been hit with a class action overtime suit filed on that very theory.

The named lead plaintiff alleges that the Company failed to properly pay hundreds of hourly workers by not including automatic incentive payments in their overtime rate calculations.  The case is entitled Avila v. Quest Diagnostics Clinical Laboratories Inc. et al., and was filed in federal court in the Central District of California.

The named plaintiff, a referral assistant and testing assistant at the Company’s West Hills, California, location claimed that she typically worked more than forty hours per week.  She alleges that when she was paid overtime, her non-discretionary payments bonuses, such as “Recognition Quest” and “Goal Sharing Bonus” were not included when figuring out her regular rate of pay, thereby violating state law and the Fair Labor Standards Act.  She claims in the Complaint that the “defendants regularly and systematically, as a policy and practice, miscalculated the overtime rate of pay by failing to properly include the various forms of incentive pay paid to plaintiff.”

The named plaintiff claims that there are more than five-hundred people in the class and that there were common policies or practices that applied to all class members.  The lawsuit alleges violations of the FLSA and California law, as well as state Counts alleging a failure to timely pay wages upon separation and violations of the California Unfair Competition Law.

The Takeaway

These kinds of lawsuits can sneak up on an employer.  It is a nuance of FLSA law that these payments, often small, must be included for regular rate purposes.  On a weekly basis, the extra money for employees is not that much and is financially manageable.  But, if these inclusions are not effected then, over a two (or three year) look back period and for up to five hundred employees, the amounts that could be due are staggering (plus liquidated damages and attorney fees).  I recently settled such a case, early on in the litigation, and the sums due were significant.

The lesson to be learned is a simple one—other than for discretionary (and that is a term of art) bonuses, all sums employees derive from their employment, that are promised to them or are found in employer policies (e.g. commission, attendance bonus) must be included when computing their regular rate in overtime weeks.  It may be a tedious chore, but a chore that will prove far less aggravating than dealing with a FLSA collective action.

Pay a little now, or pay a lot more later…