The $1,150 Salary, a Bonus-Weighted Regular Rate, and Two Final Paychecks
Northbay Marketing has 55 employees in San Rafael. Its 'Account Coordinator' earns $1,150 per week and is classified exempt; the role spends roughly 70% of the time processing client work orders and formatting status reports into a prescribed template, with no authority over hiring, pricing, or policy. 'Campaign Associates' earn $20.00 per hour plus a $150 weekly team performance bonus announced each quarter and paid whenever the team hits its target, and a separate $500 holiday bonus the owner decides on each December. One associate worked 9 hours Monday through Thursday and 8 hours Friday last week and received the $150 bonus. The Account Coordinator gave four days' written notice yesterday; a second associate was terminated Friday at 4:00 p.m. after the payroll clerk had gone home for the weekend.
1. Evaluate the Account Coordinator's exempt classification and describe the practical consequences of getting it wrong.
Read the worked answer
Salary threshold. An exempt employee in California must be paid at least twice the state minimum wage for full-time work, a figure that adjusts every January (recent thresholds have been in the range of roughly $1,280 to $1,350 per week depending on employer size and year). At $1,150 per week the position fails the threshold under any recent figure, and failing it means the employee is non-exempt regardless of duties.
Duties test. Independently, the employee must be primarily engaged in exempt-level work. Here about 70% of the time is order processing and templated reporting - production work that the exemption does not cover. The duties test also fails.
Consequences.
- Overtime is owed for all hours over 8 in a day and over 40 in a week for the past three years (four under the Unfair Competition Law), plus meal and rest premiums if breaks were compromised.
- Waiting time penalties for anyone who separated, plus wage statement penalties and PAGA exposure.
- Check whether pay was ever docked for partial-day absences; improper deductions undermine the salary basis for any other employees classified as exempt.
- The fix is not simply raising the salary above the threshold - the duties test still fails, so the role should be reclassified, converted to hourly, or genuinely restructured to include exempt-level responsibility.
Audit every similarly titled role before making a change to one, so the company does not create a single-employee discrimination argument.
2. Calculate the Campaign Associate's correct overtime for the week and explain how the bonus affects the math. What about the December holiday bonus?
Read the worked answer
Step 1 - Total hours and overtime hours. Monday through Thursday at 9 hours each plus 8 on Friday = 44 hours. Daily overtime is 1 hour on each of four days = 4 hours. Hours over 40 in the week = 4, and those are the same hours already counted, so total overtime hours = 4 (no double counting), with 40 straight-time hours.
Step 2 - Regular rate. The nondiscretionary $150 team bonus is included in the regular rate for the week it was earned:
- Direct wages: 44 x $20.00 = $880.00
- Plus bonus: $150.00
- Total straight-time compensation: $1,030.00
- Regular rate: $1,030.00 / 44 = $23.41 per hour
Step 3 - Overtime premium. Because all 44 hours were already paid at $20.00, the additional half-time premium is owed:
- 4 hours x ($23.41 / 2) = $46.82
Total compensation for the week is $1,030.00 + $46.82 = $1,076.82.
Common errors to avoid. Paying overtime at 1.5 x $20.00 = $30.00 and ignoring the bonus understates the premium. Conversely, dividing the full bonus by 44 and multiplying by 1.5 (rather than 0.5) double-pays the straight-time portion already included in the $880.00.
December holiday bonus. A bonus is excludable from the regular rate only if it is truly discretionary - no promise, no established formula, no prior practice of routine payment. If the owner pays $500 every December regardless of results, it has become expected and must be included, allocated over the period it is attributable to. If it is genuinely determined each year at the owner's sole discretion, it may be excluded. Document which it is.
3. What are the final pay deadlines for the resigning Account Coordinator and the terminated associate, what must be included, and what happens if payroll misses them?
Read the worked answer
Resignation with four days' notice. She gave more than 72 hours' notice, so her final wages are due at the time of separation - her last day worked, not the next payday.
Termination. Final wages are due at the moment of termination. Waiting until the next regular payday because the payroll clerk left early is a violation; the person who conducts a termination must have the final check (including the other employees' checks) available or be able to issue same-day pay.
What must be included. All wages earned through the final day, including unpaid overtime, unused vested vacation (vested vacation is wages and cannot be forfeited), and any premiums owed for missed meal or rest periods. For the Account Coordinator, if the exempt classification is corrected, the final check must include overtime computed at her correct regular rate for all hours over 8 in a day and 40 in a week; her daily rate is derived from that regular rate.
Penalties for missing the deadline. Waiting time penalties continue at the employee's daily rate of pay for up to 30 calendar days, on top of the wages owed, plus wage statement penalties under Labor Code 226 if the final stub is inaccurate. Willfulness is presumed where the employer simply had no process; the penalties are not reduced by paying late after a complaint.
Practical controls: pre-fund final checks, keep a signature-ready final check list, and never let a scheduled termination depend on payroll's calendar.