In California, The Regular Rate for Meal and Rest Period Premium Pay and Overtime Are Now Retroactively the Same ArentFox Schiff

For example, must an employee’s reimbursed business expenses be included in the regular rate? What about vacation or holiday pay when the employee is not actually working, or extra pay for working more than eight hours in a day; must those be included in the regular rate? In fact, the FLSA includes eight categories of compensation, set forth in Section 7 of the Act, that may be excluded from calculation of the regular rate of pay. The Final Rule clarifies and modernizes these exclusions, many of which have not been updated for more than 60 years.

Despite the different wording, the https://intuit-payroll.org/ recognized that “regular rate” is a “term of art.” It began by looking at the federal FLSA’s requirement that overtime be based on an employee’s “regular rate,” including remuneration other than just the hourly rate. According to the Court, California’s use of the term “regular rate of pay” for overtime has been understood to have the same meaning. Recall that the FLSA overtime calculation factor is 1.5 times the regular rate of pay for nonexempt employees who work more than 40 hours per workweek. In California, for instance, nonexempt employees who work in excess of a certain number of hours in one workday are entitled to overtime at 1.5 times their regular rate of pay or two times their regular rate of pay, i.e., double time.

Employer Contributions to Benefit Plans

Scenarios where “regular rate of pay” differs from “regular rate of compensation” or “base pay”, include; 1) when an employee is paid two or more rates by the same company, 2) If the employee is paid a flat-sum bonus in addition to an hourly rate of pay, 3) when an employee is paid by a piece-rate or commission system. According to the FLSA, the formula for calculating overtime pay is the nonexempt employee’s regular rate of pay x 1.5 x overtime hours worked. This calculation may differ in states that have requirements, such as double time, which are more favorable to the employee. Other compensation structures that trigger complex “regular rate of pay” calculations include commissions, piece-rate pay, varying hourly rates of pay within a workweek, and hybrids of various categories. Given the complexities and developments of California’s wage and hour laws, please consult experienced counsel with questions to ensure up-to-date practices. State and local laws may mandate payments or penalties paid to an employee when, before or after reporting to work as scheduled, the employee is not provided with the expected amount of work. All such payments or penalties paid to employees that are mandated by such laws and that are not payments for hours worked by the employee are excludable from the regular rate if such penalties are paid or payments made on an infrequent or sporadic basis.

Failure to properly calculate the regular rate of pay can set the stage for a company getting sued on a class or representative basis where potential damages and attorneys’ fees can quickly reach six or seven figure amounts. It also is important to keep in mind that the foregoing is a summary of what is permitted under the FLSA. State and local laws may have different requirements and procedures for calculating the regular rate. Contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees. Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause. Sums paid as gifts; payments in the nature of gifts given during holidays or on other special occasions, or as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency.

Timeliness of overtime payments

The Department did not receive any public comments providing data or information to quantify The Regular Rate savings. The Department expects that these cost savings will outweigh regulatory familiarization costs. Unlike familiarization costs, the potential cost savings described in this section will continue into the future, saving employers valuable time and resources. There are other similar benefit plans that should be expressly included as examples. The Department is further concerned that the NPRM’s example could be read to imply that prearrangement depends on the same employee being regularly called back.

The second category was extra compensation paid pursuant to an applicable employment contract or collective bargaining agreement for work outside of the hours established therein as the normal workday or workweek at a premium rate of one and one-half times the rate paid for like work performed during the workday or workweek. In Ferra, the Lowes Hollywood Hotel employed Jessica Ferra as a bartender and paid her hourly wages as well as a quarterly non-discretionary incentive payment that was attributable to the pay period when meal-period violations may have occurred. Lowes’ practice, however, was to pay employees who were not provided a compliant meal or rest break one hour of premium pay at the employee’s base hourly rate without calculating in the quarterly incentive payment attributable to that pay period.

What is overtime pay?

The term holiday is read in its ordinary usage to refer to those days customarily observed in the community in celebration of some historical or religious occasion; it does not refer to days of rest given to employees in lieu of or as an addition to compensation for working on other days. Under sections 7 and 7, extra premium compensation paid for work on the sixth or seventh day worked in the workweek is regarded in the same light as premiums paid for work in excess of the applicable maximum hours standard or the employee’s normal or regular workweek.

Extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than 1 1/2 times the rate established in good faith for like work performed in nonovertime hours on other days. The employee must receive extra pay for overtime hours worked at a rate no less than one-half times their regular rate of pay. Since the salary is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the employee’s regular rate will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week.

Since the straight-time earnings have already been calculated for all hours worked , the employee is entitled to an additional 10 hours of overtime pay, calculated at one-half the regular rate of pay. The reality is that most – or nearly all – employers in California paid premium pay based on an understanding that paying only the hourly rate or its equivalent was sufficient. Now, withFerra, California employers have a definitive determination that the regular rate used for California overtime purposes applies instead. In some cases, employers also may need to consider whether to determine and address any back liability within the limitations period. The premium pay provisions largely do not cover overtime-exempt employees.

• This generally means they must pay their employees no less frequently than two times per calendar month.
• Contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees.
• In perpetuity, the annualized costs are estimated to be $913,846 using a 3 percent discount rate and $2,132,308 using a 7 percent discount rate.
• One of the most common questions employers have is how to calculate the regular rate for tipped employees.
• A discretionary label is not sufficient alone to guarantee that the payment is truly optional in nature or sufficiently divested from the performance metrics underlying the bonus that otherwise would require inclusion in the regular rate.