California wage and hour law requires employers to provide non-exempt employees with overtime pay when they work over a certain number of hours. Overtime is based on the “regular rate of pay.” Employers who miscalculate the regular rate of pay may owe employees back pay plus interest.
Employers must also run payroll according to certain pay periods in California. This generally means they must pay their employees no less frequently than two times per calendar month.
Below, our California employment law attorneys discuss the following frequently asked questions about how the regular pay rate affects overtime pay for California employees:
- 1. What is the “regular rate of pay”?
- 2. Why do you need to know the regular rate of pay?
- 3. What payments are included in the regular rate of pay?
- 4. How is the regular rate of pay calculated?
- 5. What happens if my employer miscalculated my regular rate of pay?
The “regular rate of pay” is used as the basis for calculating overtime pay for nonexempt employees in California. Overtime is paid at 1 ½ times to 2 times the regular rate of pay. When the regular rate of pay is not calculated correctly, the employee may not be receiving the correct overtime pay rate.1
The regular rate of pay may also be used as the basis for calculating California paid sick leave.2
The regular rate of pay may include more than the employee’s hourly salary. According to the California Labor Code, “wages” include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission pay basis, or other method of calculation.”3
You need to know the regular rate of pay to make sure your overtime and sick leave are paid at the correct amount. A small miscalculation of the regular rate of pay could result in a smaller paycheck. Employers may try and use an incorrect method to calculate the regular rate of pay to pay employees less for working overtime.
According to California labor laws, non-exempt employees who are not part of an alternative workweek schedule earn overtime if they work more than:
- eight (8) hours in a single workday,
- forty (40) hours in a single workweek, or
- six (6) days in a single workweek.4
Overtime is generally paid at one and one-half times the worker’s regular hourly rate of pay. However, work in excess twelve (12) hours in a single workday, or in excess of eight (8) hours on the seventh day of a workweek is paid at double the worker’s regular hourly rate of pay. 5
California Paid Sick Leave
According to the California Labor Code, paid sick leave may be calculated using any of the following:
- Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.
- Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.
- Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.6
Overtime pay requirements generally apply to non-exempt employees under California labor laws. This includes “persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis.”7
However, there are a number of workers who may not fall within the standard overtime requirements for non-exempt employees. This may include exempt employees, independent contractors, and unionized employees in certain industries.
Exempt employees include executive, administrative, and professional employees. In order to be considered an exempt employee in California, employees must meet the following requirements:
- Spend more than one-half of their work time performing intellectual, managerial or creative work;
- Customarily and regularly exercise discretion and independent judgment in performing those job duties; and
- Earn a monthly salary equivalent to at least twice the California minimum wage for full-time employment.8
According to the Fair Labor Standards Act (FLSA), “the ‘regular rate’ at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee.”9
Piece rates and production bonuses are included in determining the regular rate of pay.10
The regular rate of pay also includes housing benefits, meals, and other goods or facilities received by the employee.11
However, there are a number of payments that are generally excluded from determining the “regular rate.” This includes:
- Sums paid as gifts
- Payments in the nature of gifts made during holidays
- Payments as a reward for service which are not based on hours worked, production, or efficiency
- Reasonable payments for traveling expenses
- Contributions irrevocably made by an employer to a trustee or third person as part of a retirement plan, or insurance benefit for employees
- Some extra compensation provided by a premium rate paid for excess hours worked
- Certain value or income derived from employer-provided stock option or stock purchase grants or rights12
In no case can the regular rate of pay be lower than the applicable minimum wage. It is illegal for an employer in California to pay employees less than the minimum wage.13
Workers’ compensation may be based on hourly pay, salary, piece compensation, production bonus, or commission.
Hourly Pay Workers
For employees who are paid on an hourly basis, the regular rate of pay is the same as the hourly pay rate.14
Example: Elena works as a part-time legal secretary, working about 30-hours per week. Elena is paid at a rate of $20 per hour. Elena’s employer asks her to work late one night to prepare for a trial. Elena ends up working for 11 hours on that day. Overtime for the extra 3 hours of work will be calculated at one and one-half (1 ½) times Elena’s regular rate of $20 per hour.
The regular rate of pay for salaried workers is calculated according to the following:
Multiply the monthly remuneration by 12 (months) and divide by 52 (weeks) = weekly remuneration. Divide the weekly remuneration by the number of legal maximum regular hours worked = regular hourly rate.15
In most cases, the maximum regular hours is 8 hours per workday and 40 hours per workweek. Workers with an alternative workweek schedule of four 10-hour days or three 12-hour days generally do not affect the regular rate of pay, which would be based on 40 hours per workweek.
Example: Ian works at an insurance company as a salaried, non-exempt employee. Ian is paid an annual salary of $50,000, with a production bonus of $2,000. Ian’s employer has Ian come in to work extra hours on the weekend because of a local farmer made an insurance claim after a barn was burned down.
Ian’s regular rate of pay is calculated based on the following:
Annual salary $50,000 plus production bonus of $2,000 = $52,000 annual remuneration. $52,000 divided by 52 (weeks) = $1,000 weekly remuneration. Weekly remuneration $1,000 divided by 40 (legal maximum regular hours per week) = $25 regular hourly rate.
Any overtime worked by Ian over his standard 40-hour workweek will be calculated at one and one-half (1 ½) times Ian’s regular rate of $25 per hour.
Piece Workers, Production Bonus Workers or Commission Workers
For piece workers, production bonus workers, or commission workers, the regular rate of pay is generally calculated based on the following:
For commission workers, divide the total earnings for the week (including earnings during overtime hours) by the total hours worked during the week, including the overtime hours.16
For piece rate workers, the regular rate of pay is calculated by adding together the total earnings from the workweek from piece rates and all other sources, then divided by the number of hours worked in the week for which compensation was paid.17
California employees may file a wage and hour lawsuit against employers for miscalculating overtime pay. Successful wage and hour class action lawsuits often involve failure to correctly calculate the regular rate of pay for overtime.
A successful claim against an employer for unpaid overtime or miscalculated overtime can result in damages for unpaid overtime compensation, interest, and attorney’s fees and court costs.19
Call us for help…
For questions about calculating the regular rate of pay in California or to discuss your case confidentially with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Shouse Law Group.
We have local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.
- Labor Code 510 LC — Day’s work; overtime; commuting time. (“(a) Eight hours of labor constitutes a day’s work. Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee. Any work in excess of 12 hours in one day shall be compensated at the rate of no less than twice the regular rate of pay for an employee. In addition, any work in excess of eight hours on any seventh day of a workweek shall be compensated at the rate of no less than twice the regular rate of pay of an employee. Nothing in this section requires an employer to combine more than one rate of overtime compensation in order to calculate the amount to be paid to an employee for any hour of overtime work. The requirements of this section do not apply to the payment of overtime compensation to an employee working pursuant to any of the following: (1) An alternative workweek schedule adopted pursuant to Section 511. (2) An alternative workweek schedule adopted pursuant to a collective bargaining agreement pursuant to Section 514. (3) An alternative workweek schedule to which this chapter is inapplicable pursuant to Section 554.”)
- Labor Code 246 LC — Payment of Wages; Paid Sick Days.
- Labor Code 200 LC — (“As used in this article: (a) “Wages” includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.”)
- Labor Code 510 LC — Day’s work; overtime; commuting time, see endnote 1 above.
- Labor Code 246 LC — Payment of Wages; Paid Sick Days. (“(l) For the purposes of this section, an employer shall calculate paid sick leave using any of the following calculations: (1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek. (2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. (3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.”)
- 8 C.C.R 11040 contains provisions on meal and rest periods. (“1. Applicability of Order This order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis, except that: (A) Provisions of sections 3 through 12 shall not apply to persons employed in administrative, executive, or professional capacities.”)
- Labor Code 515 LC — Exemptions from overtime law. (“(a) The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid pursuant to Sections 510 and 511 for executive, administrative, and professional employees, if the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. The commission shall conduct a review of the duties that meet the test of the exemption. The commission may, based upon this review, convene a public hearing to adopt or modify regulations at that hearing pertaining to duties that meet the test of the exemption without convening wage boards. Any hearing conducted pursuant to this subdivision shall be concluded not later than July 1, 2000.”)
- 29 USC § 207 (“(e) “Regular Rate” Defined. As used in this section the “regular rate” at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee…”)
- 29 CFR §§ 778.110 (“production bonus”) and 778.111 (“piece-rate”)
- Walling v. Youngerman-Reynolds Hardwood Co. (1945) 65 S.Ct. 1242, 1245. (“The regular rate by its very nature must reflect all payments which the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments. It is not an arbitrary label chosen by the parties; it is an actual fact. Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary ‘regular rate’ in the contracts.”)
- 29 USC § 207 (“(e) “Regular Rate” Defined. As used in this section the “regular rate” at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee, but shall not be deemed to include—(1) sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency; (2) 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; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment; (3) sums paid in recognition of services performed during a given period if either, (a) both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly; or (b) the payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift or savings plan, meeting the requirements of the Administrator set forth in appropriate regulations which he shall issue, having due regard among other relevant factors, to the extent to which the amounts paid to the employee are determined without regard to hours of work, production, or efficiency; or (c) the payments are talent fees (as such talent fees are defined and delimited by regulations of the Administrator) paid to performers, including announcers, on radio and television programs; (4) 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; (5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day of workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) or in excess of the employee’s normal working hours or regular working hours, as the case may be; (6) 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 one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days; (7) extra compensation provided by a premium rate paid to the employee, in pursuance of an applicable employment contract or collective-bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection (a), where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek; or (8) any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program which is not otherwise excludable under any of paragraphs (1) through (7) if—(A) grants are made pursuant to a program, the terms and conditions of which are communicated to participating employees either at the beginning of the employee’s participation in the program or at the time of the grant; (B) in the case of stock options and stock appreciation rights, the grant or right cannot be exercisable for a period of at least 6 months after the time of grant (except that grants or rights may become exercisable because of an employee’s death, disability, retirement, or a change in corporate ownership, or other circumstances permitted by regulation), and the exercise price is at least 85 percent of the fair market value of the stock at the time of grant; (C) exercise of any grant or right is voluntary; and (D) any determinations regarding the award of, and the amount of, employer-provided grants or rights that are based on performance are—(i) made based upon meeting previously established performance criteria (which may include hours of work, efficiency, or productivity) of any business unit consisting of at least 10 employees or of a facility, except that, any determinations may be based on length of service or minimum schedule of hours or days of work; or (ii) made based upon the past performance (which may include any criteria) of one or more employees in a given period so long as the determination is in the sole discretion of the employer and not pursuant to any prior contract.”)
- Labor Code 1197 LC — Payment of lower wage than minimum wage. (“The minimum wage for employees fixed by the commission or by any applicable state or local law, is the minimum wage to be paid to employees, and the payment of a lower wage than the minimum so fixed is unlawful. This section does not change the applicability of local minimum wage laws to any entity.”)
- 29 CFR 778.110 — Hourly rate employee. (“(a) Earnings at hourly rate exclusively. If the employee is employed solely on the basis of a single hourly rate, the hourly rate is the “regular rate.” For overtime hours of work the employee must be paid, in addition to the straight time hourly earnings, a sum determined by multiplying one-half the hourly rate by the number of hours worked in excess of 40 in the week.”)
- Labor Code 515 LC — Computing Overtime Rate. (“(d)(1) For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee’s regular hourly rate shall be1/40th of the employee’s weekly salary.”)
- 29 CFR 778.118 — Commission paid on a workweek basis. (“When the commission is paid on a weekly basis, it is added to the employee’s other earnings for that workweek (except overtime premiums and other payments excluded as provided in section 7(e) of the Act), and the total is divided by the total number of hours worked in the workweek to obtain the employee’s regular hourly rate for the particular workweek. The employee must then be paid extra compensation at one-half of that rate for each hour worked in excess of the applicable maximum hours standard.”)
- 29 CFR 778.111 — Pieceworker. (“Piece rates and supplements generally. When an employee is employed on a piece-rate basis, the regular hourly rate of pay is computed by adding together total earnings for the workweek from piece rates and all other sources (such as production bonuses) and any sums paid for waiting time or other hours worked (except statutory exclusions). This sum is then divided by the number of hours worked in the week for which such compensation was paid, to yield the pieceworker’s “regular rate” for that week. For overtime work the pieceworker is entitled to be paid, in addition to the total weekly earnings at this regular rate for all hours worked, a sum equivalent to one-half this regular rate of pay multiplied by the number of hours worked in excess of 40 in the week.”)
- Labor Code 1194 LC — Action to recover minimum wage, overtime compensation, interest, attorney’s fees, and costs by employee. (“(a) Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.”)