What is the Regular Rate of Pay?
Most employees in California are aware of their rights to overtime. All hours worked in excess of 8 hours in a day, 40 in a week, and the first 8 hours on the seventh consecutive day of work; are paid at 1 and 1/2 times what they typically earn. What most employees do not know is that overtime is not paid at 1 and 1/2 times your base hourly wage, but is in fact paid at your "regular rate of pay."
The "regular rate of pay" ("RRP") is a formula used as the basis for calculating overtime pay for non-exempt employees in California. When this pay is not calculated correctly, the employee is not receiving the correct overtime pay rate and could potentially be entitled to significant back pay. According to the Fair Labor Standards Act ("FLSA"), the Regular Rate of pay includes all remuneration for employment paid to, or on behalf of, the employee. Think not just of your hourly rate, but all wages you receive for your labor. The California Labor Code defines wages as all amounts for labor performed by employees if every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission pay basis, or another method of calculation.
The RRP includes your base wage rate, piece rates, production bonuses, housing benefits, meals and other goods or facilities received by the employee. However, not everything is included in the RRP. For example, the following are typically excluded from the RRP calculation:
- discretionary bonuses;
- payments in the nature of gifts made during holidays;
- payments as a reward for service not based on hours worked, production or efficiency;
- contributions by the employer to a trustee or third person as part of a retirement plan, or insurance benefit for employees;
- premium rates for overtime or double time; or
- employer provided stock options or purchase grants.
How do we Calculate the RRP?
In most cases, the regular rate is calculated by adding all “remuneration” for employment (i.e., all compensation and earnings), except statutory exclusions, in any workweek divided by the total hours worked by that employee in the workweek.
For an hourly employee, the RRP is typically the same as the hourly pay rate.
For example, if you were paid at $25 per hour and worked 40 hours in a workweek, you would receive $1000 in wages. For this week, the RRP would be $25. If you were to work an hour of overtime, that overtime would be compensated at $37.5 per hour.
However, If in that same week you received a production bonus of an additional $400, bringing a total of $1,400 for the week, but you still worked only 40 hours, your RRP would be $35 per hour. If you worked a single hour of overtime this week, your overtime should be paid at $52.5 per hour.
Same 40 hour week, same $25 per hours, no production bonus but your employer decides to provide you with a $400 Christmas bonus which you were not expecting. How would this change your RRP for the purpose of overtime calculations? It wouldn't. Discretionary bonuses or gifts are not included in the RRP calculation. Now whether these payments ar discretionary or non-discretionary is where the calculation gets tricky.
Non-Exempt Salaried Employees
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.
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.
For piecework employees, or those paid on a production basis (i.e. per unit or per delivery), 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.
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. California highly regulates the payment of commissions which effect when the RRP of truly calculated.
Discretionary v. Non-Discretionary Bonuses
As stated above, discretionary bonuses are not included in the RRP and non-discretionary bonuses are included. Meaning if you had a reasonable expectation to receive the bonus, it was most likely a nondiscretionary bonus. If the bonus came as a surprise to you, it was likely a discretionary bonus.
When challenged on RRP claims, employers will always attempt to defend all payments made as discretionary bonuses that did not need to be included in the RRP. But to be considered discretionary, the employer must retain sole discretion to the fact that the payment is to be made and the amount of the payment. The payment must be determined at or near the end of the period for which the bonus is paid and without any prior promise or agreement to pay that amount to its employees. For example, if the employer announces every year that bonuses are given on December 1st in the amount of 40 hours wages, then this can be expected and will need to be included in the RRP. The employer since announcing this bonus each year has abandoned any discretion with regard to paying the bonus. It is expected from his or her employees.
An employer calling a bonus discretionary is not a sufficient basis for claiming that it was truly discretionary in nature or divested from the performance, benefits or expectations of employees.
Non-discretionary bonuses are designed to incentivize employees to perform longer hours or with higher efficiency and quality. Bonuses paid under contract or promise are non-discretionary.
When Else Does the Regular Rate of Pay Apply?
- Overtime - All overtime hours worked are typically time and one half or double your RRP, not just your straight time pay. However, if you are a Union employee subject to a valid Collective Bargaining Agreement your Union representative may have negotiated away the RRP for a premium on your straight time wages. You would need to consult your Collective Bargaining Agreement for the final determination.
- Meal Period Premiums - If you fail to take a compliant Meal period (lunch break) as a non-exempt employee, you will be entitled to a one hour premium at your RRP.
- Rest Period Premiums - If you fail to take a compliant rest period (rest break) as a non-exempt employee, you will be entitled to a one hour premium at your RRP.
- Paid Sick Leave - Your California Paid sick days are payable at the RRP.
What Happens if my Employer is Not Paying Overtime at the Regular Rate of Pay?
You should first bring this fact to the attention of your employer and provide them an opportunity to cure the issue, give you the back pay that you have already earned, and avoid creating an uncomfortable situation where you either feel bitter for being underpaid or your employer is completely unaware they have underpaid you. If your employer refuses to make you whole, you have the opportunity to file a wage and hour lawsuit against your employer. A successful claim against your employer for unpaid overtime, meal and rest periods, and paid sick leave can be not only the back pay, but interest, attorney's fees and court costs.
Contact Miller Wilmers APC and speak to an attorney well versed in California wage and hour law.
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