The Golden State is well known for its laws protecting workers’ rights. In California, eligible workers (called “non-exempt” employees) enjoy protections related to mandatory break periods and overtime pay, as specified in the California Labor Code.
However, many employers miscalculate the rate at which workers are paid for overtime hours or missed meal and rest breaks. This is because these rates are calculated in California using an employee’s regular rate of pay, not their base rate of pay. Even if the miscalculation was a simple mistake, a company could still be liable for back pay and interest for unpaid wages.
If you believe your employer may have miscalculated your overtime pay, you may have legal options. Let’s explore the law surrounding the “regular rate of pay” to determine whether you’re being justly compensated for your work.
California Employment Laws: A Quick Overview
In California, employees are entitled to payment for every minute they work. Here is a brief overview of a few key employee protections:
As a non-exempt employee in California, you are entitled to overtime pay at 1.5 times your regular rate of pay when you:
- Work more than 8 hours in one workday,
- Work more than 40 hours in one workweek, or
- Work more than 6 days in one workweek.
Similarly, if you work over 12 hours in one workday or over 8 hours on a seventh consecutive day of work, you’re entitled to double time for those excess hours.
Rest and Meal Breaks
California employers must provide non-exempt employees with a ten-minute paid rest break for every four hours worked. In addition, employers must provide unpaid meal breaks of at least 30 minutes for every five hours worked. Therefore, a traditional 8-hour shift in California includes two paid 10-minute rest breaks and one unpaid 30-minute meal break.
If an employee does not receive their required meal and rest breaks, section 226.7(c) of the California Labor Code specifies that the employer must pay the employee a penalty of one hour’s pay for each violation. This premium is calculated using an employee’s “regular rate of compensation.” (More on this later.)
Employers are Responsible to Know the Law
Your employer is responsible for paying you the correct wages. If your employer miscalculates your overtime or fails to give you proper meal and rest breaks, then they may be liable in a court of law to pay you the wages you’re owed (plus interest!).
This is why it is crucial to be familiar with California employment law, which includes knowing the difference between your base rate of pay and your regular rate of pay.
Base Rate of Pay vs. Regular Rate of Pay
The terms “base rate of pay” and “regular rate of pay” seem similar, but they are very different in the eyes of the law.
Base Rate of Pay:
Your base rate is the hourly rate of pay or non-exempt salary your employer agreed to pay you—not including any tips, bonuses, or additional payments.
Regular Rate of Pay:
Your regular rate of pay is the compensation you typically earn for the work you perform. Employers calculate your regular rate using your base rate of pay plus:
- Shift differentials
- Nondiscretionary pay
- Certain other payments made to an employee
However, the following payments from your employer will not be included in calculating your regular rate of pay:
- Gifts or bonuses not tied to your work performance, such as holiday gifts
- Business expense reimbursements
- Premium pay for missed meal and rest breaks
- Travel expenses
- Retirement plan contributions
According to California law, your regular rate of pay can never be less than the applicable minimum wage. However, your regular rate of pay is usually higher than your base rate of pay, so this is rarely an issue.
Calculating the Regular Rate of Pay
There are four steps to calculating your regular rate of pay:
- Determine your base rate of pay. This is usually specified in your employment offer.
- Calculate the total amount you earned (before taxes) for a given period.
- Determine any additional payments you received that can be counted as earnings towards your regular rate. This includes shift differentials, bonuses, commissions, nondiscretionary pay, and certain other payments.
- Add these other payments to the amount determined in step 2, then divide by the total hours worked during the selected time period. This is your regular rate.
Let’s look at an example. Say you’re a car mechanic working at a body shop making $20 per hour. You also get a bonus of $50 for every car repair you complete. If you worked 40 hours last week and you repaired five cars, here’s how you calculate your regular rate of pay:
((Base Rate * Hours Worked) + (Bonus * Car Repairs Completed)) / Hours Worked = Regular Rate of Pay
(($20 * 40) + ($50 * 5)) / 40 = $26.25
As the calculation shows, your regular rate of pay can be significantly higher than your base rate.
Why the Distinction Matters
Many California employers calculate overtime pay using an employee’s base rate, which would be correct in nearly every other state. However, the California Labor Code specifies that overtime must be calculated using an employee’s regular rate of pay, not their base rate.
What does this mean for you? Let’s refer back to the previous example. If you work overtime, your employer needs to calculate your overtime pay at an hourly rate of $26.25 per hour instead of $20. Consequently, your employer will now be required to pay you $39.37 per overtime hour—a lot more than the $30 you would have earned otherwise.
What about meal violations? A recent court case, Ferra v. Loews Hollywood Hotel, LLC, clarified the law surrounding this issue.
Ferra v. Loews Hollywood Hotel, LLC
Jessica Ferra, a former bartender at Loews Hollywood Hotel, earned an hourly wage as well as a bonus every quarter. Whenever she wasn’t provided with a compliant meal or rest break during her shift, Loews paid Ferra the additional hour of pay required by law for the violation. However, the hotel calculated her meal premium payments using her base rate of pay, not her regular rate of pay (which would have accounted for her bonuses in addition to her hourly rate). Ferra sued to recover her lost wages.
Loews argued that meal premium payments were to be calculated using the employee’s “regular rate of compensation” under California law, which they interpreted as equivalent to the base rate. However, the California Supreme Court disagreed, holding that the terms “regular rate of compensation” and “regular rate of pay” are synonymous.
This means that Ferra (and all eligible California employees) are now entitled to meal period penalty payments calculated using their regular rate of pay, not their base rate.
Perhaps most importantly, the court also ruled that the Ferra decision is retroactive for up to four years. So, if your employer has calculated overtime or meal break penalties at your base rate in the past four years, you may be able to collect back pay and interest for their violation of this ruling.
Some employers may make genuine mistakes when completing these calculations. Others might be more sinister and attempt to pay overtime on base rates instead of regular rates to save money. Regardless of intent, it is the employer’s responsibility to know the law and protect employees. When they fail to do so, they may be liable for the consequences.
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You should be paid for every minute that you work. If you think you have lost wages because your employer used an incorrect pay rate and miscalculated your overtime or meal/rest break premiums, we recommend speaking to a PARRIS employment lawyer right away.
Obtain the back pay, unpaid compensation, and interest you’re entitled to with the help of our attorneys. Contact PARRIS today to schedule your free case review.