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Your Overtime Rate May be Higher<\/strong> than You or Your Employer Thought Many employers fail to include other types of compensation when calculating the regular rate of pay, which may result in considerable liability for unpaid wages. Recent class action cases highlight the employer\u2019s risk arising out of these miscalculations.<\/p>\n California Labor Laws require that the regular rate of pay must include all types of remuneration earned by the employee. Take for example: In this illustration, failure to properly calculate the regular rate of pay would result in a shortfall of $2.63 for every overtime hour worked, leading to potential liability for penalties under PAGA and Labor Code Section 203, liquidated damages under the FLSA, interest, and attorneys’ fees. These shortfalls are more common than is often realized and can result from payment of many kinds of bonuses or incentives, mandatory gratuities (such as a mandatory 15% tip for groups of 5 or more at a restaurant), free or subsidized lodging, or winning a free trip or prize for hitting a sales target. If you offer discounts, bonuses, incentives, rewards, or anything of value to your hourly employees beyond their base wages, the labor code requires that these additional forms of compensation be included in an employees regular rate of pay to calculate his or her overtime rate unless an exception applies. Although exceptions do exist for certain categories, the exceptions are limited and highly fact-specific.<\/p>\n
\nCalifornia Labor Laws require that all Non-exempt hourly employees must be compensated at an overtime rate of pay for overtime hours. The overtime rate is determined by applying a multiplier of 1.5 or 2.0 to the employees’ “regular rate of pay.” The regular rate of pay is often the employees’ straight time rate of pay, but not always.<\/strong><\/p>\n
\nrestaurant employees whose compensation includes a lunch and dinner provided during their shifts. If their rate of pay is $10 per hour, in an eight hour shift they will be paid $80. However, their regular rate of pay must be calculated by including the value of the meals (figured as the lesser of their actual cost to the employer or the fair market value). If each meal costs the employer $7, that is the equivalent of an extra $14 per day in compensation. The employees are therefore receiving a total of $94 per day in compensation, or a “regular rate of pay” of $11.75 per hour. Accordingly, the employees’ overtime rate would be $17.63, not the $15 that might be calculated for a $10 per hour employee.<\/p>\n