got overtime?

Law Offices of Michael Tracy
"If the exemption doesn't fit, the employer must remit."

1-866-GOT-OVERTIME

Basic Rule
Hourly + Commission
Multiple Piece Rate
Salary + Bonus
Night Premium
Night Premium with OT Paid
Credit for Double Time Pay
Meal Break Pay
Non-Monetary Compensation

Clock

Regular Rate of Pay

Both California Overtime Law and Federal Overtime Law require that you be paid overtime based on your "regular rate of pay." However, this regular rate or pay is not simply your given hourly rate of pay, but is rather a computed rate based on all the compensation that you make for the week. This page will describe exactly how the regular rate of pay is computed in various situations. It should be noted that this page can not cover every possible issue relating to the computation of the regular rate of pay and you should contact me if you have an particularly challenging issues.

Basic Rule

The basic rule for computing the regular rate of pay is that it is computed by taking all the compensation that you made during that week and dividing it by the total number of hours worked. Unfortunately, it is never quite that simple. The Department of Labor has issued dozens of regulations that control exactly how the regular rate is to be computed is various situations, and I will cover the highlights of those here.

The first thing is thing you need to determine is that the total compensation for the week is. The rule is that all payments of any kind, either cash or non-cash, must be included in the regular rate of pay. Everything of value that the employer gives you must be included unless it meets one of the following exceptions:

  1. Small occasional gifts, such as Christmas gifts that are not based on production or efficiency.
  2. Vacation, Holiday, or sick pay.
  3. Discretionary bonuses. The bonus must be 100% discretionary. That is, the amount and whether it will be paid must not be tied to any type of performance measure.
  4. Retirement or life-insurance contributions that are irrevocable.
  5. Daily or other type of overtime pay (just means that overtime is not "double counted").
  6. Extra pay for 6th, 7th day pay or holidays provided that the pay is 1.5 the employees normal rate. That is, if you receive 1.5x for holiday work, you won't also get 1.5x if that work was also overtime.
  7. Extra pay for odd-hours work that is at least 1.5x the bona fide hourly rate. This, "night pay" will not be included in the calculation if it is at least 1.5x. However, if it is less than 1.5x, then it is included and thus increases your overtime pay.

Thus, unless it is listed above, it is used in computing your regular rate of pay. Thus, any type of production bonus, commission, extra pay, shift premium, or any other type of payment is included. Tips are not included as these are seen as being paid directly from the customer to the employee.

The following examples will illustrate how to compute the regular rate of pay. The examples will start simple and work up to the more difficult computations. For these examples, I will only base the overtime on hours past 40 in a week. For daily overtime, that is, hours past 8 in a day, the exact same calculations are used, but they must be done on a daily basis.

Example - Hourly + Commission

Let us say that the employee is paid $10 per hour and also received a commission on all sales made. If this is in a retail establishment, the employee will be exempt from overtime if 1/2 of his total pay is from commissions. However, for anything less than that, he will be entitled to overtime. Thus, on some weeks you would need to perform this calculation, and on other weeks you do not. For this example, we will assume that he worked 45 hours and made $300 in commissions. Thus, his regular rate is computed as

Total Compensation = ($10/hr * 45 hours) + $300 commissions = $750

hourly+commission


So, this employees regular rate of pay is $16.67/hr. Thus, for any hours past 40 in the week, the employee must be paid 1.5 times this rate. There are two different ways to compute the total amount of overtime due at this point. The first is to take his $16.67 per hour and multiply it by .5 and then by the number of hours worked past 40. In this case, it is easy to do. However, for more complicated cases, it is easier to determine the proper overtime by determining how much money should have been paid and subtracting how much money was paid. I will use this method as it will work for all computations.

How much the employee should have been paid for all hours worked past 40 = $16.67/hr x 1.5 x 5 hours = $125.03.

How much was paid for hours worked past 40. In this case, the employee was paid for those hours -- he received an hourly wage + commissions. We use the same regular rate to compute his total hourly rate. Thus, what he was actually paid = $16.67/hr x 5 hours = $83.35.

Total Due Employee for Overtime = $125.03 - $83.35 = $41.68

Example - Multiple Piece Rates

Let us say that the employee makes two types of widgets. She is paid $5 per widget A and $10 per widget B. This week, she made 100 widget As and 20 widgets Bs. It took her 50 hours of total work.

multiple piece rate

 

 

Should have been paid = $14/hr x 1.5 x 10 hours= $210
Actually paid = $14 x 10 = $140
Total Overtime Due = $70

As an alternate to the above, piece rate workers can be paid based on when the widget is produced. That is, if widget A is produced in the first 40 hours of the week, $5 is due, but if it is produced after 40 hours have been worked, $7.50 is due. Although this method is permitted by the regulations, it is rarely used due to the complexity of determining when the work was performed.

Example - Salary + Bonus

Employee is paid a weekly salary of $1000. This week, she receives a production bonus of $200. California law requires that any salary payment be divided by only 40 hours in the week, no matter how many hours are worked. In this case, she worked 50 hours.

salary

 

 

Should have been paid = $30 x 1.5 x 10 hours = $450
Actually paid = $0
Total Overtime Due = $450

Example -Night Premium

Employee is paid $10 per hour. If she works the night sift (10PM - 6AM), she is paid a 20% premium, or $12 per hour. This week, she worked 3 night shifts and 3 day shifts for a total of 48 hours (each shift is 8 hours work).

night premium

 

 

Should have been paid = $11/hr * 1.5 * 8 hours = $132
Actually paid = $11/hr * 8 hours = $88
Total Overtime Due = $44.

Example -Night Premium with OT Paid

Employee is paid $10 per hour. If she works the night sift (10PM - 6AM), she is paid a 20% premium, or $12 per hour. This week, she worked 3 day shifts and 3 night shifts for a total of 48 hours (each shift is 8 hours work). She first worked the 3 night shifts and then worked the 3 day shift. Because the last day shift was over 40 hours in the week, the employer paid her overtime of 1.5 times her $10 per hour.

This is a common occurrence, but it is also illegal. Remember, that the overtime rate must be based on your regular rate of pay, not simply the hourly rate in affect at the time you work the overtime.

The calculation to determine her regular rate of pay is the same as above. Although she did receive an extra $5/hr for 8 hours of work, subject to rule #5 above, overtime pay is excluded from the regular rate of pay computation.

night premium

 

 

Should have been paid = $11/hr * 1.5 * 8 hours = $132
Actually paid = $11/hr * 8 hours + $5/hr * 8 hours = $128
Total Overtime Due = $4.

Thus, although the employer paid overtime, it was based on $10 per hour, not on $11 per hour as required by law. Although this does not seem like much, because it can trigger various other penalties, the actual amount an employee can recover could be significantly more than the unpaid overtime.

Example -Credit for Double Time Holiday Pay

This example will show how the employer receives credits for certain types of pay. If the type of pay is covered by rules #5,6, or 7 above, not only is it excluded from the regular rate of pay computation, but it is credited to the employer in terms of overtime.

Let us assume the same example as above except that now the employee also works a 7th day in the week. The employer, though not required by law, has a policy to pay double time for all hours worked on the 7th day. This type of pay is covered by rule #6. Thus, the premium pay is both excluded from the regular rate of pay and credited back to the employer. The calculation is thus:

7th day credit

 

 

Note that although the employee was paid $20/hr for the 8 hours work on the 7th day, the "extra compensation" part is excluded -- that is, the amount above the normal hourly rate of $10. The base $10 is still included.

Should have been paid = $10.86 * 1.5 * 16 hours = $260.64
Actually paid = $10.86 * 16 hours + $5/hr * 8 hours (credit for 1.5x overtime on 6th day) + $10/hr * 8 hours (credit for 2x overtime on 7th day) = $293.76
Total Overtime Due = $0. The amount paid exceeds that required by law. The employer is not entitled to recover this money, but the law does not require that any additional overtime be paid.

Example -Meal Premiums

California labor law for meal breaks requires that an employee be provided a proper meal break. Please visit this website for a complete description of what the law requires. The issue here is that because the California Supreme Court has classified the extra 1 hour of pay as wages, it must be included in the regular rate of compensation.

For this example, we will assume that an employee is paid $10 per hour and works 6 shifts of 8 hours each. The employer pays overtime past 40 hours in the week, but fails to provide the employee with a proper meal break. As such, the employee is due an additional 1 hour of pay for each day in which a proper meal was not provided. In addition, this additional pay must be used in computing the regular rate of pay. As such, the employee is also due extra overtime pay as described here:

meal_break_overtime_pay

 

 

Should have been paid = $11.25 * 1.5 * 8 hours = $135
Actually Paid = $15 * 8 hours = $120
Total Overtime Due = $15
Total Meal Premiums Due = $60.

Example -Non-Monetary Compensation

When a portion of the compensation if paid in a form other than cash, it still must be used in computing the regular rate of pay. The most common type of problem is a resident apartment manger who is paid a salary and is also given an free or discounted apartment. For this example, the employee earns a monthly salary of $2000 and receives a free apartment worth $1000 per month. In this case, the regular rate of pay is based on the total of both the salary and the value of the free apartment, but first we must convert the monthly amounts into weekly amounts.

salary to weekly

 

 

Now, let us assume that the employee works 50 hours per week.

The regular rate of pay is Total Compenstation ($692) / 40 hours = $17.30/hr. Remember that for salaried employees, we divide by a maximum of 40 hours.

Should have been paid = $17.30 * 1.5 * 10 hours = $259.50
Actually Paid = $0
Total Overtime Due = $259.50

 

 

Conclusion

The computation of the regular rate of pay can be complicated and many employers do not comply with it. Although some of the more technical violations may not seem like much, if an employer is underpaying a large number of employees, they can be making large profits for themselves at the expense of the employees. In these cases, an overtime class action can be the best way to deal with the problem. In addition, various penalties can be recovered using the Private Attorney General Act.

 

 

Overtime Updates
January 2017: New minimum wage laws and overtime exemptions
December 2016: New federal regulations for overtime create confusing issues for California workers
New Computer Professional Law wage increase Jan 01, 2015
August 2013: Unpaid internships are illegal.
April 2013: California's executive exemption defined.
California Labor and Employment Law Blog
Meal Break violations can extend back four years
Information Technology (IT) overtime.
VIDEO LINK: Michael Tracy discusses Liquidated Damages for Overtime (QuickTime 6MB)
©2016 Michael Tracy

This website only provides general information about the overtime laws in California and is not meant to be legal advice and does not serve to establish an attorney-client relationship. Please note that labor laws are constantly changing and being interpreted by the courts and you should consult with an attorney to ensure that you have the most up-to-date information. Any statements, on this page or elsewhere, are not guarantees of any outcome. Michael Tracy is a licensed attorney only in California. Click to see Privacy Policy.