Pub. 2 2013 Issue 2

Fall 2013 15 Continued on page 16 W ith the increasing focus on wage-and- hour litigation, the issue of an employee’s “regular rate” arises inmost every case involving allegedunpaid overtime. It also factors into an employer’s payroll, each and every pay period. Here’s a brief roadmap through this sometimes rocky terrain. The FLSA Formula For DefiningThe “Regular Rate” Under the federal Fair Labor Standards Act (FLSA), the regular rate includes all compensation, earnings, or“remuneration”for work performed except certain kinds of payments specifi- cally excluded, such as reimbursement for expenses incurred by an employee on the employer’s behalf, or special situations such as reporting-time premiums, discretionary bonuses, and a few others including vaca- tion, or holiday pay. To avoid confusion and costly payroll errors, some of the“statutory”exclusions from the regular-rate formulamay need to be further defined. For example, a “non- discretionary”bonus is any bonus that is awarded based on performance or service and which employees can expect to be paid based upon the relevant criteria. There are only limited situations that would permit a bonus to be called“discretionary,”such as a Christmas bonus paid with no performance or service consideration. There is a broad array of potential sources for an employee’s“earnings,” which may consist of payment by a piece-rate, salary, commission, or some other basis, but without regard to the particular method of pay- ment. Unless the employee earns only an hourly rate (in which case that generally will be the regular rate), the regular rate is calculated by dividing all earnings for the pay period (except for the statutory exclusions noted above) by the total number of hours actually worked. The regular rate therefore is the average hourly rate resulting from the following fraction: All weekly earnings/all hours worked = regular rate The regular rate can never be less than the applicable statutory mini- mum wage. If an employee is also paid a base hourly rate plus a bonus, the bonus amount must be added to the total week’s compensation, resulting in a regular rate that is greater than the base hourly rate. Ca l i forn i a ’ s Regu l ar Rate : Get t i ng I t Right Can Save Money By John Skousen (Irvine) Once determined, the regular rate is used to calculate overtime. Under federal law, that generally means 1.5 times all hours worked over 40 in a workweek. Under California law, this premiummust be paid for all hours worked in excess of eight hours in any workday and 40 hours in any workweek; or on the first eight hours worked on the seventh consecutive day of work in any workweek. Additionally, employees are entitled to double their regular rate of pay for all hours worked in excess of 12 hours in any workday; and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek. Special overtime zones exist for employees working under a properly-implemented alternative workweek. Under both federal and state law, there are “exemptions” or “excep- tions”to the general overtime requirements which may apply to various occupations or industries. They are narrowly interpreted, and the lawmost favorable to the employee generally will apply in any particular situation. The California “Regular Rate” Formula California generally follows federal regulations regarding the calculation of the regular rate. If an employee is paid by a piece rate or commission