Pub. 2 2013 Issue 2

16 San Diego Dealer basis, one of two methods may be used to determine the regular rate and overtime: 1) the piece or commission rate may be used as the regular rate and the employee is paid 1.5 times this rate for production for regular overtime hours and double this rate for double-time hours during the week; or 2) the standard regular rate is determined by dividing total earnings for the workweek by the total hours worked during the workweek. Under the second method, for each overtime hour worked, the employee is entitled to an additional ½ of the regular rate for hours requiring payment at 1.5 times the regular rate, and to the full rate for hours requiring double time. This method is by far the most commonly used. Differences between federal and state law exist for calculating a salaried employee’s regular rate and overtime. A nonexempt employee’s salary paid for a period in excess of a workweek first must be reduced to its workweek equivalent to reach the regular rate. For example, if the salary is $2,000 per month, you would multiply this amount times 12, then divide the result by 52 weeks to get the equivalent weekly salary ($461.54). In California, the regular rate for a salaried nonexempt employee is deemed to be 1/40th of the employee’s weekly salary, which must at least be theminimumwage. Under federal law, if a nonexempt employee is employed solely on a weekly basis, the regular hourly rate is determined by dividing the weekly salary by the fixed number of hours the salary is intended to compensate. Alternatively, if the employee’s hours are expected to fluctuate from week to week, under the“fluctuating workweek”method, the salary may be paid under an agreement that the salary covers however many hours are worked in a workweek, with the regular rate determined by dividing the weekly salary by the total number of hours worked in the workweek. Overtime is then paid at ½ of the regular rate times each overtime hour worked. The difference in overtime owed is significant. If an employee works 50 hours including 10 hours overtime, with a weekly salary of $1000, the employee would earn $100 in overtime under federal law and $375 in overtime under California law. For employees paid a daily guarantee or“day rate,” which is paid regardless of the number of daily hours worked, the California Labor Commissioner takes the position that, ordinarily, the hours to be used in computing the regular rate of pay may not exceed the legal maximum regular hours which, in most cases, is eight hours per workday, 40 hours per workweek. Again, the resulting rate must at least be the applicable minimum wage. Once again, the results under federal and California law are strikingly different. If an employee works 10 hours each day for 5 days, at $200 per day rate, the employee has earned $1,000 for the week, but the employee generally would earn only $100 overtime under federal law and $375 under California law. Blended Regular Rates Where an employee in a single workweek works at two or more different types of work for which different straight- time rates have been established, the regular rate for that week is the weighted average of such rates. For example, suppose an employee works a total of 42 hours for the workweek: 32 hours at $11.00 per hour plus 10 hours at $9.00 per hour. In this case, the weighted average (or “regular rate”) is $10.52. This rate is calculated by adding the $442 straight time pay for the workweek [(32 hours x $11.00/hour) + (10 hours x $9.00/ hour) = $442] then dividing this amount by the 42 hours worked for the week. Overtime is paid at ½ times the regular rate of $10.52 x 2 overtime hours = $10.52. Employers therefore must be cautious when paying different hourly rates, or hourly rates with separate piece rates for piece work, because the overtime premium will be blended after factoring in all other rates times the hours worked at those rates. Additionally, the “rate-in-effect” method for paying hourly-rate overtime rarely applies in California, except in specified situations such as when an employee is being paid a “prevailing wage” for a public works project. California also generally recognizes a“group regular rate”methodology for computing the regular rate of pay involving piece-rate, formula, or incentive pay workers. This method generally involves a formula whereby the total group’s compensation is divided by the total number of people in the group, with each employee being paid his or her share. The regular rate for each worker is determined by dividing the pay received by the number of hours worked respectively. Of course, the regular rate cannot be less than the minimum wage. Continued from page 15