Overtime in California

Written by Christina Walker, Payroll Vault - Oxnard, CA

California is at the top of the list for most complex overtime regulation in the nation. As an employer it’s important to know what the regulation is. Though we won’t be covering an extensive list of the entire California overtime regulation, we review some of the most common scenarios.

Overtime is due in the following scenarios at the applicable rates:

• HOURS WORKED > 40 in a WORKWEEK @ 1.5x REGULAR RATE of pay
• HOURS WORKED > 8 in a WORKDAY @ 1.5x REGULAR RATE of pay
• HOURS WORKED > 12 in a WORKDAY @ 2.0x REGULAR RATE of pay
• First 8 hours on the SEVENTH CONSECUTIVE DAY OF WORK @ 1.5x REGULAR RATE of pay
• All hours in access of 8 on the SEVENTH CONSECUTIVE DAY OF WORK @ 2.0x REGULAR RATE of pay

A workday is defined by California Labor Code §500 as:

A workday is a consecutive 24-hour period beginning at the same time each calendar day, but it may begin at any time of day. The beginning of an employees’ workday need not coincide with the beginning of that employees’ shift, and an employer may establish different workdays for different shifts. However, once a workday is established it may be changed only if the change is intended to be permanent and the change is not designed to evade overtime obligations. Daily overtime is due based on the hours worked in any given workday; and the averaging of hours over two or more workdays is not allowed.

A workweek is defined by California Labor Code §500 as:

Any seven consecutive days, starting with the same calendar day each week beginning at any hour on any day, so long as it is fixed and regularly occurring. "Workweek" is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. An employer may establish different workweeks for different employees, but once an employee's workweek is established, it remains fixed regardless of his or her working schedule. An employee's workweek may be changed only if the change is intended to be permanent and is not designed to evade the employer's overtime obligation.

Regular rate of pay is defined by the California Department of Industrial Relations as:

Compensation you normally earn for the work you perform. The regular rate of pay includes a number of different kinds of remuneration, such as hourly earnings, salary, piecework earnings, and commissions. In no case may the regular rate of pay be less than the applicable minimum wage.

Additionally, some amounts can be excluded from the regular rate of pay calculation.

Examples of some of the more common exclusions are sums paid as gifts for special occasions, expense reimbursements, payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, premium pay for Saturday, Sunday, or holiday work, and discretionary bonuses.

The law gets a bit more complicated to follow as the complexity of your company pay structure increases. Consider the following examples:

• You pay your employees bonuses
• You pay your employees at multiple hourly rates or incorporate shift differentials

If you pay your employee a non-discretionary bonus, the amount must also be included when calculating the regular rate of pay. Consider the following example of an employee who whose hourly rate is $12.00 an hour but they also receive a $30 non-discretionary bonus. During the pay period the employee works 40 regular hours and 8 overtime hours. Here’s how you would calculate their total compensation according to a recent California Supreme Court case, Alvarado v. Dart Container Corp. Of California.

HOURLY RATE * REGULAR HOURS = REGULAR COMPENSATION

HOURLY RATE * 1.5 * OVERTIME HOURS = OVERTME COMPENSATION

BONUS / TOTAL REGULAR HOURS * 1.5 = OVERTIME RATE FOR BONUS

OVERTIME PREMIUM FOR BONUS * 1.5 = OVERTIME PREMIUM FOR BONUS

REGULAR COMPENSATION + OVERTIME COMPENSATION + OVERTIME PREMIUM FOR BONUS + BONUS = TOTAL PAY

$12 * 40 = $480 REGULAR COMPENSATION

$12 * 1.5 * 8 = $144 OVERTIME COMPENSATION

$30 / 40 * 1.5 = $1.13 OVERTIME RATE FOR BONUS

$1.13 * 8 = $9.04 OVERTIME PREMIUM FOR BONUS

$480 + $144 + $9.04 + $30 = $663.04 TOTAL PAY

If you pay your employees at multiple hourly rates, you must determine the regular rate of pay used for overtime calculation by calculating a “weighted average” overtime rate. Consider the following example of an employee that works 32 hours on job a at $11.00 an hour and 10 hours on job b at $9.00 an hour. The “weighted average” or regular rate of pay for that workweek is calculated as follows:

TOTAL EARNINGS / TOTAL HOURS = WEIGHTED AVERAGE

[(32*$11)+(10*$9.00)] / 42 = WEIGHTED AVERAGE

442 / 42 = $10.52 WEIGHTED AVERAGE

If you have outsourced your payroll to a payroll provider, be sure to consider if you are sending over all the information necessary for your provider to properly calculate overtime compensation. Also, check with your provider to ensure they are properly calculated weighted average overtime when multiple rates or other forms of payment such as bonuses are involved.

Director of Payroll Operations, Training & Support

Christina Walker, CPP

Payroll Vault - Oxnard, CA