In our recent blog on meal period penalties, we mentioned an employer’s obligation to pay employees at their “regular rate of pay”, but what the heck is that?
In California, the “regular rate of pay” includes all of an employee’s performance-based earnings in a specific time period divided by the employee’s actual hours worked during that same time period. This determines what each employee actually earns each hour. If an employee’s only compensation is from their base rate of pay, then the “regular rate of pay” is the same as the base rate of pay. However, add any of the following into the mix and it becomes necessary to perform complex calculations to determine the “regular rate of pay”. (This is usually when I start wishing I paid better attention in math class.)
Regular rate of pay includes:
- Base wage rate/Salary – A weighted average must be determined if more than one hourly wage in effect (e.g., shift differential)
- Nondiscretionary bonuses (bonuses based on production)
- Piece rate earnings
- Values of meals  /lodging provided (per diem allowances) – Unless they are specifically excluded in collective bargaining agreement
- Cash offered to employees in lieu of health benefits
Determining an employee’s “regular rate of pay” can be a daunting task on the best of days and which calculation must be used is dependent on the specific type of remuneration. There are different calculations necessary to determine the “regular rate of pay” when dealing with employees paid on a piece rate and commission basis versus an employee who simply receives a nondiscretionary bonus. Employers must also keep in mind that any end of of year nondiscretionary bonus will result in the need to go back and recalculate overtime premium payments that had previously been paid out throughout the year in order to “true up” employee wages.
Employers are also required to pay the “regular rate of pay” to employees who take paid sick leave; however, employers are permitted to use any of the following three methods for this calculation:
- Calculate paid sick time for nonexempt employees in the same manner as the “regular rate of pay” for the workweek in which the employee uses paid sick time, regardless of whether the employee actually works overtime in that workweek”
- Calculate paid sick time for nonexempt employees by “dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment” or
- “Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.”
In conclusion, all overtime, paid sick leave, and rest/meal period penalties must be paid at each employee’s “regular rate of pay,” and employers who miscalculate these amounts could be on the hook for unpaid compensation, interest, attorney fees, and court costs. Please reach out for legal support if you suspect you have not been paying your employees correctly.
 In specific circumstances, some meals may be excluded from the “regular rate of pay”.