There have been some recent class action lawsuits that demonstrated employers may not be calculating overtime correctly. To be clear, I am not speaking of the required “over eight hours in a day or over forty hours in a week.” As I am sure you already know, non-exempt employees in California must be paid at an overtime rate of pay for overtime hours. The overtime rate is calculated by applying a multiplier of 1.5 or 2.0 to the employees’ “regular rate of pay.” Ordinarily the regular rate of pay is the employees’ straight time rate of pay, BUT not always! Employers sometimes fail to include other types of compensation when calculating the regular rate of pay, which can result in liability.
The rule in California is that the regular rate of pay must include all remuneration from the employer. Here is an example for our clients who provide free lunch and dinner during their shifts. If the employee makes $10.00 per hour, in an eight hour shift their regular rate of pay would be $80. However, their regular of pay must be calculated adding the $80 to the cost of the meals. If the cost of the meal to the employer is $7, (or whatever the determined number is based upon the fair market value) the equivalent of an extra $14.00 is added to the regular rate of compensation of $80. Therefore, the employees are receiving a total of $94.00 per day which is the true dollar amount of their “regular pay” or $11.75 per hour and not $10.00 per hour. Based upon these numbers the rate of overtime would be “$17.63 and not $15.00 per hour. The difference creates a shortfall of $2.63 which would lead to potential liability including penalties, liquidated damages, interest, and attorney fees.
Keep in mind that the above concern may well include bonuses, incentives, gratuities (mandatory 15% for tips on large groups), free or subsidized lodging, or even winning a free trip for making a sales goal. As many of you have heard me preach over and over again, the wage and hour lawsuits are out of control. Employers have to scrutinize their payroll policies, practices, and procedures very closely.