Nondiscretionary Pay for California Meal and Rest Break Premiums

This article describes the requirements for California employers to include nondiscretionary payments and hourly wages in premium-pay calculations for missed meal, rest, or recovery periods.

OVERVIEW

On July 15, 2021, the State Supreme Court of California voted that all California employers must include non-discretionary payments and hourly wages in premium-pay calculations for any missed meal, rest, or recovery periods.

In this context, the term Regular Rate of Compensation is the same as Regular Rate of Pay. 

Namely does not calculate the Regular Rate of Pay, so clients must do this calculation themselves outside of Namely Payroll. See below for examples of how the Regular Rate of Pay is calculated.


Example 1

If an employee is paid on an hourly basis, that amount, shift differentials, and the per-hour value of any non-hourly compensation the employee has earned are considered the Regular Rate of Pay.


Example 2

If an employee is paid a salary, the regular rate is determined as follows:

  1. Finding the annual salary.

    • This is found by multiplying the monthly remuneration by 12 (months). 

  2. Finding weekly salary.

    • This is found by dividing the annual salary by 52 (weeks).

  3. Finding the regular hourly rate by dividing the weekly salary by the number of legal maximum regular hours (40).


Example 3

If the employee is paid by piece or commission, either of the following methods can be used to determine the regular rate of pay for purposes of computing overtime:

  1. A Group Rate For Piece Workers 

    • In using this method, the total number of pieces produced by the group is divided by the number of people in the group, with each person being paid accordingly. The regular rate for each worker is determined by dividing the pay received by the number of hours worked. The regular rate cannot be less than the minimum wage.

      • The piece or commission rate is used as the regular rate and employees are paid one and one-half this rate for production during the first four overtime hours in a workday, and double time for all hours worked beyond 12 in a workday; or

      • Divide the total earnings for the workweek, including earnings during overtime hours, by the total hours, worked during the workweek, including the overtime hours. For each overtime hour worked, employees are entitled to an additional one-half the regular rate for hours requiring time and one-half, and to the full rate for hours requiring double time.

  2. Two or More Rates

    • If an employee is paid two or more rates by the same employer during the workweek, the regular rate is considered the weighted average. This is determined by dividing the total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours.

    • For example, if an employee worked 32 hours at $11.00/hour and 10 hours during the same workweek at $9.00/hour, the weighted average (and thus the regular rate for that workweek) is $10.52. This is calculated by adding the $442 straight time pay for the workweek [(32hours x $11.00/hour) + (10 hours x $9.00/hour) = $442] and dividing it by the 42 hours worked.


Frequently Asked Questions


Is a bonus included in the regular rate of pay for purposes of calculating overtime?

Yes, if it is a nondiscretionary bonus.

A nondiscretionary bonus is included in determining the regular rate of pay for computing overtime when the bonus is compensation for hours worked, production or proficiency, or as an incentive to remain employed by the same employer. Incentive bonuses include flat sum bonuses.

To properly compute overtime on a flat sum bonus, the bonus must be divided by the maximum legal regular hours worked in the bonus-earning period, not by the total hours worked in the bonus-earning period. This calculation will produce the regular rate of pay on the flat sum bonus earnings. Overtime on a flat sum bonus must then be paid at 1.5 times or 2 times this regular rate calculation for any overtime hour worked in the bonus-earning period.

Overtime on production bonuses (bonuses designed as an incentive for increased production) for each hour worked are computed differently from flat sum bonuses. To compute overtime on a production bonus, divide by the total hours worked in the bonus earning period. This calculation will produce the regular rate of pay on the production bonus. Overtime on the production bonus is then paid at .5 times or 1 times the regular rate for all overtime hours worked in the bonus-earning period.

Overtime on either type of bonus may be due on either a daily or weekly basis and must be paid in the pay period following the end of the bonus-earning period.

Discretionary bonuses or sums paid as gifts at the time of a holiday or other special occasion, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not subject to be paid at overtime rates and thus are not included for purposes of determining the regular rate of pay.