Onsi Updates You on California's “Regular Rate of Pay” Rules In 2021

A recent decision by the California Supreme Court has shed light on the crucial issue of determining an employee's regular rate of pay, providing clarity and guidance for employers in the state. 

According to the California Labor Code, employees are entitled to receive a 10-minute break for each 4-hour work period they work. Employers are also required to provide employees with a 30-minute lunch break if they work more than 5 hours. If the employer fails to abide by this requirement, they must pay employees an extra hour of regular pay for each day they don’t comply with this requirement. (Yes, that means up to two extra hours per day) 

But what does regular pay mean?  

According to the recent ruling, one hour of regular pay means one hour of work at the employee’s “regular rate” of pay. California’s use of the term “regular rate” is similar to the Fair Labor Standards Act (FLSA) definition of the term, and it goes beyond an employee’s hourly pay rate and includes “all remuneration for employment paid to, or on behalf of, the employee.” This means that the calculation should take into consideration any additional compensation paid to the employee, including any commissions, nondiscretionary bonuses, piece rates and any other such compensation not specifically excluded by section 7(e) of the FLSA.  

All in all, the regular rate is a simple mathematical calculation that can be illustrated as follows: 

Take Larry, for example, he’s an employee whose hourly rate is $15 per hour. He works a total of 40 hours for the week and receives a production bonus of $100 dollars for meeting his goal that week. Larry’s regular rate of pay would be $17 per hour.

The calculation of his regular rate of pay would be: 

$15 x 40 = $600 {Hourly Compensation} 

$600 + $100 = $700 {Total Compensation} 

$700 ÷ 40 = $17.5 {Regular Rate of $17.50 per hour} 

Therefore, Larry's regular rate of pay is $17.50 per hour. 

Understanding and implementing the concept of the regular rate is essential for employers and payroll professionals to ensure compliance with relevant regulations, particularly with regard to overtime requirements. By accurately calculating the regular rate, employers can appropriately compensate their employees, thus fostering a fair and legally compliant work environment. 

 - Joshua Hinckley, VP of Business Development