Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 95 1. Hourly Rates and Shift Differentials When an employee is paid multiple forms of hourly pay—such as different hourly rates for different types of work, or hourly pay plus an hourly shift differential for some hours—the regular rate is calculated using the weighted average of the rates. Under the weighted average method, each hourly rate is multiplied by the hours worked at that rate. The total earnings from each rate are added together and divided by the total hours worked. That number is then multiplied by a half-time premium of 0.5 (which is used because the employee has already received straight-time compensation for all hours worked, including overtime). The resulting overtime rate is multiplied by the number of overtime hours worked to calculate additional overtime pay due to the employee. For example, if an employee works 30 hours at $20/hour, and an additional 12 hours at $21/hour (because these hours include a $1 per hour night shift differential), overtime is calculated as follows: (1) calculate total earnings: (30 hours * $20/hour = $600) + (12 hours * $21/hour - $252) = $852; (2) divide total earnings by total hours: $852 / 42 hours = $20.29; (3) calculate the additional overtime premium due: $20.29 * 0.5 half-time premium = $10.15; (4) calculate additional overtime pay: $10.15 * 2 overtime hours = $20.30. 2. Commissions and Production-Based Incentives For employees earning a combination of hourly pay and production-based incentives, the regular rate is calculated by dividing the total earnings for the week (including earnings during overtime hours), by the total hours worked during the week (including overtime hours). This amount is then multiplied by 0.5 to determine the additional half-time premium that must be paid for all overtime hours (the full amount of the premium is paid for overtime hours compensated as double time). As above, the half-time premium is used in this calculation because the employee has already received straight-time compensation for all hours worked in the form of commission or piece rate earnings (including all overtime hours worked). Employers that pay employees on a commission or piece rate basis also need to ensure that employees are paid for rest period (and, when applicable, recovery period) time and any non-productive time at the correct rate. While many employers choose to pay underlying hourly rates of pay for all hours worked to ensure minimum wage compliance for these employees, a special formula applies to rest and recovery period time for employees paid on a piece rate basis. 3. Salary Unlike an employee paid by piece rate, commission, or non-flat sum bonus, under California law, non-exempt employees paid by salary are not receiving additional pay through their salary for any overtime hours that they work. For this reason, the regular rate of pay for salaried employees is calculated based on a maximum 40-hour workweek, rather than all hours worked. Additionally, overtime is calculated at one-and-one-half times the regular regular rate of pay for all workweeks in that earning period. The federal regulations set forth the methods for applying these incentives over a multi-week earing period, and these approaches apply under California law as well.
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