Compliance 911Guide to Calculating the Regular Rate of PayCALIFORNIA EMPLOYMENT LAW SERIES

Agenda

Regular Rate of Pay

Factors that contribute to regular rate of pay calculations

Calculating regular rate of pay for overtime and paid sick leave

Regular Rate of Pay Used for calculating:

◦ Overtime payments◦ Paid sick leave benefits (effective July 1, 2015)

Weighted average of an employee’s hourly rate of pay.

Factors use when calculating the regular rate of pay include:◦ Hours worked◦ Workweeks◦ Compensation

Hours Worked Defined All time an employee must be on duty.

Includes time the employee is “suffered or permitted” to work.

If employee voluntarily stays late to complete work, prepare reports, or assist with a customer, that time counts.

Also includes such events as on-call time, mandatory training and business travel.

Exempt employees regularly scheduled for 40+ hours per week only receive credit for 40 hours.

Workweek Defined

Fixed and regularly occurring period of 168 hours or 7 consecutive 24 hour periods.

May begin on any day and should be defined by the employer.

When calculating overtime payments, each workweek stands alone.

Compensation Defined Hourly rate of pay

◦ If exempt, then annualized base salary divided by 2,080

Examples of other forms of compensation that are included in the calculation:◦ Commissions◦ Shift differentials◦ Nondiscretionary bonuses◦ Promotional bonuses◦ Cost of living adjustments◦ Incentives◦ Piecework earnings◦ Payments made in the form of goods or facilities customarily furnished by the employer.

◦ For example: Employer includes lodging for employee, the reasonable cost or the fair value of that lodging must be added to the earnings.

Compensation Excluded Overtime premiums

Payments for periods when no work performed:◦ Holiday pay◦ Vacation or PTO pay◦ Sick pay

Benefits

Expense reimbursements

Premium pay for weekends

Discretionary bonuses

Overtime vs. Paid Sick Leave

Overtime ◦ Regular rate of pay is calculated on a workweek basis.

Paid Sick Leave◦ Regular rate of pay is calculated using the 90 days period preceding the sick

leave taken.

The Calculation

Total Compensation

Total Hours Worked

Overtime Example Employee earns a Base Rate of Pay $10/hour and earns commission.

Works 45 hours in a workweek and earns $300 commission

Total Compensation = ($10/hr X 45 hrs) + $300 Commission = $750/ Total Hours Worked 45

Regular Rate of Pay is $16.67/hour

Calculate Overtime Due $16.67 X .5 X 5 hrs OT = $41.68

Total Pay = $450 (45 hours X $10) + $41.68 (OT Due) + $300 (commission) = $491.68

Paid Sick Leave Example Employee earns a Base Rate of Pay $10/hour and earns commission.

Uses 8 hours of paid sick leave.

During preceding 90 days period worked 400 hours and earned $2,500 in commission.

Compensation: (400 hours X $10) + $2,500 = $6,500

Calculation: Total Compensation / Total Hours = $6,500 / 400 = $16.25

Regular Rate of Pay is $16.25

Paid Sick Leave Pay = 8 X $16.25 = $130.00 (vs. $80.00)

Paid Sick Leave Example Exempt Employee earns $52,000 per year ($25/hour) and receives their annual performance bonus of $20,000. They use 8 hours of paid sick leave hours 2 weeks after they receive their bonus.

During preceding 90 days period worked 50 hours per week for a total of 600 hours.

Compensation: (12 weeks X $1,000) + $20,000 = $32,000

Calculation: Total Compensation / Total Hours = $32,000/ 480* = $66.67

Regular Rate of Pay is $66.67

Paid Sick Leave Pay = 8 X $66.67 = $533.36 (vs. $200)

*Only 40 hours per week can be applied for exempt employees

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