On July 15th, the California Supreme Court ruled that California Employers must calculate nonexempt employees’ premium meal, rest, and recovery period payments based on both hourly wages and any other nondiscretionary wage payments (regular rate of pay). This is the same method employers must use when they are calculating an employee’s regular rate for overtime purposes.
The decision followed Ferra v. Loews Hollywood Hotel, LLC in which a bartender filed a class-action complaint stating that the employer failed to properly pay premiums for a non-compliant meal and rest break by omitting nondiscretionary incentive payments- such as bonuses- from the calculation.
It was originally found that the employee’s base hourly rate was the proper calculation. However, upon further review the California Supreme Court reversed and remanded the ruling. They then established that the regular rate of pay for meal and rest break rules includes ALL nondiscretionary payments for work performed by the employee.
Ultimately, employers must now calculate premium pay for missed meals/rest breaks the same way that they would for overtime pay. The ruling will be applied retroactively, so employers should re-examine past practices to ensure compliance.
In California, nonexempt workers are entitled to a 10-minute paid rest break every four hours worked. According to the Department of Labor Standards Enforcement (DLSE), the break periods must be in major fractions of total hours worked. This means that work periods of more than two hours are a major fraction of four hours worked where a rest period wouldn’t be required if an employee’s total day was only 3 ½ hours.
Employers must provide employees with a 30-minute unpaid meal break for every five hours they work. Employees can waive their right to this meal break only when they work under six hours. Similarly, a second break should be given after a 10-hour day. This may also be waived if the first break was already taken and the individual isn’t working over 12 hours.
Employees are entitled to one hour of pay for each day a rest or meal-period rule was violated. This means that an employee can earn up to 2 hours of the regular rate of compensation, per day.
A nonexempt employee that makes $50,000 annually with a $2,000 bonus would have a regular hourly rate calculated as follows:
$50,000 + $2,000 = $52,000 (Annual income)
$52,000/52 weeks (in a year) = $1,000 (Weekly income)
$1,000 (weekly)/40 (minimum hours per week) = $25 per/hour at a regular rate of compensation
Any meal penalties/premiums or overtime worked would be calculated at 1 ½ times the regular hourly rate of compensation of $25.
Since non-discretionary wages like bonuses and commissions are often paid on a monthly, quarterly, or other periodic basis, the correct regular rate of compensation may not be calculable for each pay period. Therefore, a true-up amount may need to be paid periodically to account for any non-discretionary wages paid.
While employers don’t need to police breaks, they should provide employees with an accurate way to track their time. Similarly, employer’s must prove when a meal period is voluntarily waived/shortened by the employee.
It’s recommended that California employers not only evaluate their current time-keeping practices considering these new rulings but also consider implementing an option into their current time-keeping software or system where employees can record when they have voluntarily opted-out or shortened a meal break.
Employers are should speak with a labor attorney as the responsibility of determining retroactive periods falls on the employer.
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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.