California law has specific requirements regarding the payment of overtime to employees. An employer’s failure to pay overtime—or failure to pay the correct overtime rate—can result in a litany of unintended Labor Code violations, which, in turn, can lead to enormous liability. Therefore, it is critical that employers understand when overtime is due and how to calculate the overtime rate of pay.
1. When is overtime pay due?
In California, the general overtime requirement is that a nonexempt employee shall receive a premium of at least:
- One and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek;
- One and one-half times the employee’s regular rate of pay for all hours worked in excess of 40 hours in any workweek; and
- Double the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.
There are, however, several exemptions from the overtime law specifying categories of workers who need not receive premium overtime pay. There are also exceptions to the overtime rules that alter the basis for calculating the premium.
2. What is the hourly rate for the overtime calculation?
The hourly overtime rate depends on an employee’s “regular rate of pay.” Generally, the regular rate is an employee’s average earnings per hour over the course of a workweek, dividing all includable compensation by all hours worked. The regular rate of pay includes many different kinds of remuneration an employee receives, such as hourly earnings, salary, piecework compensation, non-discretionary bonuses, shift differentials, the value of meals and lodging, and commissions. A bonus is nondiscretionary, and included in determining the regular rate of pay, when it serves as compensation for hours worked, for production or proficiency, or as an incentive to remain employed by the same employer.
Certain payments do not factor into the regular rate of pay. Examples of the more common exclusions are gifts for special occasions; expense reimbursements; vacation, holiday, and sick pay; premium pay for Saturday, Sunday, or holiday work; and discretionary bonuses.
3. Determining the regular rate
As noted above, the regular rate is ordinarily an employee’s total pay for employment in any workweek divided by the total number of hours actually worked. California courts treat overtime pay attributable to a “flat-sum” bonus (i.e., a bonus amount that is not dependent on the number of hours worked) differently. Employers must divide that type of bonus by only the total non-overtime hours worked, rather than by all hours worked, to determine the effect of those bonuses on the regular rate.
a. Employees paid hourly
The regular rate of pay for hourly nonexempt employees is the total amount for the workweek (excluding flat-rate bonuses), divided by the total hours worked.
b. Employees paid by salary
The regular rate of pay for salaried nonexempt employees equals 1/40th of the employee’s regular weekly salary, calculated as follows:
- Divide the annual salary by 52 (weeks) to get the weekly
- Divide the weekly salary by the number of legal maximum regular hours (40) to get the regular rate.
c. Piece rate or commission
If employees receive commission or piece-rate pay, either of the following methods may be used:
- Divide the total earnings for the week, including earnings during overtime hours, by the total hours worked during the week, including the overtime hours. For each overtime hour worked, the employee is paid an additional one-half the regular rate. This is the most commonly used method of calculation.
- The piece or commission rate is the regular rate. The employee is paid one and one-half times this rate for production during overtime hours. This method is less common.
4. Must an employer pay for unauthorized overtime?
Generally yes. California law requires that employers pay overtime, whether authorized or not, if the employer knew or should have known the employee was performing the work. California law does not requires that employers pay overtime if the employee deliberately prevented the employer from obtaining knowledge of unauthorized overtime.
An employer may discipline an employee if he or she violates the employer’s policy of working overtime without the required authorization.
5. May an employer require overtime?
Yes, absent some other legal or contractual limitation on the employee’s hours of work. An employer may dictate the employee’s work schedule and hours, including overtime.
Under most circumstances, an employer may discipline an employee who refuses to work scheduled overtime. However, an employer may not discipline an employee for refusing to work on the seventh day in a workweek and is subject to a penalty for causing or inducing an employee to forego a day of rest. An employer’s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right. An employer may not encourage its employees to forego rest or conceal the entitlement to rest, but is not liable simply because an employee chooses to work a seventh day.