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California Regular Rate of Pay - Part 1

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This is Part 1 of a 3 Part article on Regular rate of pay. 

 

This is the most comprehensive series of articles on California regular rate of pay on the Internet.  

If you are a worker that wants to make sure that you get all of the wages owed to you, then you're in the right place. 


What is regular rate of pay?

Under California law, your overtime rate, double time rate, meal and rest premium rate and reporting time rate are all based upon your “regular rate of pay.” Your “regular rate of pay” is not simply your usual (read: regular) rate of pay or straight time rate. Instead, your regular rate of pay is calculated based upon all of the compensation you earn during each respective pay period.
 
Many folks understand that their overtime pay rate in California is 1.5 times their regular rate of pay.  And their double time rate is usually 2 times their regular (straight) rate of pay. What many - if not most companies - screw up is how to calculate your “regular rate of pay.”
 
For example, if you get paid $15 an hour, then you may be thinking your overtime rate is 1.5 times $15, or $22.50 an hour. This is how most folks think of their overtime rate.
 
However, as I will explain in this article, this can not only be wrong, but very wrong. Meaning, you may be owed a lot of money in unpaid overtime wages.
 
The California Supreme Court explained the term “regular rate of pay” in the  Alvarado case:
 
Labor Code section 510 and the IWC wage orders define the overtime rate of pay as a multiple of the regular rate of pay, thus juxtaposing what is “overtime” and what is “regular.” It follows, then, that the word “regular” in the phrase “regular rate of pay” refers to “regular-time” (i.e., nonovertime).
 Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 562-563.
 

In this Part 1 article the following California regular rate of pay questions are answered and the following issues are addressed:           

What is regular rate of pay?

Why is this article the most comprehensive article on California regular rate of pay?  

Why is every almost every other article on regular rate of pay on the Internet  simply wrong? ...And why these other articles may cost you a lot of money in unpaid wages based upon regular rate of pay?
 
Overtime, regular rate of pay and ...what is included and excluded? 

What are the two main issues concerning regular rate of pay? - What is included or excluded as compensation in the numerator and what hours 
are used in the denominator/ divisor?
 
What is included and/or excluded from compensation in the regular rate of pay calculation?  Why the DLSE Manual and most other lawyers are incorrect on how to calculate regular rate of pay

Are overtime hours and nonovertime hours included in the regular rate of pay calculation or are just nonovertime hours included?

I have great respect for the DLSE and the DLSE Manual 

Why should my Regular Rate of Pay be very important to me?

What is my straight time rate?

How is the regular rate of pay different from my straight time rate?

Regular rate of pay and overtime 

Can my regular rate of pay be less than minimum wage? 

What is the purpose of regular rate of pay?

What if my only pay/ compensation is hourly pay?

What is the Alvarado v Dart method? You divide your total compensation (excluding overtime pay) by the actual non-overtime hours you work (...the Alvarado v. Dart method)

“Any nonhourly compensation”

What was the issue in the Alvarado California Supreme Court case? Alvarado v. Dart Container

Why does it all start with public policy? .... discouraging employers from imposing overtime work

It’s in the wage orders

Public policy: (1) discouraging overtime

Public policy: (2) California labor laws are to be liberally construed in favor of worker protection

California courts are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests

The divisor is the number of nonovertime hours actually worked 

Compare the divisor with federal law - total hours worked

Why is using the total hour (including overtime hours) in the divisor not fair to workers?

Regular rate of pay includes “the per-hourly value of any nonhourly compensation”
 
“The per-hourly value”

What are the two main issues that must be addressed when calculating your regular rate of pay? ... it all comes down to money - that is, YOUR money/ wages 

How many hours to use in the denominator (the divisor)? The two choices being: 

The more compensation you put in the top part of the fraction (read: the numerator) - the higher your regular rate of pay / overtime rate will be

Need help right now?

Part 2:  California Law Doesn't' Follow Federal/ FLSA regarding Regular Rate of Pay

We explain why the DLSE is wrong in how they calculate regular rate of pay.  The DLSE seems to have adopted the federal method of calculating regular rate of pay. We explain why the California Supreme Court has rejected incorporating federal law into California wage law absent an express intent stated in California Wage Orders

This is very important, because this could mean you being owed a lot of money in unpaid overtime wages, paycheck stub violations, waiting time penalties and PAGA penalties.  

Part 3: Walk you through what is and isn't included in regular rate of pay compensation, how to calculate regular rate of pay, providing step by step mathematical computations  for regular rate of pay

I walk you through examples of how to correctly calculate your regular rate of pay, overtime rate and wages that are owed to you. 
 
Here is a great article on California overtime law


Why is this article the most comprehensive article on California regular rate of pay? 

 
This is the most comprehensive article on California regular rate of pay that you are going to find. First, because this article covers the subject of regular rate of pay from top to bottom. I not only explain the law, I explain the reasons behind the law and I walk you through how to calculate regular rate of pay with different pay situations. 
 
Second, because I have looked at all of the other articles on the first few pages of Google on regular rate of pay in California. I’m known for being blunt and straight-up. It’s why I’m asked to testify before the California State Senate and Assembly on unpaid wages legislation.
 
Third, the problem with almost every other website on California regular rate of pay is that they either get it wrong (meaning, they have not incorporated the recent changes in regular rate of pay based upon the Alvarado case. Or, they are, in effect, advocating a position that helps employers/ companies. Or both. 
 
Make no mistake about it. I represent workers. I understand that I am usually on the cutting edge of the law, so to speak. I am continually coming up with different contentions and approaches to California wage law. I just don't practice the law - I have helped make the law. From meeting and negotiating changes in the law with stakeholders in Sacramento and around California. To testifying before the California State Senate and California Assembly on wage law. To representing the workers in what many people consider the most important California Supreme Court case ever for workers - Brinker vs. Superior Court.  To writing winning amicus briefs in California Supreme Court cases like Augustus vs. ABM and Williams vs. Superior Court
 

Why is Bill Turley asked to testify concerning

wage law legislation at the California State Senate

 and the California Assembly? 

 
Bill Turley Testifying before the California State Senate and California Assembly on wage legislation - your expert on California regular rate of pay!

A No B.S. straight-shooter lawyer

Believe it or not, Bill is known for being a no B.S. straight-up lawyer. Besides being known as one of the leading experts on this area of the law in California, one of the reasons why Bill is asked to testify at legislature hearings is because he is known for being straight-forward and blunt. He is known for being no B.S., with no lawyer-talk, no double-talk.

Why is every almost every other article on regular rate of pay on the Internet  simply wrong? ...And why these other articles may cost you a lot of money in unpaid wages based upon regular rate of pay?

 
Here is the truth - every other article I have seen on regular rate of pay is simply wrong. There is not other way to say it. 
 
Here is why:
 
The California Supreme Court has  repeatedly rejected that California wage law follows Federal wage law. “Where the IWC intended the FLSA to apply to wage orders, it has specifically so stated.”  Meaning, the California Wage Order has to specifically state that the Wage Order intends to follow federal law.  Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592.

California does not incorporate federal wage law into California’s Wage Orders - federal law is not implicitly incorporated into the Wage Orders. Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 847.

In 2018, the California Supreme Court reaffirmed this in the Troester case, "We will not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent." Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 841. 

In spite of this the DLSE Manual (and most lawyers on the Internet) continue to insist that California adopts federal law in regards to calculating regular rate of pay. Which is completely opposite from what the California Supreme Court has repeatedly held.

In Part 2 of this series of articles on regular rate of pay, I lay out, in detail, why the DLSE Manual is simply wrong in this regard. Importantly to you, by not using the federal law in calculating regular rate of pay can mean A LOT of money/ unpaid wages for you.
 
I talk in this article about the proof being in the pudding. By using the legal contentions that I discuss in this article, I have gotten my clients millions and millions in unpaid wages for being underpaid based upon their regular rate of pay.
 
 
Proof is in the pudding - regular rate of pay
 
Getting your check for unpaid wages - what it's all about!
 
As I point out, this isn’t a guarantee of what you will recover. Every case is different. But what it shows is these legal contentions have worked to help workers like you recover unpaid wages. Specifically, overtime pay based upon companies not calculating workers regular rate of pay correctly. 
 
This series of  articles (Part 1, Part 2 and Part 3) will explain exactly how you calculate your regular rate of pay. As usual, if you have questions regarding your situation and/or calculations, you can call us, text us and/or leave a message on this web page.
 
 
Call us at 619-304-1000  - If you call after regular business hours, when you leave a message, be sure to repeat your name and telephone number twice, so we get it correctly. And be sure to indicate whether it's okay if we respond by text.

Text us at 858-281-8008 - Be sure and put "new wage case" in your text.

Or leave us a message on this webpage
 

Overtime, regular rate of pay and ...what is included and excluded?

In California, overtime is computed based on the regular rate of pay.  The regular rate of pay includes many different kinds of remuneration or compensation, for example: hourly earnings, salary, piece work earnings, commissions, certain bonuses, and the value of meals and lodging, on-call pay, etc.
 
California Labor Code Section 200 defines wages as:
 
“...all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis or other method of calculation.” California Labor Code Section 200(a).
 
One of the big issues, with regular rate of pay is what compensation is included or excluded. As a worker, you want as much compensation included as possible. Your employer will fight to exclude compensation.  For example, the company will try and rely on federal law in order to exclude compensation. I go into all of this in depth in these series of articles. 

What are the two main issues concerning regular rate of pay? - What is included or excluded as compensation in the numerator and what hours are used in the denominator/ divisor?

 
There are two main issues concerning calculating your regular rate of pay.
 
Regular rate of pay - fraction
 
First, is what is included and/or excluded from compensation in the regular rate of pay calculation?  In calculating regular rate of pay - this is the numerator. That is the top part of the fraction. 
 
Second, whether overtime hour and nonovertime hours are included in the regular rate of pay calculation?  In calculating regular rate of pay - this is the denominator or the divisor. 
 
Don't get freaked out about the math. I explain all of this in this article and the other articles on regular rate of pay. 
 

What is included and/or excluded from compensation in the regular rate of pay calculation?  Why the DLSE Manual and most other lawyers are incorrect on how to calculate regular rate of pay

 
In a nutshell, under federal law there are statutory exclusions for some compensation. Meaning, under federal law, some types of compensation are excluded from regular rate of pay calculations.
 
Wage and hour laws are subject to enforcement by the Department of Labor Standards Enforcement (the DLSE).  Brinker Restaurant Corp. v. Superior Court, (2012) 53 Cal. 4th 1004, 1029, fn. 11. The DLSE is a division of California's Department of Industrial Relations. Vaquero v. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98, 106, fn. 4).  
 
The DLSE publishes the DLSE Enforcement Policies and Interpretations Manual. (DLSE Manual). Later in this article I will talk a lot more about the DLSE Manual. The DLSE Manual has a sections on most wage and hour issues and it has a section on regular rate of pay.
 
For example, the DLSE Manual cites federal law and states:
 
In determining what payments are to be included in or excluded from the calculation of the regular rate of pay, California law adheres to the standards adopted by the U.S. Department of Labor to the extent that those standards are consistent with California law.
DLSE Manual 49.1.2, Page 49-1, June, 2002.
 
Later in Part 2 of this series of articles, I will be citing and discussing  California Supreme Court cases that completely disagree that “...California law adheres to the standards adopted by the U.S. Department of Labor....”  Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 798 (1999); Martinez v. Combs (2010) 49 Cal.4th 35, 67; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592; Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669-670; Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 847; Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 554; Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 841. 
 

Are overtime hours and nonovertime hours included in the regular rate of pay calculation or are just nonovertime hours included?

 
One of the issues with regular rate of pay is whether overtime hour and nonovertime hours are included in the regular rate of pay calculation or whether just nonovertime hours are included.
 
As I will explain in some detail in this series of articles the recent Alvarado California Supreme Court case held that for flat bonuses only nonovertime compensation is included. What hours are included art the denominator (read: divisor) in the regular rate of compensation equation.
 
I will explain why it favors employees to only have nonovertime hours used in the denominator/ divisor.
 
And, importantly, I explain why using only nonovertime hours conforms with the California Supreme Court’s holding that when calculating regular rate of pay court’s are “...obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018).
 

I have great respect for the DLSE and the DLSE Manual

 
As I explain in this article, I have great respect for the DLSE and the DLSE Manual. I know folks that work for the California DLSE. I have been invited to and attended policy meetings with the DLSE folks.
 
I regularly refer to the DLSE Manual and cite to the DLSE Manual.  Quite frankly, I usually agree with the positions and/or statement of law contained in the DLSE Manual. The DLSE Manual is correct on some aspects on regular rate of pay calculation.
 
Because of my respect for the DLSE Manual and based same, in this article I provide a through analysis of why the California Supreme Court’s decisions are opposite to the DLSE Manual’s position that California law has “adopted” FLSA law in regards to calculating regular rate of pay.
 
But, before I get to this, I first explain more about regular rate of pay.
 

Bill Turley - Called "California's Leading Wage and Hour Class Action Lawyer"

 
 
Call us at 619-304-1000  - If you call after regular business hours, when you leave a message, be sure to repeat your name and telephone number twice, so we get it correctly. And be sure to indicate whether it's okay if we respond by text.

Text us at 858-281-8008 - Be sure and put "new wage case" in your text.

Or leave us a message on this webpage

Why should my Regular Rate of Pay be very important to me?

The short answer is that if your regular rate of pay is not calculated correctly, then you may be entitled to A LOT of money in owed wages and/or penalties. Under California law, the penalties for not paying you your timely wages can be much more than the wages that you may be owed. I explain all of this in this article.
 
“Regular rate of pay” comes into play for different parts of California wage law. Meaning, how much you are owed in wages.  Don’t overlook this issue. We’re talking about, at the end of the day, potentially a LOT of your money in wages. Thus, I suggest you listen up. Closely.
 
Getting back to it, “regular rate of pay” is related to how much you are owed in overtime, double time, meal period premiums, rest period premiums and reporting time pay.  Although, most of the California case law refers to regular rate of pay in relation to overtime. So we’ll tackle regular rate of pay and overtime first.


What is my straight time rate?

Your straight time rate is your normal hourly wage rate. For example, if you earn $15 and hour , then $15 is your “straight time rate.”
 

How is the regular rate of pay different from my straight time rate?

As explained by the California Supreme Court in Alvarado:
 
An employee's “regular rate of pay” for purposes of Labor Code section 510 and the IWC wage orders is not the same as the employee's straight time rate (i.e., his or her normal hourly wage rate). Regular rate of pay, which can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 554 (2018).
 
In other words, if you receive any other compensation other than your hourly or salary pay, and you are a non-exempt employee, then you may be entitled to overtime (1.5 times, your regular hourly rate).
 
If you’re confused about this, I am going to try and approach this a tad differently.  Let’s get back to our example, of your straight time being $15 an hour. Most folks assume that there overtime rate is 1.5 times their straight time rate. Meaning:
 
 $15 x 1.5 = $22.5
 
Thus, your overtime rate is $22.50 an hour. If your only compensation is $15 an hour, then your regular rate of pay is $15.
 
I urge caution here though. I talk to people all the time that assure me that the only compensation they get is their hourly rate. Then, after digging deeper, I discover other compensation. Seriously, we are talking to much money here.
 
In most of the examples I give we are talking about over $10,000. That isn't a guarantee. Every case is different. But, I suggest that you first talk to a professional. 
 
The other problem you have is that 95% of all lawyers on the Internet, based upon my reading their websites, are clueless. Seriously. When I read their websites on regular rate of pay - they don't seem to get it. 
 
Interestingly, the lawyers that do "spot the issues, so to speak, are usually very savvy company lawyers. Most lawyers for workers don't seem to understand all of this. I say most. Not all. But most. 


Regular rate of pay and overtime

Labor Code Section 510(a) states, in part:
 
Eight hours of labor constitutes a day’s work. Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be compensated at the rate of no less than one and one–half times the regular rate of pay for an employee.
 
Labor Code Section 510(a) goes on to state, in part:
 
 Any work in excess of 12 hours in one day shall be compensated at the rate of no less than twice the regular rate of pay for an employee.
 
Most of the California Wage Orders that the same language. For example, Wage Order 9-2001 3(A)(1).
 
Here is the language concerning “regular rate of pay” in Wage Order 9:  
 
 3. HOURS AND DAYS OF WORK
 
  (A) Daily Overtime-General Provisions
 
  (1) ...Such employees shall not be employed more than eight (8) hours in any workday or more than 40 hours in any workweek unless the employee receives one and one-half (11/ ) times such employee’s regular rate of pay for all hours worked over 40 hours in the workweek.
 
Eight (8) hours of labor constitutes a day’s work. Employment beyond eight (8) hours in any workday or more than six (6) days in any workweek is permissible provided the employee is compensated for such overtime at not less than: (a) One and one-half (11/2) times the employee’s regular rate of pay for all hours worked in excess of eight (8) hours up to and including 12 hours in any workday, and for the first eight (8) hours worked on the seventh (7th) consecutive day of work in a workweek; and (b) 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 (8) hours on the seventh (7th) consecutive day of work in a workweek.
Wage Order 9 3 (A) (1). (Emphasis added). 
 
Most of the Wage Orders have similar language regarding overtime being paid at "employee's regular rate of pay." 
 
Thus, the question becomes, what is meant by “the regular rate of pay?”
 

Can my regular rate of pay be less than minimum wage?

The regular rate of pay can never be less than minimum wage required by California law.
 

Can your regular rate of pay can change from pay period to pay period?

“An employee's regular rate of pay changes from pay period to pay period depending on whether the employee has earned shift differential premiums or nonhourly compensation.” Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 562.
 

What is the purpose of regular rate of pay?

The purpose of the regular rate of pay is to determine how much you are owed for your overtime pay rate, double time pay rate, the amount of 226.7 meal period and rest period premium wages and the reporting time pay.
 

What if my only pay/ compensation is hourly pay?

If your only pay, wages and/or compensation is in the form of hourly pay, then your regular rate of pay is your hourly rate.
 
But I urge extreme caution here. It seems that almost every week I talk to someone that says “All I get is my hourly pay,” and sure enough, when we dig down, there is more to it. 
 
So, slow down....


What is the Alvarado v Dart method? You divide your total compensation (excluding overtime pay) by the actual non-overtime hours you work (...the Alvarado v. Dart method)

 
The divisor for purposes of calculating the per-hour value of defendant's attendance bonus should be the number of nonovertime hours actually worked in the relevant pay period, not the number of nonovertime hours that exist in the pay period. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 568.

“Any nonhourly compensation”

An employee's “regular rate of pay” for purposes of Labor Code section 510 and the IWC wage orders is not the same as the employee's straight time rate (i.e., his or her normal hourly wage rate). Regular rate of pay ... includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 554.
 
The proper way to calculate the regular rate of pay is to use your straight-time pay and include  “all shift differentials and the per-hour value of any nonhourly compensation the employee has earned”  and divide your total compensation by the actual non-overtime hours that you work.


What was the issue in the Alvarado California Supreme Court case? Alvarado v. Dart Container

The recent Alvarado California Supreme Court case was a regular rate of pay case. Defendant Dart Container Corporation of California manufacturers  food service products. Plaintiff Hector Alvarado was employed by defendant as a warehouse associate.
 
The warehouse associates were paid on an hourly basis and in addition to their normal hourly wages, received an “attendance bonus” if they were scheduled to work on a Saturday or Sunday, and did so, completing the full work shift. The amount of the bonus was a flat sum of $ 15 per day of weekend work, regardless of whether the employee worked in excess of the normal work shift on the day in question. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 549 (2018).
 
The issue is Alvarado was how to calculate the Plaintiff's regular rate of pay. Specifically, whether to divide the total compensation by all of the hours he worked - both nonovertime hours and overtime hours or to divide the total compensation by just the nonovertime hours? 
 
As you will see, the answer to this question can mean a lot of money for you in unpaid overtime wages, paycheck stub violations, waiting time penalties, PAGA violations and the like. 
 

Why does it all start with public policy? .... discouraging employers from imposing overtime work

As is almost always the case with wage cases, the California Supreme Court in Alvarado started its discussion with public policy:
 
California has a long-standing policy of discouraging employers from imposing  overtime work. For nearly a century, this policy has been implemented through regulations, called wage orders, issued by the Industrial Welfare Commission (IWC). Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 552- 553 (2018).

It’s in the wage orders

California has 18 Wage Orders. 16 of the California Wage Orders relate to specific industries and occupations. There is one general minimum wage order that applies to all California employers and employees (excluding public employees and outside salespersons). And there is one order implementing the Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999. When you are trying to figure out the what the California wage laws are for you - you first need to determine which Wage Order applies to your industry/ your employer. 
 
The specific wage order applicable for the employees is IWC wage order No. 1 (Wage Order No. 1), governing wages, hours, and working conditions in the manufacturing industry, but wage orders covering other industries contain analogous restrictions. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 553 (2018).
 
Wage Order No. 1 provides that an employer is obligated to pay an overtime premium for work in excess of eight hours in a day, 40 hours in a week, or for any work at all on a seventh consecutive day. IWC Order No. 1-2001, subd. 3.
 
Such work must be compensated at 1.5 times the employee's “regular rate of pay,” stepping up to double the “regular rate of pay” if the employee works in excess of 12 hours in a day or in excess of eight hours on a seventh consecutive working day.  Wage Order 1 3(A)(1).
 
Labor Code section 510 imposes similar requirements. Thus, for overtime work, an employee must receive a 50  percent premium on top of his or her regular rate of pay, and in some cases, the employee must receive a 100 percent premium. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 553-554 (2018).
 

Public policy: (1) discouraging overtime

Two overarching principles guided the Supreme Court’s  analysis. First, the obligation to pay premium pay for overtime work reflects a state policy favoring an eight-hour workday and a six-day 40-hour workweek, and discouraging employers from imposing work in excess of those limits. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018). (Emphasis added). 
 

Public policy: (2) California labor laws are to be liberally construed in favor of worker protection

Second, the state's labor laws are to be liberally construed in favor of worker protection. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018).  (Citing Brinker v. Superior Court  53 Cal. 4th 1004, 102 (2012). (Emphasis added). 
 

California courts are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests

The California Supreme Court in Alvarado explained the obligation courts have in interpreting California overtime laws:
 
 “Therefore, in deciding how to factor a flat-sum bonus into an employee's overtime pay rate, we are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018).
 

The divisor is the number of nonovertime hours actually worked

When an employee works less than 40 hours in the week, “the divisor is the number of nonovertime hours actually worked in the relevant pay period.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 567 (2018). “[T]he divisor for purposes of calculating the per-hour value of defendant's attendance bonus should be the number of nonovertime hours actually worked in the relevant pay period, not the number of nonovertime hours that exist in the pay period. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 568 (2018).
 

Compare the divisor with the federal law - total hours worked

Under the FLSA, the divisor is the number of total hours worked in the pay period. 
 

Why is using the total hours (including overtime hours) in the divisor not fair to workers?

Not to get all basic math on you, but fractions are division. The bottom part of the fraction is the divisor.  The top part of the fraction is the numerator.
 
As the Alvarado court noted:
 
But defendant's formula—using total hours, including overtime hours, as the divisor when determining the per-hour value of a flat-sum bonus—must be rejected because it results in a progressively decreasing regular rate of pay as the number of overtime hours increases, thus undermining the state's policy of discouraging overtime work.
 Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 569 (2018). (Emphasis added). 
 
Thus, the divisor is always the total number of non-overtime hours.
 
The top part of the fraction - the numerator - is all compensation (that is all non-overtime compensation). 


Regular rate of pay includes “the per-hourly value of any nonhourly compensation”

 
Your “regular rate of pay” for purposes of Labor Code section 510 and the IWC wage orders is not the same as your straight time rate (i.e., your normal hourly wage rate).
 
It is important to focus our discussion on the precise language used by the California Supreme Court in explaining regular rate of pay:
 
“Regular rate of pay, which can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 554 (2018). (Emphasis added). 
 

“The per-hourly value”

 
“Regular rate of pay, which can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 554 (2018).
 

What are the two main issues that must be addressed when calculating your regular rate of pay? ... it all comes down to money - that is, YOUR money/ wages

When calculating regular rate of pay, you have to use an equation.  The equation is in the form of a fraction. In other words, it’s a division problem.
 
As I learned in math - fractions are division. Fractions are just another way to write division.  Fractions are numbers that are written like division problems.
 
If you have a fraction 1/2, it's the same as dividing 1 by 2. The line between the two numbers of a fraction is just another way of writing the division symbol. 
 
 
Fractions - regular rate of pay
 
 
 
 
Fractions can be written in different ways in order to show a division problem:
 
Fractions are division - California regular rate of pay
 
Special thanks to mathantics.com. My kids have been using Math Antics for years... I recommend you buying a membership for your children... 
 
With a regular rate of pay calculation you are basically dividing all of your compensation you earn in a pay period by the number of hours (hopefully just nonovertime hours) you work in a pay period.
 
What value or values you included in the numerator - that is the top part of the fraction - is your compensation for the pay period.
 
The top number of the fraction is called the numerator and bottom number is the denominator or the divisor (see illustration above). 
 

How many hours to use as the denominator ( the divisor)? The two choices being:

 
 1.  All of your nonovertime hours during the pay period. Meaning,  all of your straight-time hours/ regular pay hours/ time, or
 
 2.  All of your total hours you work in the pay period. Meaning, both nonovertime hours and overtime hours.
 
The less hours put into the bottom part of the fraction (read: the denominator/ divisor) -  the higher your regular rate of pay/ overtime rate will be.
 
If you put all of the hours worked - both regular time/ straight time and overtime hours in the bottom part of the fraction (read: the denominator / divisor) then you will get a lower hourly rate than if you only put the straight time hours/ regular time. Again, not to get all “mathy” on you - but if you divide by a bigger number, then your answer will be smaller (meaning, your overtime rate of pay).
 
Thus, make no mistake about it - when your employer uses an overtime formula that uses both your straight time/ regular hours and you overtime hours in the divisor - it is an attempt to pay you at a lower overtime rate of pay.
 
In the Alvarado case, the California Supreme Court held that with a flat sum bonus, that only nonovertime hours are included in the denominator/ divisor. Alvarado v. Dart Container Corp, 4 Cal. 5th 542, 561-562 (2018). 
 

The more compensation you put in the top part of the fraction (read: the numerator) - the higher your regular rate of pay / overtime rate will be
        

The second issue when calculating your regular rate of pay is what is to be included the top part of the calculation of the fraction - in other words the numerator. The more compensation or money put into the top part of the fraction, the higher your regular rate of pay is going to be.
 
Here is one of the main issues. The Supreme Court in Alvarado stated that included in the numerator is “the per-hour value of any nonhourly compensation the employee has earned.” Alvarado, at 554. (Emphasis added). 
 
“Any” means “any.”
 
However, under the federal law, there are statutory and regulatory exclusions to compensation for the regular rate of pay.  Meaning, that under federal law, many types of compensation are excluded from being counted as compensation when calculating regular rate of pay.
 
As I lay out in some detail in this article,  California Supreme Court has repeatedly stated that California does not follow federal wage law in general and in regards to calculating regular rate of pay specifically.
 
Nevertheless, the DLSE and others seems to have discounted or ignored the California Supreme Court on both to calculate regular rate of pay - both in regards to the including overtime hours in the divisor and in excluding compensation (by referring to federal law) in the numerator.
 

This is Part 2 of a 3 part series of articles on regular rate of pay 

 

Part 1: California Regular Rate of Pay - Part 1 (this article / webpage) 

 

Part 2: California Law Doesn't Follow Federal/ FLSA regarding Regular Rate of Pay

 
Part 3: 

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This article isn't legal advice
 
These discussions and/or examples are not legal advice. All legal situations are different. These testimonials, endorsements, photos and/or discussions do not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter, your particular case/ situation. Every case is different. There are any number of reasons why class actions are not certified, not won and/or PAGA actions are not successful.

Just because we have gotten great results in so many other unpaid wage cases, doesn't guarantee in particular result in other cases. Including, your wage case. Every case is different. In other words, your mileage may vary.
William Turley
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“When I seek out professional advice, I don’t want B.S., I want it straight up. I figure you do also.”
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