Review of Overtime Obligations In California

Employers must review their payroll process from time-to-time to ensure that all overtime is being paid properly. Also, it is important for employers to conduct this analysis themselves – and not simply assume that their payroll company is doing it correctly.

When is overtime owed in California?

One and one-half times the employee's regular rate or pay is owed 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. Double the employee's regular rate or pay is owed 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.

Employers must remember that the regular rate of pay includes a number of different kinds of payments made to employees, such as hourly earnings, salary, piecework earnings, and commissions. Bonuses can also be considered in calculating an employee’s regular rate of pay if the bonus is a nondiscretionary bonus, which means when the bonus it is based upon hours worked, production or proficiency and not subject to the employer’s subjective determination. The DLSE provides a great question and answer section on overtime discussing some of the issues that an employer must take into account when calculating the employee’s regular rate of pay.

Can an employee agree not to be paid overtime by way of working an alternative work week?

An employee cannot simply agree to work over eight hours a day or more than 40 hours in a week without being paid overtime.  The employer must follow a complex set of rules to establish an alternative work week, for example, permitting an employee to work 9 hours a day four days a week, and have either a half day or a full day off every other Friday, without having to pay overtime for the 1 hour of work over 8 hours worked in a day.  In order to establish a legal alternative workweek the employer, among other items, must define a “work unit”, propose the alternative work schedule to the work group, distribute a written disclosure, have a meeting on the issue, hold a secret election, and file the election results with the Division of Labor Statistics and Research.  Furthermore, employers who have established an alternative workweek have greater record keeping requirements.

"Holiday Pay" Is Not Considered An Employee's "Regular Rate Of Pay" For Calculating Overtime

In Advanced-Tech v. Superior Court, Ester Roman worked as a security guard for Advanced-Tech Security Services, Inc. (Advanced-Tech). Ms. Roman brought a class action lawsuit against Advance-Tech for violations of Labor Code sections 510, 1194, and 1198, as well as failure to provide accurate itemized statements to her in accordance with section 226 and unfair business practices in violation of Business and Professions Code 17200.

At issue in this case is the interpretation of Labor Code section 510, subdivision (a) that requires that an employer pay an employee time and one-half of the employee’s “regular rate of pay” for (1) more than 8 hours of work in one workday, (2) more than 40 hours of work in any workweek, and (3) for the first eight hours worked on the seventh consecutive workday. Any work over 12 hours in one day must be paid at twice the regular rate of pay, as well as work longer than eight hours on the seventh consecutive day of work.

Advance-Tech provided its employees with “holiday pay” at time and one-half for hours worked on designated holidays pursuant to the Employee’s Handbook. Ms. Roman worked 12 hours on Labor Day in 2006, and argued that the 4 hours of daily overtime should have been paid at time and one-half of her higher “holiday” rate of pay, instead of at her normal, non-holiday rate of pay. Therefore, Ms. Roman asserted that the time and one-half she was paid for working on Labor Day should be considered her “regular rate of pay” and that she was entitled to be paid one and one-half times the premium holiday rate for the hours she worked on Labor Day.

The court disagreed with Ms. Roman’s interpretation of Labor Code section 510. The court held that premium holiday pay is not considered as a “regular rate” of pay an employee receives for a normal workday. An employer is allowed to credit the time and one-half premium pay on holidays against the overtime owed to the employee.

Side Note:  Generally, there is no obligation for employers to provide a higher rate of pay for work completed on holidays.  As done by Advance-Tech in this case, an employer may voluntarily agree to pay a higher rate of pay to incentivize and/or reward employees to work on holidays.  However, employers' policies (as set forth in the employee handbook or elsewhere) could arguably create a contractual right for the employee to receive the higher pay rate promised, and employers should use caution when drafting such policies.