Regular Rate of Pay vs. Regular Rate of Compensation – The nuances of vocabulary strike again!
By Molly Wood, SDEA HR Consultant
On October 9, 2019, the California Second District Court of Appeal held that missed meal periods must be paid at the “regular rate of compensation”, rather than the “regular rate of pay” used to calculate overtime payments.
Say WHAT!?! Why do we have to have so many names for things? Because it’s California.
The first thing to define are “regular rate of pay”, “base pay”, and “regular rate of compensation”. Basically, “regular rate of compensation” and “base pay” are the same thing. They are the hourly rate that you agree to pay someone for the job they do.
“Regular rate of pay” is where it gets complicated. Scenarios where “regular rate of pay” differs from “regular rate of compensation” or “base pay”, include; 1) when an employee is paid two or more rates by the same company, 2) If the employee is paid a flat-sum bonus in addition to an hourly rate of pay, 3) when an employee is paid by a piece-rate or commission system.
Here are a couple examples of “regular rate of pay” calculations;
A non-exempt employee traveling for work is being paid at a travel time rate of $15/hr and at a base rate of $20/hr. The employee works 35 regular hours and has 8 hours of travel time.
“Regular rate of pay” in this instance is $19.07, which is calculated by adding 35 hours x $20 ($700) and eight hours x $15 (120) for a total of $820, then dividing by total hours worked (43). The regular rate of pay is what is used to calculate the three overtime hours. If the employee missed a meal period in this scenario, they would be paid the one-hour penalty at their “regular rate of compensation” ($20/hr).
Now, let’s look at an example with a shift differential. A non-exempt employee has a base rate of $15/hr with a shift differential of $5/hr while working on second shift. The employee works 30 hours at base rate and 15 hours at the shift differential rate.
While the “regular rate of pay” is $16.67, a missed meal period would be compensated at the “regular rate of compensation” or “base pay” of $15/hr. While $1.67 doesn’t seem like much to worry about, it can add up in a facility with thousands of workers.
Note, in California flat-sum bonuses require a different calculation than at the federal level. (As you might expect, California is more generous to the employee and therefore takes precedent over federal practices.) A flat-sum bonus is divided by non-overtime hours worked, then added to the “base pay” rate to determine the “regular rate of pay”. So, if a non-exempt employee earns $15/hr plus a $40 attendance bonus, and works a 40-hour workweek, their “regular rate of pay” for overtime calculation would be $16/hr. (“Base pay” of $15/hr + $40 bonus/40 hours in a workweek.) And in this circumstance a missed meal period would be paid at $15.
Although this Supreme Court ruling is not as life altering as other recent legislation, it is a motivator to be sure that you understand the terminology around wage and hour law and the various ways it can be applied.
Remember, If you are an SDEA Member, you can have these confusing situations sorted out with just a phone call.