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Overtime Rate for Salaried Nonexempt Employees

How to Calculate the Overtime Rate

Almost 20 years ago the California Legislature adopted Labor Code section 515(d). Section 515(d) instructs how to compute the overtime rate of pay for salaried non-exempt employees:

For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee’s regular hourly rate shall be 1/40th of the employee’s weekly salary

Paying a salary does not necessarily relieve an employer of its overtime obligations. If an employee is not “exempt” from the overtime laws, the employer must still pay overtime. But, how do you compute the overtime rate of compensation for salaried nonexempt employees?

Overtime Rate Calculation: Federal versus State

Under federal law, employers divide the weekly salary by the actual hours worked. This provides the regular hourly rate, and the basis of the overtime rate under the FLSA. California, of course, has to be different.

In 1985, Skyline Homes, Inc. v. Department of Industrial Relations (1985) 165 Cal.App.3d 239, followed the DLSE rule that the regular rate of pay in California is calculated by dividing the weekly salary by 40. This usually results in a higher hourly rate. It presumes the salary only covers the “regular” hours worked (i.e., the first 8 in a day and the first 40 in a week).

In 1999, Labor Code 515(d) codified the difference between federal and state law. The overtime rate for salaried nonexempt employees is calculated by dividing the weekly salary by 40. But, what about an employee who works less than 40 hours a week? Do you use the actual hours worked or the 1/40th rule in Labor Code 515(d)?

The DLSE manual (oftentimes referred to as an “underground regulation”) says you use the actual hours worked or 40, whichever is lower. However, this contradicts the plain language of Labor Code 515(d). Until recently, there was no clear guidance either way.

Supreme Court Decides Overtime Rate Calculation

On March 5, 2018, the California Supreme Court decided Alvarado v. Dart Container Corporation of California, directly addressing the issue:

Moreover, after Skyline Homes was decided, its formula for calculating the regular rate of pay in the case of a fluctuating workweek with a fixed weekly salary was codified as Labor Code section 515, subdivision (d). That subdivision provides: “(1) For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee’s regular hourly rate shall be 1/40th of the employee’s weekly salary.

*Page 24 of slip opinion (emphasis in original).

Skyline Homes is, however, ambiguous in one respect. It is not clear from the opinion whether the divisor for purposes of calculating the per-hour value of a weekly salary should be the number of nonovertime hours actually worked by the employee in the workweek in question, even if that number is less than 40, or whether it should be 40 (i.e., the number of nonovertime hours that exist in a workweek). In codifying the holding of Skyline Homes, the Legislature adopted the latter rule. (Lab. Code, § 515, subd. (d)(1) [“the employee’s regular hourly rate shall be 1/40th of the employee’s weekly salary”].)

*Page 24-25 of slip opinion (emphasis in original).

As noted, the Legislature, in codifying the holding of Skyline Homes, adopted 40 as the divisor for all cases (Lab. Code, § 515, subd. (d)(1))

*Page 25 of slip opinion

Overtime Rate for Flat Sum Bonus

Should this prove too simple, the court set out a different rule for employees receiving a “flat sum bonus.” Alvarado received an “attendance bonus” — a flat amount paid to employees who work weekends. The attendance bonus was earned regardless of whether the employee worked overtime. This led the court to assume “the bonus is properly treated as if it were fully earned by only the nonovertime hours in the pay period.” *Page 19-20 of slip opinion.

The court then concluded: “therefore only nonovertime hours should be considered when calculating the bonus’s per-hour value.” *Page 20 of slip opinion.

I don’t follow the court’s logic because I don’t agree that the bonus is properly treated as if it were fully earned by only the nonovertime hours. I agree Labor Code 515(d) is not applicable to bonuses because it only applies to a “salary.” It seems more logical, to divide the bonus by all hours worked; not just the regular hours worked. The attendance bonus is earned by working on the weekend, whether the employee works overtime or not. That is how other bonuses and incentive compensation is typically factored into the overtime rate of pay. The court’s logic on this point is a bit shaky.

Unfortunately, the Supreme Court did not ask my opinion before issuing its decision, so we are stuck with their holding.

If you are an employer who pays a flat sum bonus, you will need to review your policies and possibly recalculate any overtime payments over the last 4 years.

If you have questions about wage and hour laws in California, feel free to contact me at your convenience. I’ve been representing employees and employers in wage and hour matters for more than 20 years. I had my first overtime trial before I graduated law school. I routinely represent individuals, companies and families in Labor Commissioner hearings and audits. I’d be happy to discuss your minimum wage, overtime or other compensation questions.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law. We cannot answer questions about specific situations or provide legal advice over the Internet. If you desire legal advice, you should contact an attorney.

Using this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. Using the Internet or this blog to communicate with the firm does not establish an attorney-client relationship. Do not post confidential or time-sensitive information in this blog. The Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

 

Rest Break Reminder

A few months ago I wrote about Augustus v. ABM Security Services, where the court said employer must relieve employees of all duties in order for a rest break to be valid. ABM required the security guards to carry pagers, radios or cell phones during breaks. The court concluded on-call rest breaks are the same as no rest breaks.

Revision to Rest Break Decision

The California Supreme Court revised the opinion slightly, but the holding still stands.  The court changed final sentence in the Conclusion and so that the complete Conclusion now reads as follows:

California law requires employers to relieve their employees of all work-related duties and employer control during 10-minute rest periods.  The trial court’s summary adjudication and summary judgment orders were premised on this understanding of the law.  Rightly so: Wage Order 4, subdivision 12(A) and section 226.7 prohibit on-duty rest periods. What they require instead is that employers relinquish any control over how employees spend their break time, and relieve their employees of all duties—including the obligation that an employee remain on call.  A rest period, in short, must be a period of rest.  We accordingly reverse the Court of Appeal’s judgment on this issue.  The matter is remanded to the Court of Appeal for further proceedings consistent with this opinion.

This is not a big shocker, but it is language to remember. Employees must receive duty-free rest breaks. Employers cannot exercise any control over the employee during the rest break. Companies should review their rest break policies to ensure they are relieving employees of all duties during the rest breaks.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law. We cannot answer questions about specific situations or provide legal advice over the Internet. If you desire legal advice, you should contact an attorney.

Using this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. Using the Internet or this blog to communicate with the firm does not establish an attorney-client relationship. Do not post confidential or time-sensitive information in this blog. The Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

Home Care Companions Are Entitled to Overtime Under the FLSA

A D.C. Court of Appeals confirms that home care companions are entitled to overtime under the FLSA.  The appellate court confirmed that home care agencies and families using caregivers must pay overtime unless the employee meets the narrow “companion” definition.  The new regulations gained a lot of press in late 2014 and early 2015 when the regulations were set to go into effect.  A D.C. Circuit court judge held the provisions invalid, and stayed implementation of the new regulations.  The Department of Labor appealed, and many have been waiting to see what the appellate court will do.

Home care companions are entitled to overtime under the FLSA

The appellate court issued its decision in Home Care Association of America, et al. v. David Weil on August 21, 2015.  The appellate court disagreed with the lower court’s analysis, and found the regulations enforceable.  What does this mean for California employers (at least until the case is appealed to the Supreme Court)?

California and federal rules are different

The federal companion regulations mark one of the first instances where the federal wage and hour laws are more strict than California’s wage and hour laws.  Under California law, caregivers–which California usually calls personal attendants–are only entitled to overtime when they work more than 9 hours in a day or more than 45 hours in a week.  Those same home care companions are entitled to overtime under the FLSA after working 40 hours in a week.  This means many California caregivers will receive overtime after 9 hours in a day or after 40 hours in a week.

The definition of companion is also more limited than California’s personal attendant exemption.  Federal companions cannot spend more than 20% of their time providing care (e.g., assisting with the activities of daily living).  Their primary job is limited to providing fellowship and protection.  California’s personal attendants are allowed to spend 80% of their time providing care, fellowship and protection.

Another major difference between federal and state law is that, under the federal regulations, companions employed by third party care agencies can never be exempt from the FLSA.  California law does not differentiate between private employers and third-party employers.

If you or someone you know has questions about caregiver overtime rules in California, contact the Nuddleman Law Firm, P.C.  Robert Nuddleman assists families, care agencies and caregivers understand the law and ensure employees are paid correctly.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.