California has some of the most robust labor laws in the United States, particularly concerning overtime pay. As an employer, it is your responsibility to understand California overtime rules as well as federal laws. The state has more generous overtime laws than the federal laws, providing greater protection to employees.
In California, all employers should pay employees overtime if they work more than 8 hours a day or more than 40 hours a week. The overtime rate cannot be less than one and a half times the employee’s regular pay rate for hours worked beyond the standard thresholds. In this guide on California OT laws, we explore various aspects of these laws, such as regular pay, how bonuses impact overtime calculations, minimum wage standards, and specific overtime rules for different types of employees.
Table of Contents
What is the Regular Rate of Pay?
To calculate overtime pay accurately, it is essential to understand the concept of a regular rate of pay. The regular rate of pay includes hourly earnings, salaries, piecework earnings, commissions, and certain bonuses. Employers must consider all forms of payments employees receive, not just hourly earnings, for the regular rate of pay calculations.
An important consideration is that the regular rate of pay cannot be less than the minimum wage set by the state. In California, there is no standard minimum wage; it varies depending on the size of the employer and is subject to periodic increases.
The regular rate of pay is calculated by dividing the total compensation earned in a workweek by the total number of hours worked. This rate must not fall below the applicable minimum wage.
Impact of Bonuses on Overtime Calculation
Bonuses can have a significant impact on the calculation of overtime pay. CA overtime calculation must include all forms of remuneration that an employee earns. When there are certain types of bonuses, the regular rate of pay changes for the period for which bonuses are received. Understanding the relationship between bonuses and overtime pay is essential for compliance in California. The Fair Labor Standards Act (FLSA), reinforced by California labor laws, dictates how bonuses are incorporated into the regular rate of pay to calculate overtime.
Therefore, state employers must be aware of the different types of bonuses and how to include them in the regular rate of pay calculation.
Types of Bonuses
While several kinds of bonuses can exist, in California, all bonuses typically fall into two categories: discretionary and non-discretionary.
Discretionary Bonuses: The bonuses at the employer’s full discretion over the fact and amount of payment are discretionary. Such bonuses are not promised or expected but act as a surprise. For instance, if a company offers a holiday bonus based on its profitability, it will be a discretionary bonus.
Non-Discretionary Bonuses: All formal bonuses promised to employees, such as bonuses for achieving sales targets, maintaining attendance, or meeting performance goals, are non-discretionary. Non-discretionary bonuses must be included in the regular pay rate when calculating overtime.
Calculation of Overtime with Bonuses
Only non-discretionary bonuses are included in the regular pay rate when calculating overtime. Let’s understand with an example:
An employee earns a base hourly wage of $20 and works 45 hours weekly. The employee also earns a $200 non-discretionary performance bonus for achieving the sales target set by the employer.
The regular rate of pay is calculated as follows:
Total earnings = (40 hours × $20) + (5 hours × $30) + $200 bonus = $800 + $150 + $200 = $1,150
Regular rate of pay = $1,150 ÷ 45 hours = $25.56
Overtime rate = $25.56 × 1.5 = $38.34
Overtime pay = 5 hours × $38.34 = $191.70
Therefore, the total weekly earnings, including overtime and the bonus, would be $1,150 + $191.70 = $1,341.70.
Minimum Wage Rates in California
As of January 1, 2024, the minimum wage in California for most employers is $16.00/hour. However, fast-food restaurant employers will have to pay their employees a higher minimum wage of $20.00 per hour from April 1, 2024. The Healthcare Facility employers will also have higher minimum wage rate requirements effective June 1, 2024. Such employers’ higher minimum wage obligation will be $25 per hour.
Calculating Overtime for Hourly-paid Employees
According to the state of California overtime laws, overtime calculation for hourly-paid employees is straightforward. The overtime is calculated as follows:
- Employees are paid 1.5 times the regular hourly wage for hours worked over 8 and up to 12 in a day or 40 in a week and for the first 8 hours of the seventh consecutive work day.
- Employees are paid double the regular wage rate for hours worked over 12 in a day or over 8 on the seventh consecutive day of work in a workweek.
Calculating Overtime for Salaried Employees
For salaried employees, the regular rate of pay is calculated by dividing the annual salary by 52 to find the weekly wage rate and further dividing the rate by 40 for the regular hourly wage rate. Then, the overtime calculation is the same as for hourly employees based on the regular pay rate.
Calculating Overtime for Commission-based Employees
The regular pay rate for piecework employees is calculated based on the total earnings divided by the total hours worked in a week. Then, they are paid overtime at 1.5 times the regular wage rate at a flat rate.
For commission-based employees, the regular pay rate is first calculated by adding the commissions earned to the hourly earnings and dividing by the number of hours worked.
Overtime Calculations for Employees with Multiple Pay Rates
If an employee works at two or more different pay rates, the regular rate of pay is the weighted average of the different rates. The weighted average is calculated by dividing the total earnings by the total hours worked.
Let’s understand this with an example:
Suppose an employee works under two different pay rates during the same week:
- 30 hours at $20 per hour
- 20 hours at $25 per hour
- Total hours worked = 50 hours
Step 1: Calculate total earnings from each rate:
- $20/hour * 30 hours = $600
- $25/hour * 20 hours = $500
- Total earnings = $600 + $500 = $1,100
Step 2: Total hours worked = 50 hours
Step 3: Calculate the weighted average pay rate:
- Weighted average pay rate = Total earnings / Total hours worked
- Weighted average pay rate = $1,100 / 50 = $22 per hour
Step 4: Calculate overtime pay:
- Overtime hours = 50 total hours – 40 standard hours = 10 hours
- Overtime pay rate = 1.5 * $22/hour = $33/hour
- Overtime pay = 10 hours * $33/hour = $330
Step 5: Total Pay for the Week:
- Regular pay (40 hours * $22/hour) = $880
- Overtime pay = $330
- Total pay = $880 + $330 = $1,210
Which Employees Are Eligible for Overtime?
The California overtime rules cover most employees in California, including hourly, salaried, and commission-based workers. However, eligibility depends on factors such as job duties, compensation, and the nature of the employment relationship.
Unless an employee falls into the exempt category of workers and is 18 years or older (or 16/17 years old and legally allowed to work instead of school), they will be eligible for overtime.
To be eligible for overtime, here are the minimum requirements:
- Employees should work more than 8 hours in a single workday
- Employees working more than 40 hours per week are entitled to overtime.
- Employees working on the seventh consecutive day of a workweek are entitled to overtime for the first 8 hours worked that day at 1.5 times the regular wage rate.
- Employees working more than 12 hours per day qualify for double-time pay.
- Employees working more than 8 hours on the seventh consecutive day of a workweek qualify for double time for hours worked beyond 8.
Which Employees Are Exempt from Overtime?
Certain categories of employees are exempt from the protections of the California overtime laws. It includes the following categories:
- Executive employees are primarily employed in management roles and direct the work of at least two other employees.
- Administrative employees whose primary duty involves office or non-manual work directly related to management or general business operations and who exercise discretion and independent judgment.
- Professional employees require advanced knowledge, predominantly intellectual, and consistent exercise of discretion and judgment.
- Outside salespersons working away from the employer’s place of business.
- Computer professionals make at least $27.63 an hour.
- Agricultural workers
Overtime wage laws do not protect exempt employees, but they are generally subject to higher minimum salary requirements and have specific duties that align with their exemption.
Unionized Employees and the Bargaining Agreement
Unionized employees covered by a collective bargaining agreement are not covered under the California OT laws. However, this is true only if the collective bargaining agreement has different overtime provisions than those outlined in California law.
If the agreement has the following three conditions:
1. Definition of work hours, work conditions, and wages
2. The regular wage rate of 30% or higher than the California minimum wage rate
3. Wage rates for overtime hours
Then, the terms of the collective bargaining agreement take precedence. If these conditions are not met, unionized employees are considered non-exempt and paid according to California labor laws.
Unauthorized Overtime
When an employee works overtime that the employer does not authorize, it is termed unauthorized overtime.
Whether the overtime hours were approved or not, the California overtime rules are clear. Employers must pay for all hours worked, including unauthorized overtime. The overtime pay cannot be docked as a disciplinary action.
Employers must use effective scheduling and strict authorizations to prevent the abuse of overtime rules.
Employers' Rights and Responsibilities towards Overtime for Employees
Managing overtime effectively is essential for workforce management and a legal requirement under California labor laws. Employers must navigate overtime regulations while upholding their responsibilities to compensate employees fairly according to state and federal standards.
Here are the rights and responsibilities of the employers.
Keeping Track of Overtime and Compliance
Employers are responsible for accurately tracking and recording employee hours, including overtime. Additionally, company policies on overtime must comply with state and federal laws regarding overtime pay and ensure that employees are compensated accurately.
Consent/Refusal of Employees
California labor laws recognize the workers’ right to refuse overtime unless stated otherwise in the employer’s policy and any applicable collective bargaining agreements. However, some jobs, such as those related to health and safety, require overtime in emergencies.
Providing Notice Before Scheduling Overtime
While not required by law, employers should provide reasonable notice before scheduling overtime, especially if it is mandatory. It is necessary to foster a positive work culture and allow employees to plan their time and avoid conflicts.
Overtime Compensation and Legal Requirements
Accurate overtime payment is the responsibility of the employers and is required by law. Failure to do so can result in legal penalties, including back pay, fines, and damages.
FAQs
Q1. If an employee works unauthorized overtime, must the employer pay for it?
Yes, California labor law overtime pay guidelines clearly state that employers are required to pay employees for all hours worked, including unauthorized overtime. However, it is important to note that disciplinary actions against unauthorized overtime should not include withholding pay for hours worked.
Q2. Can an employee waive his or her right to overtime compensation?
No, employees cannot waive their right to overtime compensation in California. Any agreement that attempts to waive overtime pay is considered void and unenforceable.
Q3. What are the employer penalties for retaliation towards an employee’s overtime?
Employers who retaliate against employees for asserting their rights can be found guilty of wage theft. Retaliatory actions such as termination, demotion, or reducing an employee’s hours or pay will result in penalties. These penalties include reinstatement, back pay, damages, and civil penalties.
Q4. What are the exceptions to general overtime rules?
Here are the general exceptions:
Exempt executive, administrative, and professional employees who meet specific criteria.
Unionized employees are covered by collective bargaining agreements that have different overtime rules specified in their agreements.
Employees who work alternative workweek schedules that allow for longer daily hours without overtime pay provided the schedule is adopted according to the law.
Q5. Can an employer require an employee to work overtime?
Yes, employers can require employees to work overtime as they have the right to set work schedules and require overtime as long as they pay the appropriate overtime rates.
Q6. What happens if an employee works unauthorized overtime?
If an employee works unauthorized overtime, the employer must still pay for the hours worked. However, employers can take disciplinary action against employees who violate policies prohibiting unauthorized overtime.
How can Truein help with Overtime Pay management?
Truein is a powerful cloud-based time and attendance management solution that helps employers streamline overtime pay management across industries.
With Truein, you can ensure accurate recording of employee hours, making overtime calculations easier. Its GPS geofencing feature allows employers to set virtual limits so employees are present on-site during work hours. Its robust scheduling feature empowers managers and supervisors to stay in control while giving employees appropriate access to check their schedules and request any changes.
Truein allows employers to set customized overtime policies, ensuring compliance with state and federal laws. Furthermore, with detailed reports on employee hours and overtime, employers identify trends and make informed decisions, minimizing conflicts or disputes.
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Conclusion
Overtime becomes necessary to meet increased production demand and provide uninterrupted customer services. However, compliance with California’s overtime laws is mandatory for all employers. We hope this guide will help employers ensure fair compensation by explaining various aspects such as regular rate of pay, bonuses, minimum wage, and calculations for different types of employees.
Truein can be a valuable tool for you to set up rules as per the local laws to avoid legal issues and to create a fair workplace environment.
