Alert - California Overtime Calculation Change

In March 2018 the California Supreme Court issued a ruling on the calculation formula for overtime pay which differs from the Federal requirement for same, and consequently increases the cost of overtime for many California employers.  In simple terms, the former (or federal) method for calculating overtime was to compute all the wage earned in the pay period and then divide that wage by all the hours worked to arrive at a regular worked rate.  The overtime pay for those hours in overtime is computed using the regular worked rate plus the applicable premium.    The California Supreme Court has ruled that the formula should be the total wage earned during the payroll period divided only by non-overtime hours worked.  In short, overtime in California just became significantly more expensive, and the claim is that this could be retroactive.

For example, if you have an employee paid $20 per hour working a 50-hour week under the former interpretation for overtime the 10 hours of overtime would be paid at $30 per hour.  Per the new ruling the 10 hours would be paid at $37.50 per hour, or a 25% increase.

            Old:  Total_pay($1000) / Total_hours(50) * 1.5 = $30

            New: Total_pay($1000) / NonOT_hours(40) * 1.5 = $37.50

It is common practice of food and beverage employers to pay different rates for different jobs, and the computation of regular worked wage is essential to accurately computing the premium due for overtime.

Data Central customers will soon have a new option to compute the regular worked rate using all ours, or regular hours, and we anticipate releasing this feature in the next 30-40 days after it has passed quality assurance testing.  In the meantime, any customer with non-exempt employees receiving overtime and who not compensated using a performance-based formula should be aware of this ruling and should consult with their legal/human-resource experts for advice and also to access risk exposure going forward, as well as the retroactive risk. 

Data Central will send out notification to all subscribers when the new overtime computation setting for regular rate of pay is available.