Table of Contents
- Regular Rate of Pay
- Hourly employees are entitled to at least the highest minimum wage for all time spent working; unpaid off-the-clock is illegal.
- Minimum Wage
- Illegal Off-The-Clock Work
- Rounding of Time
- Donning and Doffing
- On-Call and Standby Time
- Travel and Commute Time
- Training and Education Time
- Employees are sometimes entitled to payment beyond the salary or hourly rate.
- Commissions (salary and hourly employees)
- Bonuses (salary and hourly employees)
- Tips and Service Charges (salary and hourly employees)
- Piece Rate Pay (hourly employees)
- Shift Differential Pay (hourly employees)
- Reporting Time Pay (hourly employees)
- Split Shift Pay (hourly employees)
Overtime & Unpaid Wages
Hourly employees are entitled to overtime based on the “regular rate” of pay.
- Federal law requires employers to pay nonexempt employees an overtime rate of at least one-and-one-half times their regular hourly wage for each hour worked in excess of 40 during a workweek. 29 U.S.C. § 207. California law protects nonexempt employees to a greater degree than federal law. Labor Code § 510.
- California’s overtime law requires employers to pay nonexempt employees one-and-a-half times their regular hourly rate of pay for: All hours worked in excess of 8 in a single workday, All hours worked in excess of 40 in a single workweek, and The first 8 hours worked on the seventh consecutive day of work in the workweek. Labor Code §§ 510 (a), 511, 514, 515.
- California employers must pay non-exempt employees twice their regular hourly rate of pay for: All hours worked in excess of 12 in a single workday, and All hours worked in excess of 8 on the seventh consecutive day of work in the workweek. Labor Code § 510 (a).
- Employees who have been deprived of overtime pay because of a misclassification can seek back-pay for the unpaid overtime wages the employee earned. Labor Code §§ 204, 1194 (a). The employer may be obligated to pay the legal costs and attorney fees that the employee incurred while pursuing their overtime wages. Labor Code § 1194 (a). There may be a penalty of $100 or $200 per pay period in which California’s overtime laws were violated. Labor Code §§ 204, 210, 225.5. The penalty is normally payable to the State of California, but there are some situations in which the employee can recover up to 25% of it. Labor Code §§ 210, 225.5; Labor Code §§ 2698–2699.5.
Regular Rate of Pay
- Overtime rates are based on the employee’s regular rate of pay. Labor Code § 510 (a). Computing an employee’s regular rate depends on how the employee is compensated. If an employee is paid by the hour and receives no other compensation, the hourly rate of pay is the employee’s regular rate. Huntington Memorial Hospital v. Superior Court, 131 Cal.App.4th 893, 905 (2005).
- The regular rate must be based on wages and most other forms of compensation an employee earns for work performed during the workweek, excluding overtime. Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945); Huntington Memorial Hospital v. Superior Court, 131 Cal.App.4th 893, 903–904 (2005); 29 U.S.C. § 207(e). This means that commissions, bonus payments, and any other types of payment outside of hour pay must be included in the regular rate of pay. Only certain payments – i.e., true discretionary payments, vacation pay, and expense reimbursements – may be excluded from the regular rate of pay.
- A discretionary bonus is generally “in the form of a gratuity where there is no promise for their payment, for example, a holiday bonus at the end of the year.” A non-discretionary bonus “may be a contractually required payment where a promise is made that a bonus will be paid in return for a specific result, such as exceeding a minimum sales figure or piece quota, or as an inducement to remain in the employ of the employer for a certain period of time.” The formula used to calculate the additional overtime owed on the bonus payment is specific to California law and depends on the type of bonus and the bonus time period.
- Flat sum bonus. When a hourly employee receives a non-discretionary flat-sum bonus, the overtime rate should be based on the employee’s straight-time hours worked during the pay period in which the bonus is earned, and not the employee’s total hours worked during the pay period, then multiplying the differential by 1.5 for overtime hours worked (or 2 for double time hours). This flat sum bonus calculation results in higher overtime payments than would be payable under the production bonus formula in “production bonus” method. DLSE Enforcement Manual § 18.104.22.168.
- Production bonus. A “production bonus” is a bonus that is based on a percentage of production or some formula other than a flat amount and can be computed and paid with the wages for the pay period to which the bonus is applicable. A “production bonus” is earned during straight time as well as overtime hours. DLSE Enforcement Manual § 49.2.4. The overtime “premium” on a production bonus is half-time (or full-time for double time hours) on the regular bonus rate. The regular bonus rate is found by dividing the bonus by the total hours worked during the period to which the bonus is earned, and the total hours worked for this purpose will be all hours, including overtime hours. DLSE Enforcement Manual § 49.2.
Hourly employees are entitled to at least the highest minimum wage for all time spent working; unpaid off-the-clock is illegal.
- Federal law requires nonexempt employees get paid a minimum wage of $7.25 per hour. 29 U.S.C. § 206(a)(1)(C).
- California, as of January 1, 2021, sets a statewide minimum wage higher than federal law. All non-exempt employees that work for an employer with 25 or fewer employees must be paid a minimum wage of $13 per hour; those that work for an employer with more than 25 employees must be paid $14 per hour. Labor Code § 1182.12(b).
- Local minimum wage ordinances exist in many California cities and counties that sets a minimum wage higher than the California statewide minimum wage. For instance, as of July 1, 2020, employees in Los Angeles are entitled to $14.25 (for employers with 25 or fewer employees, increasing to $15 on July 1, 2021) or $15 per hour (for employers with 26 or more employees). Other California localities with minimum wage ordinances include: Alameda; Belmont; Berkeley; Cupertino; El Cerrito; Emeryville; Fremont; Los Angeles; Los Altos; Malibu; Menlo Park; Milpitas; Mountain View; Novato; Oakland; Palo Alto; Pasadena; Petaluma; Redwood City; San Diego; San Francisco; San Jose; San Leandro; Santa Monica; San Mateo; Santa Clara; Santa Rosa; Sonoma; Sunnyvale.
Illegal Off-The-Clock Work
- Employers may not ask employees to work off the clock. Bradley v. Networkers International, LLC, 211 Cal.App.4th 1129, 1156 (2012).
- Employers track all time worked by hourly employees, including overtime hours, and pay the appropriate rate for all time worked. Labor Code § 226 (a) [requiring employer to keep record of “total hours worked by the employee”]; Labor Code § 204 [“All wages…earned by any person in any employment are due and payable twice during each calendar month, on days designated in advance by the employer as the regular paydays.”].
- Common situations of illegal off-the-clock work are:
- Working during breaks such as carrying on with work during a meal or rest break.
- Reviewing or responding to emails from a mobile device, or after hours.
- Work performed remotely or away from the worksite where there is no time clock system.
- Post-shift work completing tasks like clean-ups, dropping off equipment by heading to another site.
- Going through pre or post shift security checks.
- Going through COVID-19 safety protocols (like temperature testing, COVID-19 testing, and/or completing COVID-19 paperwork).
- Traveling during work or on work related errands to and from work.
- Putting on and removing work equipment before and after shifts (donning and doffing).
- Correcting errors or redoing a project.
- Preparation such as warming up or loading trucks, planning a worksite, setting up a restaurant prior to a shift and transferring equipment from one place to another.
- Administrative work like preparing medical charts or completing paperwork after hour without pay.
- Having to check in to report to work (on-call time).
Rounding of Time
- Employers must keep accurate records and provide regular wage statements that correctly state the total hours worked by the employee. Labor Code § 226 (a). Employers must keep time records showing the hours worked daily and the wages paid. Labor Code § 1174.
- Rounding is the practice of adjusting an employee’s hours worked, either up or down, to the nearest increment of a certain amount, to make it easier when calculating their hours worked and more efficient for accounting purposes. Employers are allowed to adopt policies that round their employees’ hours worked, subject to certain limits. See’s Candy Shops, Inc. v. Superior Court, 210 Cal.App.4th 889, 903 (2012); 29 C.F.R. § 785.48(b).
- Rounding policies designed to systematically under-compensate employees are illegal. Rounding policies cannot consistently result in a failure to pay employees for their time worked. Alonzo v. Maximus, Inc., 832 F.Supp.2d 1122, 1126 (C.D. California 2011). They must be fair and neutral on its face and applied in a way that, on average, does not favor underpayment. See’s Candy Shops, Inc. v. Superior Court, 210 Cal.App.4th 889, 907 (2012).
- Employers may round to the nearest five minutes, six minutes, or quarter-hour for purposes of calculating the number of hours worked. DLSE Enforcement Manual § 47.1; 29 C.F.R. § 785.48(b).
Donning and Doffing
- To carry out work-related activities in a seamless manner, sometimes it requires employees to wear special clothes, equipment, or gear. This includes boots, aprons, or hats in addition to other kinds of gear. Depending on the job designation, you may have to put on and take off clothing before and after every shift. This is known as donning and doffing.
- California employers have to compensate their employees for any work-related activities, as long as they are considered important to work proceedings. Tasks that an employee must perform to prepare for work count as “hours worked” when they are an integral and indispensable part of the job. Mitchell v. King Packing Co., 350 U.S. 260, 261 (1956).
- Common examples of situations requiring pay for donning and doffing are:
- Safety gear. Biochemical engineers and food safety workers need to don safety gear for the entire duration of their shifts. It can take several minutes to put on the gear, and putting it on at home could compromise the safety and sterility of the gear.
- Shift overlap. A few employees need to report earlier than the scheduled standard time. These employees include nurses, who are required to talk to previous shift nurses. While employees are made to work before the scheduled time, they may not be paid for it.
- Preliminary duties. Sometimes employees need to report early, either to unlock doors, meet a visitor, or sign for a delivery.
- Uniforms. Police officers, mechanics, doctors and other professionals, who have to wear uniform for their work, especially when a change of clothes is necessary mid-shift, need to be paid to do so on premises.
On-Call and Standby Time
- Employees are sometimes entitled to compensation for hours spent “on-call.” An employee is considered on-call and must be paid for the time if the employer can call them into work on a short notice. The degree of control that the employer exercises over the employee while the employee is not working will usually determine whether the employer must pay for the time.
- If the employee is completely free to engage in personal activities while on-call, the employee is not subject to the employer’s control and is thus not entitled to compensation. But if the employee has no opportunity to engage in personal activities while waiting to be called into work, the employee is subject to the employer’s control and is entitled to compensation. Gomez v. Lincare, Inc., 173 Cal.App.4th 508, 523 (2009). Factors examined to determine if on-call time must be paid include:
- Whether the employer imposes an on-site living requirement;
- How much time the employee is given to report after being called in to work;
- Limits on the distance from the employer the employee is realistically free to travel while on-call.
- The frequency with which the employee is called in to work.
- Whether the employee is free to trade on-call duties with other employees.
- Whether the employee actually engages in personal activities while on-call.
Travel and Commute Time
- Commute time – i.e., travel from home to work and back – is usually not paid. But, most travel time is considered work time and thus paid. Time the employee spends commuting from home to work is not part of the workday. This is true even if the employee commutes to work in a “ride-sharing” program that the employer provides. Labor Code § 510 (b) [“Time spent commuting to and from the first place at which an employee’s presence is required by the employer shall not be considered to be a part of a day’s work, when the employee commutes in a vehicle that is owned, leased, or subsidized by the employer and is used for the purpose of ride-sharing, as defined in § 522 of the Vehicle Code.”].
- If traveling to work on employer-provided transportation is mandatory, however, commuting time will be considered “hours worked” and the employee is be entitled to compensation, including overtime if applicable, for those hours. Morillion v. Royal Packing Co., 22 Cal.4th 575, 587 (2000).
- Time spent traveling from home to a job site might also count as “hours worked” if the job site is distant from the place where the employee usually works and the travel is necessary to carry out a special assignment. 29 C.F.R. § 785.37. For an hourly employee driving a company vehicle on their commute asked to deliver tools and equipment to a worksite, the commute time may be compensable. 29 CFR § 785.35.
Training and Education Time
- Attendance at employee meetings, employer-sponsored training programs, lectures, work courses or meetings is not deemed voluntary if required by the employer or if the employee is led to believe that their non-attendance would adversely affect their current working conditions or continued employment.
- Training is directly related to the employee’s job if it aids him/her in performing the present job more effectively, as distinguished from training for another or a higher labor skill . 29 CFR § 785.27-31.
- Employers must pay for time employees spend at lectures, work courses, employer-sponsored training programs or employee meetings, as it counts as hours worked for pay purposes unless:
- Time is outside of normal working hours.
- Coursework is unrelated to the employee’s regular job, such as learning the requirement of a new or higher-rated job.
- Attendance is strictly voluntary (except for continuing education training).
- No productive work is performed. 29 CFR § 785.27; DLSE Enforcement Manual § 46.6.3.
Employees are sometimes entitled to payment beyond the salary or hourly rate.
Commissions (salary and hourly employees)
- Earned commissions are the equivalent to earned wages under the Labor Code. Labor Code § 200(a); Davis v. Farmers Ins. Exchange 245 Cal.App.4th. 1302, 1332, fn. 20 (2016); Sciborski v. Pacific Bell Directory, 205 Cal.App.4th 1152, 1166 (2012).
- Compensation is generally considered a true commission if it is based on a proportional amount of sales of your property or services. Labor Code § 204.1; Keyes Motors, Inc. v. DLSE, 197 Cal.App.3d 557 (1988). The employee receiving the commission must be involved principally in selling the goods or services on which the commission is measured.
- Employers may not engage in “self-help” by withholding from an employee’s wages any money owed to the employer. Labor Code § 221.
- Employers may not terminate employees without “good cause” to avoid paying otherwise earned commissions, if it would amount to an unconscionable forfeiture. Ellis v. McKinnon Broadcasting Co., 18 Cal. App. 4th 1796, 1803-04 (1993); Schachter v. Citigroup, Inc., 47 Cal.4th 610, 622 (2009); Koehl v. Verio, Inc., 142 Cal.App.4th 1313, 1335 (2006); Civil Code §§ 1670.5, 1442; DLSE Enforcement Manual § 34.8, 34.9; DLSE Opinion Letters 1993.03.08, 1999.01.09.
- Employers must follow certain requirements when paying employees commissions:
- The employer provides commission agreements in writing.
- The agreement contains the method by which commissions are computed and paid.
- The employer gives employees a signed copy of the agreement.
- The employer obtains a signed receipt from each employee, acknowledging receipt of the agreement. Labor Code § 2751.
Bonuses (salary and hourly employees)
- Earned bonuses are the equivalent to earned wages under the Labor Code. Labor Code § 200(a); Davis v. Farmers Ins. Exchange 245 Cal.App.4th. 1302, 1332, fn. 20 (2016); Schachter v. Citigroup, Inc., 47 Cal.4th 610 (2009). Bonuses are not based upon the price of a particular product or service, which distinguishes them from commission wages.
- The promise of a bonus payment becomes a binding as a unilateral contract when the employee begins performance, and cannot then be revoked by the employer. Lucien v. All States Trucking, 116 Cal.App.3d 972, 975 (1981); DLSE Enforcement Manual § 35.4. Contract principles and the specific terms of the bonus plan determine whether an employee earned the bonus. Neisendorf v. Levi Strauss & Co., 143 Cal.App.4th 509, 523 (2006).
- Even bonuses labeled as “discretionary” can turn into an implied contract to pay a bonus, and that the regular payment of a bonus in past years based on objective criteria may ripen into an implied contract for compensation. DLSE Enforcement Manual §§ 35.4.3, 35.4.4.
Tips and Service Charges (salary and hourly employees)
- Differentiating among “gratuity,” “tip,” versus a “service charge,” and “operations fee” is whether or not the patron has the option to leave the amount. If it’s optional, it’s a tip or gratuity; if it’s mandatory, it’s a service charge or operations fee. IRS Newsletter FS-2017-08 (April 25, 2017); California Publication 115, Tips, Gratuities, and Service Charges (September 2018)
- Service Charges/Operations Fees Restrictions. A “service charge” or an “operations fee” is a mandatory amount – i.e., the customer does not have the option to refuse payment of this amount. It is included on the bill and must be paid. The amount belongs to the employer (not the employees). The amount is treated and paid as wages, and is therefore included as part of the “regular rate” when calculating overtime owed to hourly workers who are paid service charges.
- Gratuities/Tips Restrictions. A “gratuity” or a “tip,” is an optional amount – i.e., it is entirely at the option of the customer as to whether to include this amount on the bill. It is not mandatory – i.e., it is not added to the bill; instead, the customer has the option.
- The tip belongs to the employee(s) to whom it is left (i.e., employees in the “chain of service”); the amount does not belong to the employer. Tip pools and mandatory tip-outs can be controlled by the employer as long as the employer does not take a “tip credit,” and affected employees are informed about how the pool will work. Labor Code § 351.
- Owners, management and supervisors may never participate in the mandatory tip pool, even when they work a shift during which they take a non-management role. This means that anyone with authority to hire, discharge, supervise, direct, or control the acts of employees is considered an “agent” of the employer and cannot receive tips. Labor Code § 350.
- California is not a “tip credit” state, meaning that any tips that go to employees cannot be used to meet the minimum wage requirements.
- Credit card charges may not be passed on to the employee or deducted from the tip.
- Tips are not treated as wages, unlike service charges. Tips are not subject to sales tax, unlike service charges.
Piece Rate Pay (hourly employees)
- Piece rate pay is based on completing a particular task or making a particular piece of goods. It is a method of payment based on units of production, instead of actual time worked. DLSE Enforcement Manual § 2.5.1.
- Piece rate employees must be be compensated for rest and recovery periods and all other periods of “other nonproductive time” separately from any piece rate pay and at specified minimum rates. Labor Code § 226.2.
Shift Differential Pay (hourly employees)
- Employers often choose to pay a small premium, called a “shift differential,” to employees who work swing, graveyard or other less desirable shifts, no law requires you to pay a shift differential. This amount is added to the hourly rate of pay when calculating the regular rate of pay for overtime, sick leave pay and other purposes.
- A meal or rest period premium should be paid at the applicable hourly rate during which the break violation occurred. For instance, if the break was missed/short/late/interrupted during the $15 per hour work, the premium is $15; and if during the $20 per hour work, the premium is $20.
- The wage statement must show “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” Labor Code § 226a(9).
- When an employee with more than one rate of pay works overtime, an employer must calculate the employee’s regular rate of pay to determine the overtime rate. The method used to determine the regular rate of pay is the weighted average method. DLSE FAQ on Overtime.
- The regular rate will be established by adding all hours worked in the week and dividing that number into the total compensation for the week.
- For example, an employee works 32 hours at $11.00 an hour and 10 hours during the same workweek at $9.00 an hour, the weighted average (and thus the regular rate for that workweek) is $10.52. This is calculated by adding your $442 straight time pay for the workweek [(32hours x $11.00/hour) + (10 hours x $9.00/hour) = $442] and dividing it by the 42 hours you worked.”
Reporting Time Pay (hourly employees)
- An employee who reports for work as scheduled or at an employer’s request but is not put to work or is given less than half of the hours scheduled for or usually worked is owed reporting time pay. The reporting time pay is at least half of the hours the employee was scheduled for or usually worked, but never less than two hours pay and never more than four hours pay. Reporting time pay must be paid at the employee’s regular rate of pay, which can never be less than the minimum wage. DLSE Enforcement Manual § 45.1.2.
- Reporting time pay is due when an employee is required to call-in two hours before a previously scheduled “on-call” shift. The court determined that employees were “reporting” for work when they called-in and therefore entitled to reporting time pay if they were told not to come into work. Ward v. Tilly’s, 31 Cal.App.5th 1167 (2019).
- These provisions do not apply to employees:
- On a paid standby status, who are called to work at times other than their usual shift.
- When operations cannot begin due to threats to the employer’s or property or when recommended by civil authority.
- When public utilities fail, such as water, gas, electricity or sewer.
- When work is interrupted by an act of God or other causes not within the employer’s control.
Split Shift Pay (hourly employees)
- A split shift is any two distinct work periods separated by more than a one-hour meal period. If there is more than one hour between shifts, the employee must receive one hour’s pay at no less than the minimum wage rate for the time between shifts. California Code of Regs., tit. 8 § 11010-11170 (4). Any amount an employee earns above minimum wage each workday may be used to offset the split shift requirement.
- No split shift premium pay is owed when the employee requests that a shift be split for their own convenience, such as an employee who requests to adjust their schedule to be able to pick a child up from school and then return to work. California Code of Regs., tit. 8 § 11010-11170 (2).