By Ashley Holsey, SPHR, PHR
If you’ve ever heard the phrase “regular rate of pay” and immediately grimaced, you’re not alone. There’s nothing “regular” about it, unless by regular you mean regularly confusing, regularly debated, and regularly avoided (please don’t avoid it). While many of us carry strong feelings on this topic, this calculation shows up often and is important when ensuring compliant wage and hour practices in your organization.
What Must Be Paid at the Regular Rate of Pay?
In California, the regular rate of pay isn’t just for overtime; it sneaks into several other payments as well. Here are four key areas where it applies:
- Paid Sick Leave (PSL):
This can be calculated either using the regular rate for the workweek that the employee uses CA PSL, or using a 90-day lookback period, which excludes overtime. - Reporting Time Pay:
If an employee reports to work as scheduled but is sent home early, reporting time pay must be calculated using the regular rate, not just the employee’s base hourly rate. (If reporting time pay is a new concept, please call your Silvers HR Consultant.) - Meal Period & Rest Break Premiums:
Missed, late, or noncompliant meal periods or rest breaks trigger premium pay, which must be paid at the regular rate of pay. This is a common area where mistakes happen. - Overtime & Double Time:
The classic example: overtime and double time must always be calculated using the regular rate, which includes nondiscretionary bonuses and other earnings, not just hourly wages.
Once you determine what must be paid at the regular rate of pay, the more complex calculation applies. Here is a basic formula: To determine a non-exempt employee’s regular rate of pay, use the following calculation: regular wages + non-discretionary bonus/incentive/commission/shift differentials ÷ all hours worked or regular non-overtime hours.
How to Avoid the Regular Rate Rabbit Hole (When Possible):
While your organization may not be able to eliminate the regular rate entirely, you can reduce how complicated it becomes by:
- Simplifying Pay Structures:
Fewer differing rates of pay and fewer bonus types mean easier calculations. - Being Clear About Bonuses:
Structure bonuses as discretionary when appropriate (and legally compliant), since discretionary bonuses don’t need to be included in the regular rate. If the bonus is tied to any metric or performance standard, it isn’t discretionary. - Using Consistent Pay Practices:
The more variability in pay (shift differentials, commissions, piece rates), the more complex the calculation. - Leveraging Payroll Support:
A good payroll system can often help with the calculations; just make sure the system is set up correctly.
The regular rate of pay may never be your favorite topic, but understanding where it applies can save your team from costly errors (and a few compliance nightmares). Maybe, with enough practice, you might even start calling it “regular” with a straight face.
If you have any further questions about the regular rate of pay, please contact your Silvers HR Consultant.