What to expect for 2012? One prediction is more claims and lawsuits based on improper calculations of the regular rate of pay. We are seeing regular rate issues pop up everywhere, including in the DLSE’s revised FAQs about the new Pay Notice requirement.
What is the regular rate of pay anyway? It certainly isn’t the rate an employer regularly pays. Rather it is the required overtime rate of pay that considers all compensation paid to the employee. And the reality is, for non-union employers who pay commissions, non-discretionary bonuses, service charges, and even provide perks (like free meals), the calculation of the regular rate of pay is a challenge.
For example, you decide to give a bonus to employees every quarter if certain defined metrics are met, such as zero injuries, or meeting a production goal, or the absence of guest complaints. For any non-exempt employee who worked overtime in that quarter, in addition to the overtime already earned you would also be required to pay an overtime premium on that bonus. Or you have a business where retail sales are only part of the business, and you pay a 10% commission on retail sales; the overtime rate must include those commission payments.
What if you are short-staffed and you have employees working in more than one classification at different hourly rates? While logic might dictate that you pay overtime at the rate the employee worked that shift, logic has nothing to do with it. The law requires you to pay overtime at the blended rate of all rates worked during that workweek. And what if your workweek for payroll purposes is not the same as your workweek for overtime purposes? Good luck getting that one right.
Quite frankly, the calculations are confusing and hard. That’s why so many employers get it wrong, even when they try to get it right. And that’s also why the issue has so much potential, especially in a climate where meal and rest break claims may be losing steam (fingers crossed on that issue). Just remember, paying daily and weekly overtime isn’t enough; you’ve got to pay it at the right rate too.