Q: AS an employee for a service provider company, I am paid an hourly rate and an additional piece rate if I respond to customer calls after hours. I often work more than 8 hours per day and on weekends. I am paid overtime based only on my hourly rate. Since I’m also receiving a piece rate, how should my overtime rate be computed?
A: Your overtime rate should be computed by also considering the amount you receive per piece rate. A higher overtime rate results in increased wages for you.
The overtime pay required by law is computed on the basis of the employee’s “regular rate” of pay. If the employee receives only one type of compensation, i.e., an hourly rate, then the hourly rate is the regular rate. The employee may be paid in more than one way, for example, an hourly rate and a bonus. If the employee does not work overtime, the question of the employee’s regular rate does not rise.
However, if the employee is paid an hourly rate plus some other type of compensation, and the employee works overtime too, then the employee’s “regular rate” for purposes of computing overtime, must be determined. Below are three possible situations where the overtime rate is increased based on the methods of compensation used:
Hourly Rate + Piece Rate
If the employee is paid on a piecework basis with hourly guarantees, the employee’s regular rate may be determined by dividing the employee’s total earnings for the workweek by the hours worked during the workweek. The regular rate is then multiplied time and a half for work of more than 8 and up to 12 hours per day.
For example, an employee is paid $10 per hour and $5 for every piece of work completed, and the employee worked 50 hours per week having completed 100 pieces for the week. If the employee was only paid hourly, the time and half overtime rate would be $15. However, since the employee is also paid a piece rate, the employee’s regular rate for overtime purposes is the weighted average between the hourly pay and the piece rate pay divided by all the hours worked . In this case, instead of $15, the employee should be paid a time and half overtime rate of $30.
Hourly Rate + Bonus
A nondiscretionary bonus is intended to increase an employee’s efforts, or to induce them to remain with the company. In California, money earned as a nondiscretionary bonus will be treated as wages, and therefore, must be included in the employee’s regular rate in computing the employee’s overtime pay. When including the bonus in the regular rate, the bonus must be apportioned back over the workweeks of the period in which the bonus was earned.
For example: The employee receives an hourly rate of $10 per hour, and receives a performance bonus of $2000 in a 6-month period (or 26 weeks). The employee’s normal overtime rate would be $15. However, if we include the bonus as part of the employee’s regular rate, then the employee’s overtime rate would be $17.88, not $15. The difference of $2.88 per hour may not be much by itself but spread over time, it becomes a significant amount for the ordinary employee.
Hourly Rate + Shift Differential Pay
The payment of a shift differential or night differential is not required by law. But if an employer pays an employee a shift differential for working undesirable hours or for arduous, hazardous, or dirty work, the differential pay is considered part of wages and must be included in the regular rate.
For example, an employee is paid $30 per hour plus a $3 per hour shift differential. The employee works 14 hours for the day. In computing the overtime rate, the differential pay of $3 per hour should be included as part of the regular rate. Therefore, the regular rate upon which the overtime rate is computed should be $33 per hour. The time and half pay should be 1.5 times $33 (or $49.50 per hour). The double time pay should be 2 times $33 (or $66 per hour).
Determining the correct amount of your overtime compensation under the law can be highly technical and may become confusing. However, correct application of the law may mean more wages to benefit you and your family.
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C. Joe Sayas, Jr., Esq. is an experienced trial attorney who has successfully obtained significant results, including several million dollar recoveries for consumers against insurance companies and big business. He is a member of the Million Dollar-Advocates Forum—a prestigious group of trial lawyers whose membership is limited to those who have demonstrated exceptional skill, experience and excellence in advocacy. He has been featured in the cover of Los Angeles Daily Journal’s Verdicts and Settlements for his professional accomplishments and recipient of numerous awards from community and media organizations. His litigation practice concentrates in the following areas: serious personal injuries, wrongful death, insurance claims, unfair business practices, wage and hour (overtime) litigation. You can visit his website at www.joesayas law.com or contact his office by telephone at (818) 291-0088.