How Do I Calculate Overtime Pay In California?

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How Do I Calculate Overtime Pay In California?

California-Overtime-Pay-Law

In the state of California, there are specific rules and requirements that govern when overtime is due, and how overtime pay is calculated.

Basically, California labor laws require all employers to pay non-exempt employees one and a half times their regular pay rate for:

•All extra hours the employee has worked over the standard 8hrs in a work day
•Extra hours worked other than the standard 40 hours worked in one work week
•First 8hrs that are worked on the 7th work day in a workweek

California laws also clearly state that non-exempt employees should receive twice their regular pay rate for anything over 12 hours worked in a single work day, as well as over 8 hours worked of the 7th consecutive work day in a single work week.

Calculating Overtime Pay in the State of California (with Examples):

 

Scenario#1: Calculating Overtime Pay When Both Daily and Weekly Overtime are Worked

There are specific rules that govern how employers should calculate overtime pay when the daily and weekly overtime hours are worked. For example, as an employer, you don’t have to pay your employee the same extra hours worked more than once, something that’s also known as pyramiding. This simply means that if your employee works 12 hours in one day, you don’t necessarily have to count the 4 extra hours worked in their weekly overtime as well as daily overtime.

Also, when calculating the number of overtime hours due, be sure to compare the total daily/7th day hours worked overtime and the total hours worked throughout the work week, and go with the higher figure.

Another thing to keep in mind is, where there are different overtime rates, you should compensate your employee based on the higher rate.

Here is a good example to help you understand how to calculate overtime pay when both daily and weekly overtime are worked:

Example#1

Let’s assume that your employee’s workweek usually runs from Monday to Sunday. In a single workweek, the employee works 10 hours every day from Monday to Friday and 12 hours during the weekend (Saturday and Sunday).

To calculate:

Combine the number of overtime hours worked on a daily basis with the 7th day hours together and then compare the total number against the weekly overtime hours. As we stated earlier, only choose the higher number of hours to determine the overtime pay owed to the employee.

In this case,

Hours Worked Overtime
Monday 10 2
Tuesday 10 2
Wednesday 10 2
Thursday 10 2
Friday 10 2
Saturday 12 4
Sunday 12 12
Total Hours 74
Daily Overtime 26
Weekly Overtime Calculation 74-40=34

In this case, we have 34 weekly overtime hours and 26 daily overtime hours. Your employee is entitled to the greater number of hours, which in this case is 34hrs.

Step#2: Determining the total number of overtime hours that the employee must be compensated at two times his/her regular pay.

As stated above, California law states that “non-exempt employees should receive double their regular pay rate for over 12 hours worked in a single work day, as well as over 8 of the 7 consecutive work day in a single work week.”

# of OT Hours at 2X Regular Pay Rate
Monday 0
Tuesday 0
Wednesday 0
Thursday 0
Friday 0
Saturday 0
Sunday 4
TOTAL 4 Hours at 2X Regular Pay Rate

 

In our example, the employee worked 4 additional hours in excess of the given 8hrs on Sunday.

This simply means that the employee is entitled to 2 times the regular workday’s rate for 4 of the overtime hours worked on Sunday.

Step#3: Determining the total number of hours owed to the employee at 1.5 times their regular workday rate

In this case, you’re required to subtract the total number of overtime hours that were compensated 2 times their regular workday rate from the total amount of overtime hours due.

In this case, 34 overtime hrs -4 double overtime hrs =30 hrs paid at 1.5 times the regular workday rate.

Calculating Overtime Pay When Non-Exempt Employees Receive a Flat-Sum Bonus

Last year, the Supreme Court of California issued a decision that would affect how overtime pay should be calculated by employers when non-exempt employees get flat-sum bonuses.

In the state of California, flat-sum bonuses are considered as nondiscretionary bonuses that neither decrease or increase based on the employee’s productivity level or the total amount of hours worked. For example, if the flat-sum bonus for employees who work overtime during the weekends is $50, the number will not change regardless of how many overtime hours they work.

The supreme court also ruled that in the event an employee receives a flat-sum bonus, the employer must include it in the their regular pay rate by dividing the bonus by the non-overtime work hours during the payment period. The ruling further states that the employer must multiply by 1.5 or 2 (not 0.5) to determine the overtime pay rate. This does differ from federal law.

Here is an example to help you understand better:

Let’s assume that employee’s hourly rate is $10 and receives a $80 bonus for the 50 hrs worked during the week. In this case, the employee should be compensated 10 hrs of overtime and based on our previous calculations, the employee is to be compensated at 1.5 times his/her standard hourly rate.

First, divide the bonus $80 by the total non-overtime hours 40 hrs=$2 per hour bonus
Two, multiply both the per hr bonus and employee’s hourly rate by 1.5. That is;

$2 by 1.5=$3
$10 wage per hour by 1.5=$18

In this case, the total will be $21, which is the employee’s overtime pay rate.

Next, multiply the overtime pay rate by the total number of overtime hours. That is, $21 multiplied by 10 hrs=$210.

Finally, you’ll need to calculate the total number of worked hours in a single workweek…that is, $10 multiplied by 40 hrs=$400 plus the $80 flat-sum bonus plus the $210 overtime compensations=$690.

As an employer, it’s important to ensure the correct overtime calculation method is followed as per the California laws.

If you are a small business owner in need of human resources services, benefits administration, or insurance, Mercado Insurance Services is here to help. Give us a call today.