I.

Meal and Rest Period Premiums Are Paid at “Regular Rate of Pay”

Under CA law, an employee’s “regular rate of compensation” for meal and rest period premium pay is synonymous with
the Team Member’s “regular rate of pay” for overtime. This applies to the payment of meal and rest period premium
payments for all Team Members who earn compensation in addition to their hourly or standard rate per hour. The
“regular rate of pay includes a number of different kinds of remuneration, such as hourly earnings, salary, piecework
earnings, and commissions.” Bonuses, including flat sum and productivity percentage bonuses are also calculated into
the regular rate of pay for purposes of determining overtime.

The regular rate of pay represents value paid to a team member and is used to calculate overtime, paid sick leave, and
meal or rest period premiums. However, there are several items that are not generally included in the calculation of a
team member’s regular rate of pay. The following are some of the more common examples of payments NOT included
in regular rate of pay when no work is performed:

1. Paid Time Off/Leave when no work is 7. Team member benefit plan

performed including paid sick days, supplemental contributions
sick days, floating holidays, designated holidays, 8. Team member referral bonuses –
paid time off, bereavement leave, voting time off, certain exceptions could apply
vacation pay and other paid leave time under city, 9. Payments to a profit-sharing plan
state or federal law. 10. Certain stock options
2. Reporting time pay 11. Fringe benefits
3. Missed meal or rest period premium pay 12. Health and retirement benefits which
4. Split shift premium pay are provided through third parties
5. Overtime and Double time premium pay
6. Reimbursement for business expenses

The above is only a partial listing of payments excluded from the regular rate of pay. Your operations may include
additional payments which are not included in the regular rate. Please let us know if there are payments you have
questions about.

Employers must use the regular rate of pay formula when calculating missed meal and rest period premiums, though the
law does not clearly address specifically how employers should calculate regular rate of pay for purposes of paying meal
and rest period premium pay. Here is some guidance.

II. Common Causes of Meal and Rest Period Violations/Premium Payments

There are a number of common causes for meal and rest period violation premium payments, including:
• Failure of the Team Member to take a timely meal or rest periods, e.g. not taking a meal period before the end
of the fifth hour of work;
• Failure of a Team Member to take breaks for the full duration required to be deemed compliant, e.g. at least a
net 10 minutes for rest periods and a net 30 minutes for meal periods;
• Missed meal and rest periods due to Team Member choice without appropriate documentation

Generally, one method of avoiding uncertainty in calculation of the regular rate of pay for purposes of meal and rest
period premium payments is to eliminate certain types of additional compensation such as non-discretionary bonuses.
Notwithstanding efforts to reduce or eliminate certain types of additional compensation, there are several formulas
used to calculate the regular rate of pay depending on the type of additional compensation the Team Member is
provided.
 III. Basic Principles of Calculating Regular Rate of Pay Under Federal Law.

Meal and rest period premium payments for nonexempt Team Members is calculated based upon their regular rate of
pay. Unless specifically excluded, all forms of remuneration should be included in the regular rate of pay
calculations. Thus, in addition to Team Members’ standard wages (hourly wages, salary, and/or piece rate
compensation), the regular rate of pay includes commissions and non-discretionary bonuses earned by nonexempt team
members.

A. Bonuses Earned During A Single Week.

Under federal law, the regular rate of pay is generally calculated by dividing the total includable remuneration earned
during the week by the number of hours worked that week.

Regular Rate of Pay: FLSA Weighted Average Method. (Total Compensation divided by Total hours times)
Example 1:

Team Member works a total of 45 hours during the week, including 5 hours of overtime.
Team Member earns $20 per hour.
Team Member also earns a $120 bonus.

Calculation: 45 hours x $20 = $900

Bonus = $120
Total Straight Time Wages = $1,020
Regular rate of pay = $22.67 = $1020 divided 45

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the Team Member, not the employer.

Meal and Rest Period Premium = $22.67 for each day there is a violation

B. Bonuses Earned Over Multiple Workweeks.

When wages, such as bonuses, are earned over the course of multiple workweeks, the earnings need to be allocated
over the workweeks in which they were earned. Therefore, after the calculations are made each workweek will have a
different regular rate of pay. Calculation and payment of any overtime owed on the bonus may be deferred until the
amount of the bonus is ascertained. When the amount of the incentive payment is determined, it must be apportioned
back over the workweeks of the period during which it was earned.

If it is impossible to allocate the incentive pay among the workweeks of the period in proportion to the amount of the
incentive actually earned each week, some other reasonable and equitable method of allocation must be adopted. If
reasonable and equitable to assume a Team Member earned an equal amount of the incentive each workweek of the
period to which the bonus relates, the incentive should be allocated equally among the workweeks during the bonus
earning period and for each week in which the Team Member worked overtime.

If there are facts which make it inappropriate to assume equal incentive pay earnings for each workweek (for example,
Team Member may take vacation and be absent an entire week), it may be reasonable and equitable to assume that the
Team Member earned an equal amount of incentive compensation each hour worked of the pay period and the hourly
increase attributable to the incentive pay may be calculated by dividing the total incentive by the number of hours
worked by the Team Member during the period for which it is paid.

Important, the Company should consult with counsel to determine if the bonus can be reaonably attributed equally to
each week in the measuring period or, it is inappropriate, and the Company should assume the Team Member earned
the bonus by each hour in the measuring period of the bonus. We recommend the latter formula if there is any
ambiguity.

Example 2: Allocate The Incentive Pay Among The Workweeks Of The Period In Proportion To The Amount Of The
Incentive Actually Earned Each Week:

Team Member earns a $600 bonus for meeting quarterly productivity requirements.
During the quarter (12 weeks), the Team Member’s straight time rate is $20 per hour.
Bonus is attributable to 12 workweeks or $50 per week.
Assume Team Member works overtime in only 2 of the 12 weeks - 10 overtime hours in week 1 and 4 overtime hours in
week two.

Week 1 Calculation (50 hours)

Bonus = $50
Bonus Hrly Rate = $1.00 ($50.00/50 hours)
Regular Rate of Pay = $21.00

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the Team Member, not the employer.

Week 2 Calculation (44 hours):

Bonus = $50
Bonus Hrly Rate = $1.14 ($50/44 hours)
Regular Rate of Pay = $21.44

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the team member, not the employer.

IV. California Requirements for Calculating Regular Rates of Pay

A. Hourly Rate Plus Weekly Bonus/Commission Applying Weighted Average Method.

If a Team Member receives a bonus measuring the Team Member’s efforts during all hours worked, including overtime
hours, then arguably they would be covered by the FLSA formula and all hours worked would be considered in
calculating the regular rate of pay. The regular rate of pay used for meal and rest period premiums will depend on what
type of bonus the team member receives.

Employers should have legal counsel review whether a bonus in California is subject to the weighted average formula
discussed in this section or the California formula for bonuses subject to the Dart Case explained below. In California, the
Labor Commissioner has stated that employers have an option between two methods when calculating the regular rate
of pay for piece workers, production bonus workers, or commission workers (two methods):

1. Compute the regular rate by dividing the total earnings for the week, including earnings during
overtime hours, by the total hours worked during the week, including the overtime hours. For each overtime hour
worked, the team member is entitled to an additional one-half the regular rate for hours requiring time and one-half
and to an additional full rate for hours requiring double time. This is the most commonly used method of calculation
(weighted average method); or,

2 Using the piece or commission rate as the regular rate and paying one and one-half times this rate
for production during overtime hours. This method is rarely used. (Note: team members receiving piece rate must be
paid a separate amount for rest and recovery periods pursuant to Labor Code 226.2)
Example 3:
Regular hourly rate of pay: $ 20.00
Total hours worked in workweek = 52
Bonus attributable to the workweek: $138.00
Bonus regular rate = $138.00 ÷ 52 (total hours worked) = $2.6538

Meal and Rest Period Premium Rate = $22.6538 for each day there is a missed meal or rest period
Regular Rate: Weighted Average Method. (Total Compensation divided by Total hours)

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the team member, not the employer.

B. Calculating Hourly Rate Plus Weekly Bonus – Flat Sum Bonus Covered By Dart Container v. Alvarado Case in
California.

On March 5, 2018, the California Supreme Court unanimously ruled, in the Dart Container v. Alvarado case, that when
calculating overtime in pay periods in which an team member earns a flat sum bonus and it is not measuring
production, efficiency, or safety during all hours worked, employers must divide the total compensation earned in a pay
period by only the non-overtime hours worked by an team member and multiply by 1.5, not .5, the overtime hours in
the measuring period to determine the regular rate of pay.

Example 4: A team member earns an hourly rate of $20 per hour. A team member works 52 hours in a week. 12 hours
are overtime paid at 1.5. There is no double time. The team member receives a flat sum (non-production) bonus of $138
for that week.
Regular hourly rate of pay: $ 20.00
Total hours worked in workweek = 52
Total OT hours at (1.5) time and one-half = 12
Bonus attributable to the workweek: $138.00
Regular bonus rate = $138.00 ÷ 40 (straight time hours worked) = $3.45

Meal and Rest Period Premium = $23.45 each day there is a meal or rest period violation
Regular Rate Formula: Bonus amount divided by straight time hours

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the team member, not the employer.

C. Calculate Regular Rate of Pay with Shift Differential That DOES NOT FLUCTUATE IN SAME WORKWEEK and No
Other Compensation is Earned.

Team members may receive a shift differential. A shift differential payment should be considered when calculating the
regular rate of pay for purposes of determining the missed meal and rest period premium payment.

Example 5:
Hourly rate = $15/hr
Shift rate differential = $0.75/hr (NO fluctuation in shift differential - always works same shift in week)
No other compensation earned for the work week; no bonus attributable for the work week
Total hours worked in workweek (including OT) = 43
Total overtime hours = 3

Meal and Rest Period Premium = $15.75 each day there is a meal or rest period violation
Regular rate of pay for Meal and Rest Period Premium = straight time rate + shift differential rate
Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the team member, not the employer.

D. Calculating Regular Rate of Pay with Different Shift Differentials OR Multiple Rates – Weighted Average
Method with Overtime and No Other Compensation is Earned.

If team members earn an hourly rate and, in some weeks, earn different shift differentials so the shift differential may
fluctuate during the payroll work week or team members may have multiple rates in a week. In such a scenario, the
following would apply to calculate the regular rate:

Regular Rate of pay used for missed meal and rest period premium payment: FLSA/CA Weighted Average Method. (Total
Compensation divided by Total hours)

Example 6:

A team member work 29 hours at $17 an hour and 14 hours at $18 an hour. The team member works a total of 43
hours. There are 3 overtime hours and no double time hours. There are no other earnings for the week.

Regular rate of pay: Total weekly compensation from shift rates/Total weekly hours worked, including overtime.

Calculating Payment:

Add Total Hours for Shift Rate A (including OT hrs) = Shift A total hrs = 29
Add Total Hours for Shift Rate B (including OT hrs) = Shift B total hrs = 14
Weekly Total Hrs (WTH) = Shift A total hrs + Shift B total hrs = 43

Shift A total hrs x Shift A Rate = Shift A Value = 29hrs x $17/hr = $493
Shift B total hrs x Shift B Rate = Shift B Value = 14hrs x $18/hr = $252
Weekly Total Comp (WTC): $745

Regular rate of pay = $745/43hrs = $17.33

If any meal/rest premiums = pay at regular rate for that week = $17.33

Note: We recommend that you do not round. However, if you do round, when calculating the regular rate of pay and
overtime pay, rounding should always favor the team member, not the employer.