Holiday Premiums Not Included in "Regular Rate" for Calculating Overtime
By John Anthony
Labor Code section 510, subdivision (a) mandates that an employer pay an employee time and one-half for (1) more than eight hours of work in one workday, and (2) more than 40 hours of work in any workweek. For employees paid on an hourly basis, the overtime rate for any workweek is generally one and a half times the hourly rate. However, other compensation received during the week may also need to be included, such as shift differentials, stand by pay, and some (but not all) types of bonuses.
On June 3, 2008, the Second Appellate District issued its decision in Advanced-Tech Security v. Super. Ct., which considered whether voluntarily provided premium pay must be included within an employee’s "regular rate of pay" for purposes of calculating an employee’s overtime rate. In this case, the employer's holiday pay policy provided that employees who worked on designated holidays would receive time and a half for hours worked, even though section 510 would only require such work to be paid at straight time. The issue presented to the Court was whether this voluntarily provided premium pay must be included in calculating the employee's regular rate of pay for determining the overtime rate for that work week.
The Court found that section 510 does not require an employer to compensate an employee at a rate higher than one and one-half times the regular non-holiday rate of pay under circumstances when employers voluntarily provide premium pay for holidays. The Court ruled that employers are entitled to credit the time and one-half premium pay on holidays against otherwise earned overtime, and that the voluntarily provided premium pay need not be included as part of the regular rate of pay.
California employers should carefully review compensation practices for non-exempt employees to ensure that the overtime rate is being properly calculated. It may not be enough to simply pay one and a half times the hourly rate when those employees are also receiving other forms of compensation, some or all of which should be included in determining the regular rate of pay.