CA Supreme Court: Premium Pay is required at Regular Rate

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California Supreme Court Rules that Meal & Rest Period Premiums are Required to be Paid at Regular Rate of Pay

On July 15, 2021, in Ferra v. Loews Hollywood Hotel, LLC., the California Supreme Court has issued a ruling that may largely impact California employers. The Court held that employers are required to calculate premium pay (a.k.a. meal penalties) for missed/late meal and rest periods based on the employee’s “regular rate of pay” and that the term “regular rate of compensation” under Labor Code section 226.7 (applicable to premium payments) has the same meaning as “regular rate of pay” under section 510 (applicable to overtime).

California requires that when an employee works overtime (more than eight hours in a day or 40 hours in a week) that the rate is calculated based on the employee’s “regular rate of pay.” 

What exactly does “regular rate of pay” entail?

Regular rate of pay includes hourly compensation as well as any additional non-discretionary payments (e.g. bonus or commission), shift differentials and/or any variable rates of pay. It is worth noting that this includes non-discretionary payments and bonuses that are issued on any basis -outside of the normal pay period. This means that these amounts are required to be included (even retroactively) into the total compensation used for calculating regular rate at the time the overtime or premium pay is earned/required. 

The ruling, after examining the history of the terms “pay” and “compensation” under California and federal law, determined that the terms are used interchangeably and will apply regular rate of pay/compensation to premium pay for meal and rest breaks premiums/penalties. The decision will apply both prospectively and retroactively. 

What are the Meal & Rest Requirements?

Meal Period:

  • Non-exempt employees working more than five (5) hours in a day are entitled to an unpaid, off-duty, thirty (30) minute meal break. This is required to be taken no later than the end of the fifth hour.

*Employees working no more than six (6) hours may waive this meal period, and the employer should obtain a written waiver.

  • Non-exempt employees working more than ten (10) hours in a day must be provided with an additional thirty (30) minute meal period.

* Employees may waive the second meal period if:

-They are working less than twelve (12) hours; and

-They did not waive the first meal period.

Rest Period:

  • Non-exempt employees are entitled to a rest period of at least ten (10) minutes for every four (4) hours or substantial fraction thereof, that the employee will work. These rest breaks must be counted as time worked and are required to be paid. 

What does this mean?

Anytime an employee that is entitled to a meal or rest period is unable to take that break, a premium payment is owed. Employees are entitled to one hour of premium pay (a.k.a. penalty) for missed/late meal and rest break. This payment is now required to be calculated and paid at the employee’s regular rate of pay/compensation. 

What now?

  • TPPS strongly recommends all employers review and update payroll policies and procedures related to the premium payment for missed meal and rest periods. This includes updating payroll system calculations – MOST PAYROLL SYSTEMS DO NOT AUTOMATICALLY CALCULATE THE REGULAR RATE. 
  • Additionally, employers should run an audit of all meal and rest periods and their payment calculation each pay period to ensure that these are calculated and paid correctly. 

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