A California Court Clarifies the Formula for Calculating Premium Payments When Employees Miss Meal Periods or Rest Breaks, and Affirms Use of Neutral Rounding Policies

You are a California employer and an employee misses her meal period. Now what? California law dictates that an automatic “premium” payment equal to one hour at this employee’s regular rate must be added to that workday. (Courts generally hold that premium payments can be assessed up to twice in a single workday). However, before this decision there was confusion as to what the “regular rate” actually is when employee’s are paid, for example, multiple hourly rates or if they are paid commissions in addition to an hourly wage.

A recent California court case clarified this confusion. This decision simplifies the calculation for California employers in that the premium payment is equal to one hour at the employee’s base hourly wage, NOT the regular rate of pay.

Plaintiff attorneys have often argued that the regular rate is the one used to calculate an employee’s overtime rate. This is true if adhering to Labor Code Section 510(a), which defines the regular rate of pay as an employee’s base rate of compensation plus any adjustments to that rate. Therefore, an employee’s regular rate of pay may change each pay period. Calculating payment of meal periods, rest breaks, and recovery period premiums at the regular rate of pay would be incredibly difficult if this were to be employed. The court therefore rejected this framework to eliminate the headache for employers.

The court of appeal also upheld the trial court’s summary judgment concerning the employer’s neutral rounding system (i.e., an employee works five hours and 29 minutes, and is therefore paid for five and a half hours, and vice versa). The net effect of a rounding policy is not enough to systematically undercompensate employees, thus making the policy of rounding to the nearest increment lawful. This is because rounding causes some employees to be overcompensated and undercompensated in each given time period, which will average out in the long run.

These new developments are good news for California employers. In order to ensure compliance with these decisions regarding premium payment practices, employers should review their policies and consult with legal counsel.

This article is purely for educational purposes, and nothing herein is intended to form an attorney-client relationship. Only a signed retainer and/or engagement agreement with us will form such a relationship. However, for questions or concerns regarding the contents of this article, feel free to schedule a free consultation.