New Court Ruling Regarding "Premium Pay"

Labor & Employment Update

New Court Ruling Regarding “Premium Pay”

The California Supreme Court recently reversed a lower court decision regarding payment of “premium pay” for missed meal/rest periods.  For years, employers in California have been told that “premium pay” is simply one hour of pay at the employee’s regular straight time hourly rate.  The California Court of Appeal previously confirmed that description.  However, the California Supreme Court ruled that calculating “premium pay” using the regular straight time hourly rate is not enough.  Instead, “premium pay” is to be paid at the employee’s “regular rate” of pay. 

Similar to what an employer has to do when calculating the appropriate amount to pay for overtime/double time hours worked, the “regular rate” of pay takes into account all compensation received by the employee (non-discretionary bonuses, piece rate compensation, commissions, etc.) to come up with an adjusted hourly rate of pay that would be higher than the employee’s regular straight time hourly rate.  Accordingly, if an employee is paid a non-discretionary bonus or other performance based compensation during a pay period where the employee is also entitled to “premium pay,” that additional compensation has to be taken into account when determining how much is owed for “premium pay.”  Most payroll systems already perform this calculation as it is required when determining the appropriate overtime/double time rate of pay.  However, employers who pay additional non-discretionary compensation will need to adjust their payroll systems to make sure “premium pay” is calculated the same way.

In situations where an employee is paid an annual non-discretionary bonus or other form of compensation based on work performed over the entire year, the employer will need to go back through its payroll records and pay the employee an additional amount to make sure the employee was paid at the correct rate for all “premium pay” received during the year. (Again, this is the same process that takes place when dealing with an annual non-discretionary bonus and overtime/double time paid during the work year.)

Unfortunately, the California Supreme Court declined to state that its ruling only applies from today forward.  Accordingly, if employers want to ensure they are in compliance, they may need to go back and issue additional payments to all employees/former employees who received “premium pay” during any pay period over the last three to four years.

Again, the above only applies to employers who pay additional non-discretionary compensation to hourly paid non-exempt employees.  If an employer does not pay performance bonuses, piece rate compensation, commissions, etc., to hourly paid non-exempt employees, the California Supreme Court’s decision will not have much of an impact.

In the event you have questions about the payment of “premium pay” to California employees, or you have any other employment law related issues you would like to discuss, please feel free to contact one of the attorneys in our Labor and Employment Law Group.



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