What rate of pay should you use to calculate meal and rest period “premiums” (most of us would think of that “premium” as compensation to an employee for failing to provide required meal and rest periods)?  California Wage Orders (like Wage Order 14 covering agricultural employment) and the Labor Code require provision of meal and rest periods under specified conditions (see “Meal Periods & Rest Periods,” FELS website, March 5, 2019).  If an employer fails to provide an employee a required meal or rest period, the Labor Code requires the employer to pay one additional hour of pay for each workday that the meal or rest period is not provided.  This additional hour is not counted as hours worked for purposes of overtime calculations.  But what is the correct rate of pay when calculating this premium?  The California Court of Appeal has furnished some useful guidance in Ferra v. Loews Hollywood Hotel.

In Ferra, the court found the phrases “regular rate of compensation” for calculating meal and rest period premiums and “regular rate of pay” for calculating overtime compensation have different meanings, and that meal and rest period premiums should not be calculated in the same way as overtime compensation. Unlike overtime, meal and rest period premiums need only be paid at an employee’s base hourly rate, which may be lower than the employee’s regular rate for overtime compensation.

The court concluded that using the same definition for both purposes would incorrectly have the employer pay the same rate for working extra hours in a workday or workweek as the employer would pay to compensate an employee for loss of a benefit (a meal or rest period), because the Legislature would not have used different words (“pay” v. “compensation”) if they were not meant to be different.   The “regular rate of pay” includes all hourly earnings, salary, piecework earnings, split-shift differentials, non-discretionary bonuses and commissions divided by the number of hours worked in a workweek, while “regular rate compensation” is limited to the employee’s straight-time hourly rate.  

The Ferra court’s logic in finding that meal and rest period premiums are appropriately paid at an employee’s base hourly rate (as opposed to the employee’s “regular rate of pay”) offers some useful guidance to employers.  However, the question is also still pending before the Ninth Circuit Court of Appeal, which could come to a different conclusion or ask the Supreme Court of California to weigh in with a definitive determination.