10.15.2021 | Newsletters

Surprise! You May Owe More than You Think for Break Premium Pay

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When your employees are owed a meal or rest break premium, how much are you paying them? Until recently, the governing case law said that break premiums were owed at the employee’s base hourly rate. The California Supreme Court changed all that with its decision in Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858, holding that meal and rest break premiums must be paid at the employee’s “regular rate of pay” – the rate used to calculate overtime wages owed, rest break pay for piece rate workers, and paid sick leave rates.

The “regular rate of pay” encompasses all nondiscretionary payments, not just base hourly wages. And it does not matter that the nondiscretionary payments may be made long after the pay period with the meal or rest break violation. In Loews, the employer paid its employees a quarterly nondiscretionary incentive bonus, in addition to a base hourly wage. The amount of that bonus therefore needed to be included when calculating the employee’s regular rate of pay and adjustments had to be made for payments based on that rate in the preceding quarter.

This does not mean that you don’t pay the premium until the regular rate can be completely calculated. If you make a nondiscretionary payment once per quarter, you pay the base hourly rate as the premium in the workweek that the premium is incurred. Then, you go back at the end of the quarter and pay any additional amounts owed after the regular rate for that quarter can be calculated.

So, what are nondiscretionary payments? The California Supreme Court, quoting from the Division of Labor Standards Enforcement (DLSE) Policy and Interpretations Manual, said that they are “payments for an employee’s work that are owed ‘pursuant to [a] prior contract, agreement, or promise,’ not ‘determined at the sole discretion of the employer.’” For example, if you tell your employees they will earn an incentive bonus calculated under a set formula or earn a set piece rate, those are both types of “nondiscretionary” payments.

When do employers owe a meal or rest break premium payment? If an employee is not “authorized or permitted” by the employer to take a timely, uninterrupted meal or rest break of the required duration, then an hour’s pay is owed (up to one meal break premium and one rest break premium per day). That means if you delay your employees’ meal break past the start of their sixth hour of work because you need them to get an order filled, then you owe them a meal break premium because they were not permitted to take a timely meal break. If your employees worked past the start of their sixth hour of work because they wanted to meet some friends for lunch later, that was their choice, and you don’t owe them a premium payment. (You should discipline them for violating your meal break policy though.)

Are you wondering what the DLSE Manual is? While it is only agency guidance and does not have the force of law, it is a helpful resource in many situations and provides the agency’s interpretation on applicable statutes and regulations. You can find it online.

Action step: Make sure your payroll process accounts for all nondiscretionary payments to calculate the regular rate of pay and that you pay all meal and rest break premiums payments at that rate – no matter how long the intervals between the workweek when the premium was owed and the nondiscretionary payment.

Related practice team: Labor and Employment

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