Understanding the "Regular Rate of Pay" in California
Lesson Last Updated: April 11, 2025
Lesson Highlights
Overtime, missed breaks and meal premiums, and sick days in California are paid at what is known as the "regular rate of pay." It's very important to understand this rate, because paying at an incorrect rate can lead to penalties.
In this lesson, we will address:
- Why we use the regular rate of pay;
- How this rate might be calculated, depending on the circumstance, for overtime;
- How this rate is calculated for missed breaks and meal premiums;
- How this rate is calculated for sick days; and
- Strategies for compliance.
Why Do We Use the Regular Rate of Pay?
While the regular rate of pay is sometimes the same as an employee’s hourly wage, there are many different scenarios in California as to how an employee can be paid. The regular rate of pay aims to ensure that every employee, regardless of how they're usually paid, receives fair payment.
For example, if an employee is regularly paid at two different rates, the regular rate of pay aims to ensure that the employer can’t “short” the employee by paying benefits out at the lowest hourly rate they sometimes receive. We’ll explain more as we work our way through the lesson.
Calculating the Regular Rate of Pay for Overtime
Depending on how an employee is paid, there are different ways to calculate the regular rate of pay. In this lesson, we'll go over the basics, but don't forget to speak with a lawyer about your unique situation before tackling the regular rate of pay for your business on your own. Like anything else in this course, this is general information, is not inclusive of all scenarios, and should not be relied upon without speaking to a professional first.
Hourly Employees Receiving One Rate of Pay
This is probably the most common category to tackle, but the calculation here is still not easy. And that's one reason why employers often prefer to classify employees as exempt whenever possible—to avoid computing the regular rate of pay altogether!
If an employee is only paid based on a single rate of hourly pay, then that hourly rate (including among other things, uncontrolled standby pay, shift differentials and the per hour value of any non-hourly compensation the employee has earned) is the regular rate of pay. [1]
So let's do some math here to clarify what that jargon above means in practice. If you have an employee that is paid $25 per hour for forty-five (45) hours of work and no other pay within a given week, the regular rate of pay for that employee is $25 per hour. Easy! But what if, in one particular week, they received $300 in additional includable compensation, on top of the hourly pay? In that case, the equation would look like this:
- 40 hours x $25 per hour= $1,000
- $1,000 of normal hourly pay + $300 additional includable compensation= $1,300
- $1,300 total pay / 45 hours worked= $28.89 is the regular rate of pay
We're going to multiply this rate times half in a moment, and this is usually where people start to get very confused. Understandable! So let's pause here and talk it out.
We've been droning on about how overtime is computed on the basis of the employee's regular rate of pay, but straight-time wages (non-overtime wages) are already paid at the employee's base rate of $25 per hour. This means that we now need to find out what the overtime amount is on top of the $25, so we multiply by .5, not 1.5. [2] Now back to the math!
- ($28.89 x .5) x 5 overtime hours= $72.23 is the overtime premium
- $1,300 regular pay + $72.23 overtime premium = total compensation for the week= $1,372.23
Yes, this math is confusing, but this was decided on by a California court, not us. And this just further hammers the point that payroll can be really confusing, so make sure you are using a reputable payroll company and that you're paying attention each time you run payroll.
Salaried Employees
The regular rate of pay for salaried employees is calculated as follows:
- Multiply the monthly wage amount by twelve (12) months to get the annual salary.
- Divide the annual salary by fifty-two (52) weeks to get the weekly salary.
- Divide the weekly salary by forty (40) hours to get the regular hourly rate. [1]
Note here that the California Labor Code states that the regular rate of pay for a non-exempt full-time salaried employee is 1/40th of the employee's weekly salary. [3] If an employee is paid a high salary, that means the overtime rate is probably going to be fairly high!
Employees Paid a Piece Rate
Employees paid a piece rate are employees based on units of production rather than based on hours. We'll cover this in a different lesson in more depth, so if you think this might apply to your workplace, be sure to pay attention to that lesson.
Piece-rate employees have two different options for overtime calculations.Either of the following methods may be used to determine the regular rate of pay for purposes of computing overtime:
- The piece or commission rate is used as the regular rate and the employee is paid 1.5x this rate for production during the first four overtime hours in a workday, and double time for all hours worked beyond twelve(12) in a workday; or
- Divide the employee's total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours. For each overtime hour worked, the employee is entitled to an additional .5 the regular rate for hours requiring 1.5x and to the full rate for hours requiring double time. [1]
This second scenario is essentially the same calculation we used above for the hourly employees, so because of that, we aren't going to run through an equation here.
Whichever option you're going to use, you should (1) speak to a lawyer before implementing, so you can ensure you know what you're doing, and (2) make it a written policy that you follow consistently for all employees. In other words, you should not be flipping back and forth between options. Consistency is key for avoiding lawsuits.
Commissioned Employees
Commissions are tricky because in California, certain employees can be paid in whole or in part on commissions. Be sure to read the lesson about commissions if you think that they may apply to your workplace, because people are often misinformed on the legalities of this pay structure in California specifically.
If an employee is paid in part with commissions and some other form of pay, then they are paid multiple rates and we will talk about this shortly. If the employee is only paid based on commissions, then you can use either of the two methods used for piece-rate workers described above. [1]
Employees Paid Two or More Rates
This is a method that we've seen more and more in the past few years. It works well in the day-to-day for many businesses, where certain activities are more profit-generating than others. However, this is also an area where we see the most frequent fluctuations to the regular rate of pay. Here, the regular rate of pay is a weighted average. [1]
Note: employees that are paid at the piece rate are almost always paid two or more rates. For example, a therapist may be paid per client, but also at a separate administrative rate for any administrative tasks they do that are not “productive time” directly related to seeing a particular client. In a situation like that, you’re likely going to need to follow the instructions in this section, not the piece rate section. As always, speak to an attorney before acting! As you can see in this lesson, this is a very highly detailed area of the law.
To determine a weighted average, we divide the total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours. For example, if an employee works thirty-two (32) hours at $20.00 an hour and ten (10) hours during the same workweek at $40.00 an hour, the weighted average (and thus the regular rate for that workweek) is $24.76. This is how we calculated that amount:
- (32 hours x $20 per hour) + (10 hours x $40 per hour) = $1,040 total pay an
- $1,040 / 42 total hours worked= $24.76
- $24.76 x .5 x 2 overtime hours= $24.76 is the overtime premium (the .5 and the 2 cancel each other out!)
- Total compensation for the week= $1,064.76
Note that this weighted average is the same equation we used in the example above for an hourly employee that receives some other form of includable pay during the week. Sometimes this will happen in limited instances, but other times, this is the norm. Just keep that weighted average calculation handy!
Employees That Receive Bonuses
Bonuses make this topic even more challenging. Depending on the circumstance, bonuses can also be included in the regular rate of pay. Per the Department of Industrial Relations: "A non-discretionary bonus is included in determining the regular rate of pay for computing overtime when the bonus is compensation for hours worked, production or proficiency, or as an incentive to remain employed by the same employer. Incentive bonuses include flat sum bonuses." [1]
When a bonus is included in payment, the calculations take a different turn. The Department of Industrial Relations goes on to say, "To properly compute overtime on a flat sum bonus, the bonus must be divided by the maximum legal regular hours worked in the bonus-earning period [note from Better: this number is forty (40) hours in California], not by the total hours worked in the bonus-earning period. This calculation will produce the regular rate of pay on the flat sum bonus earnings. Overtime on a flat sum bonus must then be paid at 1.5-2x this regular rate calculation for any overtime hour worked in the bonus-earning period. Overtime on production bonuses, bonuses designed as an incentive for increased production for each hour worked are computed differently from flat sum bonuses. To compute overtime on a production bonus, the production bonus is divided by the total hours worked in the bonus earning period. This calculation will produce the regular rate of pay on the production bonus. Overtime on the production bonus is then paid at .5-1x the regular rate for all overtime hours worked in the bonus-earning period. Overtime on either type of bonus may be due on either a daily or weekly basis and must be paid in the pay period following the end of the bonus-earning period."
Discretionary bonuses, which are usually paid as gifts at a holiday or other special occasion and are a reward for good work generally, but which are not measured by or dependent upon hours worked, production or efficiency, are not subject to be paid at overtime rates and thus are not included for purposes of determining the regular rate of pay.
Confusing, right? We know. This is why it's just ideal to avoid overtime when you can!
Calculating the Regular Rate of Pay for Missed Break/Meal Premiums
We'll keep this quick! In California, when an employer fails to give its employees their proper breaks and meal periods, they are required to pay a "premium" amount equal to one (1) hour's pay for each missed break or meal. In 2021, the California Supreme Court ruled that these premiums must be calculated at the employee's regular rate of pay using the same equations used for overtime calculations. [4]
But how to pay 10-minute breaks when they actually are given to employees? This is a tough question, because there’s no black and white answer in the law. Always check with an attorney, because your situation is unique to you, but we usually err on the side of caution and recommend paying this at the highest hourly rate you use, or the regular rate of pay. When you do this, your risk of noncompliance is reduced, because you’re paying at a higher payment rate (which nobody is likely to complain over!). Again, speak to your attorney to decide what’s right for you and your risk tolerance.
Calculating the Regular Rate of Pay for Sick Days
Paid sick days are paid at the regular rate of pay, but for this benefit, the regular rate of pay is calculated differently! There are three ways it can be calculated here, unless an applicable local ordinance says otherwise:
- Paid sick time for non-exempt employees can be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek; OR
- Paid sick time for non-exempt employees can be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior ninety (90) days of employment.
- Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time. [5]
At least this is a bit more straightforward.
Strategies for Compliance
Oftentimes, we see employers make up the rate that they'll use to pay out benefits like overtime or paid sick days. If you've read the rest of this lesson, you'll know now that this is incorrect. You cannot make a number up out of thin air.
You'll also know now that the regular rate of pay is often more complex and may require doing quite a bit of math every time you run payroll. One way to minimize the likelihood of cumbersome calculations is to find a way to pay employees as consistently as possible. Maybe that means streamlining from multiple rates down to one. Maybe it means paying on a salary basis. Just try not to panic after reading this lesson. There are strategies to avoid doing the math every time, which you should discuss with your attorney and CPA prior to implementation. But note that the more complicated you make your pay structure, the more likely you are to have risk. Take this into consideration when planning.
This Lesson's Sources:
[1] State of California, Department of Industrial Relations: Overtime FAQ
[2] Marin v. Costco Wholesale Corp., 169 Cal.App.4th 804, 87 Cal. Rptr. 3d 161 (Cal. Ct. App. 2009)
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