Beware: Premium pay must include commissions, not just base hourly

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A recent California Supreme Court case (Ferra v. Loews Hollywood Hotel, LLC) held that employees must be paid meal and rest break premiums for any missed or non-compliant breaks at a rate of pay including all non-discretionary payments for the work performed.

What this means is meal and rest break premiums cannot be paid just at an employee’s base hourly rate, unless they do not earn additional non discretionary compensation such as commissions, piece rate, or bonuses. In Ferra, the plaintiff (a bartender) alleged that the hotel miscalculated her premium pay because it excluded non-discretionary quarterly bonuses from the premium pay calculation. The Court of Appeal previously held this was not a violation because the “regular rate of compensation” required to be paid for such premiums under California Labor Code section 226.7(c) was different than the “regular rate of pay” used to determine overtime pay. However, the California Supreme Court has held the two phrases are synonymous in this context, meaning that premiums must be paid at the regular rate used to determine overtime pay.

The Court also held this ruling is retroactive, exposing employers to liability going back 3-4 years, as well as potential PAGA penalties if the premiums were paid at the incorrect rate of pay. Please immediately update your payroll practices to use the appropriate rate going forward, and contact counsel to discuss potential risk mitigation strategies such as issuing payments to compensate employees for the deficient rate and/or ensuring arbitration agreements with class action waivers are in place.

Contact Scali Rasmussen if you have questions about how this applies to you.