Does ‘Compensation’ Mean ‘Pay’ Under California Law?

By: William C. Sung

Overtime laws vary by states. For instance, overtime under California law is calculated based on the “regular rate of pay.” This includes all forms of remuneration, such as non-discretionary bonuses, piece-rates, commissions, etc. Conversely, with respect to meal and rest periods, California law states that these must be paid at an employee’s “regular rate of compensation.” However, California law does not define whether the regular rate of compensation means an employee’s straight-time hourly rate or the regular rate of pay. This definitional difference has sparked much litigation in the trial courts. Employees argues that regular rate of compensation is synonymous with regular rate of pay for overtime, while employers have taken the position that it means the straight-time hourly rate.

To make matters worse, different trial courts have arrived at opposite conclusions. For example, a court in Los Angeles found that the regular rate of compensation means an employee’s straight-time hourly rate, as opposed to the regular rate of pay. Conversely, a federal judge construing California law held that the regular rate of compensation is the same as the regular rate of pay.

Both of these cases are on appeal and we strongly believe this issue will be taken up by the California Supreme Court. Recently, the California Supreme Court has issued a string of employee-friendly decisions, ranging from rejecting the federal method for computing overtime pay on flat-sum bonuses to adopting a stricter test for independent contractor classification.

Only time will tell whether this trend of employee-friendly rulings will continue. We will continue to monitor the situation and will report on any new developments.

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