As an employer, you may find yourself paying a lot of overtime. But the question is, are you paying it correctly? Are you overpaying or underpaying? Or are the amounts being paid-out the correct kind (weekly vs daily overtime). Overtime is one of the biggest costs of managing labor, and any mistakes in payment could potentially lead to a class action lawsuit.
In this case, it's key to inform yourself of when and how overtime is eligible, and when it is paid out.
In California overtime law states that employees are entitled to either weekly overtime pay or daily overtime pay. This is where is get's tricky for business owners who own establishments in multi states. California is one of the few states that allow weekly and daily overtime. Under Federal law, only weekly overtime is observed. However, in California, both weekly, and daily overtime are observed.
California daily overtime refers to hours worked over 8 hours in a work day. Anything over 10 hours a day and any hours worked past eight hours on any seventh day of a work week is subject to double overtime (2x an employee’s average rate).
California weekly overtime refers to the hours worked over 40 hours in a work week. Any hours over 40 per work week (designated by the employer), and the first eight hour worked on the seventh day of work in any work week, will be considered and compensated as time and a half pay; where an employee is owed their average rate multiplied by 1.5.
Generally, pyramiding or double dipping overtime hours is not allowed in California. This means employees receive the premium pay for whichever overtime amount (weekly or daily) totals to the greater amount.
Calculating California OT Pay
California overtime pay is calculated by taking an employee’s average rate and multiplying it by the applicable amount (one and one-half times the employee’s regular rate of pay or double the employee’s regular rate of pay).
To better understand overtime calculations, here’s an example: Jane works Monday to Tuesday from 11am to 8pm, Wednesday from 10am to 6pm and from Thursday to Friday she works 3pm to 12am.
Looking at her daily overtime:
- Monday: 8 regular hours + 1 hour overtime
- Tuesday: 8 regular hours + 1 hour overtime
- Wednesday: 8 regular hours
- Thursday: 8 regular hours + 1 overtime hour
- Friday: 8 regular hours + 1 overtime hour
- Saturday: 8 regular hours + 1 overtime hour
- = 5 hours of daily overtime
Looking at her weekly overtime:
- Monday: 9 hours
- Tuesday: 9 hours
- Wednesday: 8 hours
- Thursday: 9 hours
- Friday: 9 hours
- Saturday: 9 hours
- = 13 hours of weekly overtime
Jane reaches her weekly OT threshold at 7pm on Friday. Hours worked from Friday at 8pm to the end of her Saturday shift will total to her weekly overtime amount.
In this case, Jane is owed 13 hours of overtime pay as it is the greater amount.
If an employee works multiple positions but it paid $10/hour for all positions, their average rate remains at $10/hour. However, it becomes complicated when an employee works multiple positions at different rates, or receive recurring bonuses, etc.
Calculating OT Pay for Multiple Rates
If an employee works multiple positions and reached overtime in the work week, you will need to take the weighted average of their hourly rates to determine their overtime pay. Bonuses like an attendance bonus on weekends, must be also be included in overtime pay.
To further understand how overtime time works, here’s another example using the scenario from above:
Jane worked as a host at $10/hour from Monday to Wednesday, and as a server at $9/hour on Thursday to Saturday. She received a $100 bonus for selling a certain number of desserts in her shift.
To calculate Jane's average rate, her hourly rates are divided by the total number of hours worked.
To calculate her average rate:
- Monday to Wednesday as a host = 26 hours x $10/hr = $260
- Thursday to Saturday as a server = 27 hours x $9/hourly = $243
- ($260 + $243) / 53 hours = $9.49/hour
Her bonus is calculated by taking her dollar amount divided by the hours worked.
To figure out what an employee earned in OT for the bonus:
- $100 bonus / 53 hours worked = $1.88 hourly rate of bonus
- $1.88 x 1.5 = $2.83 overtime bonus pay rate
Therefore, her total overtime pay equals to:
- (($9.49 average rate x 1.5) x 13 hours OT) + ($2.83 bonus hourly rate x 13 hours OT) = $159.77 total overtime pay
The examples provided above are simple situations that may happen in the environment in which overtime may occur. The crux of paying overtime, is being meticulous and extra careful with overtime calculations - especially when cases of bonuses are taken into account. As an employer, it's crucial to ensure that you’re taking the right steps to calculate overtime properly and accurately. Created to help employers automate California overtime law calculations for restaurant employees, our payroll component aims to help restaurant save time and money.
Interested in learning how you can save 0.5% to 0.75% on your labor cost?
This document is provided by Push Technologies Inc. ("Push Operations") for information purposes only. This is not an official or legal document and should not be taken as legal advice. Push Operations does not guarantee or warrant the accuracy or completeness of the information provided. For the most accurate and up-to-date information, please check with the proper governing authority.