California Decision on Payment of Meal and Rest Premiums: Retroactive Implications for Employers
Since the California Supreme Court rendered its decision in the Ferra c. Loews Hollywood Hotel, LCC matter, numerous articles have alerted California employers that meal and rest premium payments for non-conforming meal and rest periods must be paid at the regular rate instead of the employee’s basic hourly rate. This news has certainly prompted employers to work with lawyers, their internal payroll departments, and external payroll providers to adjust the rate at which these bonuses are paid in the future. However, while many of these articles state that the rule applies retroactively, it is less clear whether employers need to make adjustments to past payments and, if so, how. This article discusses these points.
Does it matter?
Employers who are currently involved in disputes involving the payment of meal / rest premiums should work with a lawyer to assess the impact on a potential settlement.
However, even employers who are not currently in dispute over meal / rest premiums are potentially exposed to past underpayment of these premiums. Employers who regularly pay meal / rest premiums will be relatively more exposed because the volume of underpaid penalties will be greater. The potential exposure is also greater for employers who give more incentive payments such as shift bonuses and non-discretionary bonuses, as the dollar difference between hourly rates and regular rates will be greater. While the additional amount owed for a one-time meal bonus is likely small, when combined with all employees over the four-year retrospective in California, the potential exposure can be significant, particularly if the penalties PAGA are also applied over the period of one year.
A standard full-time employee working five days a week, eight hours a day, works approximately 250 shifts a year. If the employee has been granted a meal or rest exception in 25 percent of those shifts, that’s more than 60 meal bonuses per year. Over a four-year period, this represents 250 premium payments. If the regular rate is, on average, $ 1 more than the hourly rate, then the additional amount owed per full-time employee would be $ 250. This equates to $ 100,000 in additional amounts owed for just 400 employees. If employers don’t make these payments now and end up being sued, the potential exposure and attorney fees will be even higher.
What should you do
Retroactive payroll calculations can be difficult, especially if you changed payroll systems during the relevant time period. Generally, there are three main steps to follow:
1. Identify the weeks of work with payment of the meal premium.
The first step is to collect payroll data for all non-exempt employees over the period. For employees paid weekly, specific work weeks of employees with meal bonuses can be identified directly from the payroll data. For employees paid less frequently, meal bonus payments may not be allocated to a specific work week. In this case, it may be necessary to incorporate time slips to properly allocate meal bonus payments to the week in which they were allocated.
2. Calculate the difference between the regular rate and the hourly rate during these weeks.
If overtime was paid in the weeks with payment of the meal premium, the regular rate has already been calculated by the payroll, so the difference between this rate and the rate at which the meal premium was paid may be determined. If the week did not include overtime, the payroll system probably did not calculate the regular rate, and that calculation will need to be done. The formula for calculating the regular rate is already in the payroll system, but when calculating the regular rate for past pay periods, it is important to take into account any differences in pay codes that may have occurred over the course of the period. time. For example, if the code “SD” was previously used for shift differential pay, but the current system uses the code “Shift Difference” for such payments, simply applying the current rules to past data could result in the ‘exclusion of relevant payments from this calculation. . Examination of the pay codes used throughout the analysis period is necessary to ensure that the calculation is performed correctly.
3. Calculate the additional alignments.
In addition to entering the difference between the hourly rates and the regular rates in the weeks in which the meal bonus payments were made, it is also necessary to apply an adjustment for all payments spanning multiple pay periods. , such as bonuses or commissions. For example, if non-discretionary bonuses were paid annually, an adjustment payment for meal bonuses must now be calculated in the same way as it was for overtime bonuses. This additional amount has already been calculated by payroll if the employee has also benefited from overtime during the bonus period. In such cases, the additional amount per hour is available and may be applied to the number of meal premium payments made. If the employee did not work overtime during the bonus period, this calculation must be made. When calculating the additional amount owed for the adjustment, it is important to ensure that the appropriate hours worked are included. For example, if it is a quarterly bonus, the amount of the bonus would be distributed over the hours worked over the quarter, not just the hours worked during the pay period in which the premium was paid.
As California employers work with employment counselors and payroll departments to adjust meal bonus payments to the regular rate in the future, they should be aware of the retroactive implications of the decision and ensure that all retroactive payments are calculated correctly.