California: Permissible Overtime Calculations for Dual-Rate Employees
All Employers with CA Employees
June 25, 2021
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In Levanoff v. Dragas, the California Court of Appeal stated that employers with employees who earn wages at more than one rate may use the rate-in-effect method of calculating overtime. Specifically, employees who work at different rates of pay within a single pay period (dual rate employees) may be paid for overtime hours based on the rate in effect when the overtime hours began (rate-in-effect method).
There, dual rate employees claimed that they should have been paid using the weighted average method of calculating overtime. However, the court stated that California law does not mandate the use of the weighted average method. Moreover, the pay policy must be scrutinized for whether it is neutral on its face and in its application. A policy is neutral on its face if it applies to all employees without regard to whether the employer or employee benefits from the policy’s operation. A policy is neutral in application if it does not systematically undercompensate employees, and “a system is fair and neutral and does not systematically undercompensate employees where it results in a net surplus of compensated hours and a net economic benefit to employees viewed as a whole.”
The court also looked at the policy’s net effect on overall employee compensation. There, the dual rate employees received net greater overtime pay under the rate-in-effect method than they would have received under the weighted average method. Because the calculation method used was lawful, the court did not address what overtime pay method must always be used. Employers should continue to review pay policies for neutrality and overall employee benefit.
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