Trending Now: Calculation of the Regular Rate

Second Quarter 2011Newsletters California Update Employment Law

A new trend has emerged in wage and hour litigation that targets the calculation of the regular rate. California law follows federal law and the Fair Labor Standards Act (FLSA) in defining what constitutes an employee’s regular rate. The general rule is that the “regular rate” includes “all remuneration.” 29 U.S.C. § 207(e). There are only eight exemptions from the general rule. Recent litigation focuses on employers’ failure to include shift differentials in the regular rate, which ultimately impacts the employee’s overtime rate. A “shift differential” may refer to the premium paid for the difference between working different jobs (and thereafter provided in a blended rate) or may refer to the premium paid for the difference between working different shifts. In either event, those wage differences must be used in determining an employee’s regular rate.

Clever plaintiffs’ attorneys have now also asserted that the value of a free, employer-provided meal should also be included in the regular rate. According to the California Division of Labor Standards Enforcement (DLSE) Policies and Procedures Manual, the regular rate of pay includes “many different kinds of remuneration, for example: hourly earnings, salary, piecework earnings, commissions, certain bonuses, and the value of meals and lodging.” The DLSE manual, however, does not have the force of law, and relies on case law and federal regulations that are out-of-date. One of the FLSA’s exemptions from the regular rate excludes payments “incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment. . . .” 29 U.S.C. § 207(e)(2). As a general rule, expenses that employees incur for their employer’s convenience are not included in an employee’s regular wage rate, so long as the reimbursement reasonably approximates the expenses incurred. 29 C.F.R. § 778.217(a). Conversely, reimbursement for expenses that are personal to the employee are included in the employee’s regular wage rate. Id. at § 778.217(d). Accordingly, the critical issue is whether the employer-provided meal is for the benefit of the employer or a benefit that is personal to the employees.

The position that the free meal is not compensation for hours worked and for the convenience of the employer is defensible, but the defense is not bullet proof. It is certainly arguable that the value of the meal is akin to reimbursing the employee for buying his or her own personal lunch, and therefore subject to inclusion in the regular rate. Employers should scrutinize the factual circumstances at their workplaces where free meals are provided to their employees.