Overtime: An overview of overtime
The overtime rules affecting California’s food and alcohol/beverage service industries are described in Industrial Welfare Commission Order 5-2001 (Hours, Wages and Working Conditions in the Public Housekeeping Industry). The federal rules are contained in the Fair Labor Standards Act (FLSA).
An employer must post the applicable Wage Order(s) for the business where all employees can see them.
California law requires that every non-exempt employee (meaning an employee who is not primarily engaged in executive, administrative, or professional capacities or who does not meet specific overtime exemption requirements) be compensated at 1.5 times the employee’s regular rate of pay for all hours worked beyond eight in a single workday or beyond 40 straight-time hours in one workweek. There is also a double-time premium for hours worked in excess of 12 hours in one day.
An employee also must be paid time-and-a-half the employee’s regular rate of pay for the first eight hours worked on the seventh consecutive day worked in a single workweek, and double-time for hours worked beyond eight hours on the seventh consecutive day worked in a single workweek. These requirements may not apply to employees covered by a collective bargaining agreement (see below). The regular rate of pay for an employee working at two different hourly rates (as might occur for different positions in a restaurant) is the weighted average for a workweek. The total pay for the week is divided by the number of hours worked to arrive at the weighted overtime average. To calculate total pay, the employee would be paid the straight-time rate that applies to the overtime hour worked plus the weighted average. For example, if an employee is performing job A at $12/hour for seven hours and then performing job B at $13/hour for two additional hours, the employee would be paid one hour of overtime at $13 plus the weighted average, because the employee was performing job B during the ninth hour of work.
Moreover, only straight-time hours (normal working hours paid at a regular rate) apply to the 40-hour limit on hours worked in order to prevent an employee receiving overtime twice for a given hour worked. For example, if an employee works 10 hours each day Monday through Thursday, the employee is owed eight straight-time and two hours of overtime pay for each of those days, but as of Friday morning, although the employee has already worked 40 hours in the workweek, he/she has only worked 32 straight-time hours, so does not begin earning weekly overtime until after he/she works eight more hours of straight-time in that workweek.
NOTE: There is no legal definition of “full-time” or “part-time” employment. An employer can decide what work schedule is required of a “full-time” employee for such purposes as determining which classes of employees get company benefits. However, employers should be sure that their definitions of “full-time” and “part-time” employees do not conflict with plan documents governing ERISA-covered benefits. In the event of a conflict, the plan documents would govern.
NOTE: Nonexempt employees can be paid a salary rather than an hourly or piece rate wage, but the salary does not excuse an employer from paying overtime. Salaried nonexempt employees should record their daily hours. The regular hourly rate of pay for such employees is 1/40th of his/her weekly salary, but the total regular rate is the regular hourly rate plus most commissions, bonuses or other compensation.
For purposes of overtime, it is extremely important that employers definitively establish their company’s workday and workweek. A workday is defined by the IWC and the Labor Code as any consecutive 24-hour period starting at the same time each calendar day. The workday may begin at any hour of the day, and the employer may establish different workdays for different classes of employees. Unless the employer establishes workday starting time(s), the state labor commissioner will presume a workday of 12:01 a.m. to midnight. Once a workday has been established by the employer, it must remain consistent and unchanged, unless there is a legitimate business reason for changing it. In order to properly calculate overtime wages, it is imperative that both the employer and employee understand when the workday begins and ends.
Likewise, an employer must define what a workweek is in order to determine when an employee works over 40 hours in one workweek. A workweek is defined as any seven consecutive 24-hour periods, starting on the same calendar day each week. Unless an employer specifically designates another workweek, the labor commissioner will presume a workweek of Sunday through Saturday. Like workdays, the employer may establish different workweeks for separate classes of employees; also, the workweek must remain consistent and unchanged unless there is a legitimate business reason for changing it. A California appellate court has ruled that employers cannot artificially designate the workweek in order to circumvent statutory requirement to pay overtime on the seventh consecutive day worked in a work week. Establishing a workweek is important when calculating overtime under the “seventh-day rule” because this rule only applies on the last day of the employer’s defined workweek, not simply any time an employee works seven days in a row. Labor investigators have, on occasion, assumed that the workweek begins when the employee’s work shift starts, and have calculated the seven days starting from that specific work day.
Employers can only designate a workday or workweek that differs from the employee’s assigned schedule if there is a legitimate business reason for doing so. Accordingly, employers are urged to establish and document what their workdays and workweeks are so that both the employees and labor investigators are clear on this issue.
There are some exceptions under which the overtime pay discussed above is inapplicable. Some of these relevant provisions are:
- Make-up time. If an employee requests to take time off for a personal obligation, that employee can request to make up the time he or she missed due to the personal obligation on another day within the same workweek. Specifically, the law provides that an individual can work up to 11 hours in one day to make up for time missed on another day due to a personal obligation without the employer having to pay that employee overtime. The make-up time can also be spread out over one week, as long as the total time in one workweek does not exceed 40 hours.
In order to trigger this exemption, the employee must provide the employer with a signed, written request to make up time missed for a personal obligation. The employer may notify his or her employees of the right to make-up time, however, the employer may not solicit or encourage an employee to make up time he or she has missed.
Moreover, an employer is not liable for overtime pay if an employee, after working makeup time to take time off later in the week, decides not to take the time off after all. An employer should maintain a time-record system reflecting makeup time, and may also require an employee to attach a copy of the signed time request for that pay period to his/her timecard for that pay period.
- Alternative workweek schedule. An employer can implement an alternative workweek schedule without having to pay overtime. An alternative workweek schedule is defined by the IWC as a schedule wherein an employee works no more than 10 hours a day or 40 hours a workweek. For example, an employer could allow employees to work four 10-hour workdays instead of five 8-hour days.
Alternative workweek schedules are not meant for a handful of employees within a department who want flexibility. With limited exceptions, everyone in the work unit must work the alternative workweek. The Labor Code defines a “work unit” as a: division, department, job classification, shift, separate physical location, or recognized subdivision of any work unit.
Under an alternative workweek schedule, an employer would only be liable for overtime if an employee worked over the permissible hours in a day or week. Specifically, if an employee who generally works 10 hours per day for four days on an alternative workweek schedule works 11 hours in one workday, he or she would be entitled to 1 1/2 times his or her regular rate of pay for that eleventh hour. If an employee on an alternative workweek schedule works 12 or more hours in a workday, or more than 40 hours in a workweek, he or she would be entitled to twice his or her regular rate of pay.
Establishing alternative workweeks
- In 2000, California’s Industrial Welfare Commission (IWC) formally adopted procedures for setting up and repealing alternative workweeks. The following is a summary of the procedures finalized by the IWC:
- Workweek proposal. Employees must be provided a written alternative workweek proposal that specifies the number of days in the workweek and the shift duration. The actual days to be worked (e.g., Tuesday, Wednesday, etc.) do not have to be specified. A menu of schedule options from which employees can choose may also be provided.
- Scheduling limits. The schedule may consist of no more than 10 hours a day in a 40-hour workweek, and shifts must be at least four hours long. No on-call scheduling is permitted.
- Disclosures. Employees must be given a written disclosure of how the schedule affects wages, hours and benefits. A meeting—with advance notice—must also be held at least 14 days before an election to discuss the effect of the alternative workweek schedule. An employer is also required to mail a copy of the notice to all employees who don’t attend the meeting. If at least five percent of the workers involved speak a primary language other than English, the notice must be in that language as well as English.
- Election procedures. A secret ballot election must be held in which the proposal is approved by at least two-thirds of the workforce who will be affected by the alternative workweek schedule (not two-thirds of those who voted). The election must be held during regular hours at the employees’ worksite.
- Repeal provisions. By following detailed petition and election requirements, an alternative workweek can be repealed. With a few exceptions, a repeal election may not be held until 12 months after the schedule is first adopted. An employer may unilaterally cancel an alternative workweek schedule at any time so long as the employer provides reasonable advance notice to the employees.
- Election reporting. Employers must report the results of alternative workweek elections—regardless of the outcome—to the Division of Labor Statistics and Research within 30 days after the results are final. The employer should include in the report the following information:
- company name, phone number, address and contact person
- nature of the company’s business
- date of election
- election results (passage or failure)
- final tally of the vote
- if approved, a description of the alternative workweek schedule that has been implemented
- a statement of compliance indicating that the employer has complied with the requirements for establishing an alternative workweek schedule
- If more than one person voted, a statement that the vote was a written, secret ballot and that (if applicable) it passed by at least two-thirds of the vote
- If only one person voted a statement that the vote was a written ballot and that (if applicable) the one person voting voted in favor of the alternative workweek schedule
This information should be forwarded to:
Office of Policy, Research and Legislation
Attn: Alternative Workweek Election Results
Department of Industrial Relations
P.O. Box 420603
San Francisco, CA 94142-0603
- Anti-retaliation. Employers may not retaliate against workers who oppose or support adoption or repeal of an alternative workweek proposal.
- Accommodation. Employers must make a reasonable effort to accommodate employees who cannot work the new schedule (i.e., for religious reasons, child care conflicts, or where an employee is hired after the election and cannot work the alternative workweek schedule).
NOTE: Employees affected by a change in the work hours resulting from the adoption of an alternative workweek schedule may not be required to work those new hours for at least 30 days after the announcement of the final results of the election.
Collective bargaining agreements
Employees are exempted from statutory overtime requirements if they are covered by a collective bargaining agreement that:
- Explicitly provides for the employees’ wages, hours, and working conditions;
- Provides for premium wage rates for overtime; and
- Pays at least 30 percent more than the state minimum wage.
Labor Code section 1286© defines the term “minor” to mean any person under age 18 who is required to attend school.
No minor may work more than eight hours in one workday regardless of whether overtime is paid for the additional hours over the permissible eight hours. Weekend work, school holidays or personal requests by the employee do not alter this prohibition. Violations of this rule can result in costly civil penalties. Whether or not a minor is emancipated is irrelevant to the number of hours he or she is permitted to work.
Minors age 16 and 17 who have obtained a certificate of proficiency and are therefore not required to attend school may be employed for the same number of hours as an adult if they are paid at least the full adult minimum wage (not a lower minor or learner rate) and are paid overtime as an adult.
For further information, please see the CRA’s Industry Insight dedicated to this topic.
Holiday and weekend premiums
Neither state nor federal law requires that an employer pay an employee a special premium wage rate (e.g., time and one-half or double an employee’s normal rate of pay) for work performed on holidays, Saturdays or Sundays, other than the overtime premium required for work performed in excess of eight hours in a workday or 40 hours in a workweek.
If employers choose to provide employees time off with pay for certain holidays or vacation days, they need not count the unworked holiday or vacation time as “hours worked” for overtime purposes. Employers should realize, however, that if they give reason to expect that hours worked on holidays or weekends will be compensated at the premium rate (either by agreement or custom), employees may be able to enforce such a practice. Also, if holiday premium pay for hours worked is not at least equal to time-and-a-half, it must be included in the computation of the employee’s regular rate of pay for calculation of any overtime that may be required for that workday.
Mandatory banquet tips and service charges
Under California’s Division of Labor Standards Enforcement guidelines, if a restaurant imposes a mandatory banquet tip or service charge on patrons—such as a service charge of 15 percent for parties of six or more—if provided to the employees, it will generally be considered part of the employees’ wages. However, computation of the regular rate in connection with mandatory gratuities and service charges are computed differently than for regular wages. The DLSE views mandatory tips and service charges as “bonuses.” Any overtime on “bonus” wages is calculated based on the period during which the bonus is earned and is computed separately form the regular rate overtime calculation used for other types of wages.
The regular rate for purposes of “bonus” overtime is calculated by dividing the total bonus earned in the period during which the bonus was earned by the total number of hours worked during that period. The “bonus” overtime must be calculated separately from the premium owed for the regular hourly rate of pay. Since the service charge “bonus” is earned only for the time the worker is employed on banquets, the bonus is calculated based only on those hours.
For a more detailed explanation on how overtime on mandatory service charges and banquet tips are calculated see the DLSE’s January 7, 1994 Opinion Letter on overtime calculations involving mandatory banquet service charges.
An employer may be relieved from having to pay overtime to an employee if the employee falls within one of the several employee exemptions. For restaurants, the most likely employee exemption to apply is the “executive exemption.”
In order for an employee to qualify under the executive exemption an employee’s position must require the employee to do the following:
- Customarily and regularly direct or supervise at least two other employees;
- Manage the enterprise in which he or she is employed or a customarily recognized department or subdivision thereof;
- Possess the authority to hire and fire employees or to submit suggestions for recommended action in this area;
- Customarily and regularly exercise discretion and independent judgment;
- Earn a monthly salary of at least twice the applicable state minimum wage; and
- Be primarily engaged in exempt duties.
NOTE: This means that the employee is engaged in exempt duties at least 51 percent or more of the time he or she works. Significantly, if an employee is performing an exempt and a non-exempt duty at the same time, such as wiping a table while supervising an employee, it is the non-exempt duty that counts. Below is a list of duties that are considered “exempt.”
Exempt duty examples include:
- interviewing, selecting, and training employees
- setting and adjusting pay rates and work hours
- directing work
- keeping production records of subordinates for use in supervision
- evaluating the employees’ efficiency and productivity
- handling employee complaints
- disciplining employees
- planning work
- determining the techniques to be used
- distributing work
- deciding on types of merchandise, materials, supplies, machinery or tools
- controlling the flow and distribution of merchandise, materials, and supplies
- providing for the safety of employees and property
- planning and/or controlling the budget
- monitoring or implementing legal compliance measures
Examples of non-exempt duties include:
- performing the same kind of work as subordinates
- performing any production work, even though the work may not be the same as the work performed by subordinate employees
- making sales, replenishing stock or returning stock to shelves, except for supervisory training or demonstration
- performing routine clerical duties, such as bookkeeping, cashiering, billing, filing and operating business machines
- checking and inspecting goods as a production operation, rather than as a supervisory function
- performing maintenance work
According to the IWC and Division of Labor Standards Enforcement (DLSE), the occasional performance of non-exempt duties that are not directly and closely related to exempt work by an exempt employee will not be calculated as a part of the employee’s exempt duties. The only exception to this general rule is when an otherwise exempt employee has to fill in for a non-exempt employee due to an unforeseen emergency. The DLSE has stated that an “unforeseen emergency” does not include a business that does not have enough sales personnel on the floor to efficiently accommodate all of the customers. Therefore, if a manager at a restaurant fills in for a food server who has called in sick or is late, the time spent waiting on customers will not be calculated into the manager’s exempt duties.
NOTE: The test to determine whether or not an employee is exempt under California law as outlined above is largely based on the executive exemption test under the FLSA. However, California has heightened the requirements for an employee to be considered exempt in order to provide more protection to employees. Therefore, if an employee qualifies under California’s standards as an exempt executive employee, he or she will also qualify under FLSA’s standards.
The burden of establishing that an employee truly qualifies under the executive exemption (or any other overtime exemption) is placed on the employer. The CRA advises members to carefully classify workers as exempt or non-exempt by using state guidelines and refrain from using lofty or misleading titles to avoid overtime pay obligations.
This report was reviewed for legal accuracy and updated in 2016 by Van Vleck & Zaller LLP.