On July 15, 2021, the California Supreme Court issued a ruling regarding California Labor Code 226.7(c). The court ruled in the case Ferra v. Loews Hollywood Hotel, LLC. Thus, it determined that employers must use the regular rate of pay instead of the hourly wage rate when paying workers for noncompliant meal and rest periods.

California Labor Code 226 and Noncompliant Meal and Rest Breaks

Under California’s Labor Code, employers must provide staff members with specific meal, rest or recuperation periods. And this is the case when mandated by a specific Industrial Welfare Commission (IWC) order. If not, they should compensate their employees for one added hour of work. This is based on the employee’s “regular rate of compensation.” The court’s decision clears up that “regular rate of compensation” suggests the regular rate of pay and not the employee’s contractual rate of pay.

The Regular Rate of Pay

What is a staff member’s regular rate of pay? Well, it is equal to their entire workweek compensation divided by the number of hours the employee works during that workweek. It consists of hourly revenues, wage, piecework, bonuses, shift premiums or differentials, and commissions. Consequently, a staff member’s regular rate of pay may be greater than the worker’s contractual hourly wage rate.

What effect will this have on employers? Companies subject to IWC orders need to change their timekeeping and payroll policies and methods. This will ensure noncompliant breaks are paid at the staff member’s regular rate of pay. Additionally, since this decision is retroactive, companies may want to talk to an experienced legal professional to analyze whether payroll changes are needed.

Key Points

Supreme Court Holding

The “regular rate of compensation” under section 226.7(c) encompasses all nondiscretionary repayments, not just hourly wages.

Labor Code

Section 226.7(c) If an employer fails to provide an employee a meal or rest or recovery period  [ …] the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.

Speak with a TPG Payroll & HR Services specialist today by calling 909.466.7876! We can help you get a better grip on understanding California’s Labor Codes. Also, while you’re checking out our page, we recommend you read more about our Time and Attendance Software made for your convenience and to boost your business’ productivity.