By way of background, California employers are required to provide nonexempt employees a paid 10-minute rest period for every 4-hours of work, and an unpaid 30-minute uninterrupted meal period by the end of the 5th hour (and 10th hour, if applicable) of work. These rules should already be quite familiar to employers.

The California legislature recognizes this is not always possible due to an employee’s workload or other issues. Therefore, an employee who is not provided required rest and/or meal periods must be paid an additional hour of pay at the employee’s “regular rate of compensation” for every missed meal or rest period. Until the Ferra decision, this “regular rate of compensation” was simply a worker’s hourly wage, without regard to additional, non-discretionary payments, such as bonuses or shift differentials.

In Ferra, the Court held the opposite, that meal or rest period premiums must be paid at a rate of pay that reflects regular pay + incentives, such as non-discretionary bonuses or shift differentials. Calculating this “regular rate of compensation” for rest and meal period premiums now mirrors the formula previously applied to determine the “regular rate of pay” when calculating overtime premium pay.

If an employee is indeed paid non-discretionary bonus or incentive pay, the calculation of his or her “regular rate of compensation” can initially seem somewhat daunting. Consider an employee who earns $17/hr, but also receives an additional $3/hr shift differential when she works a night shift. In a particular week, she works 60 hours (40 regular hours, 13 overtime hours and 5 double time hours). Of those 60 hours, 30 are paid at the employee’s base rate of $17, and the remaining 30 hours are paid at $20/hr to reflect the $3 night shift differential.

Under the old rule, any rest or meal period premium would be paid at the employee’s base pay, $17. However, under the Ferra holding, an additional calculation must be conducted, which establishes the rest or meal period premium must be paid at the weighted average rate of $18.50. (Total compensation is $1,110, divided by 50 hours, equals the weighted average rate of $18.50; this is her “regular rate of compensation” for that week only.)

Given this development, what should employers do? We recommend the following:

• Gross wages earned;
• Number of hours worked (not required for exempt employees);
• Number of piece-rate units earned (if applicable);
• All deductions;
• Net wages earned;
• Inclusive wages of the period for which the employee is paid;
• Employee’s name;
• Last 4 digits of employee’s Social Security number or employee ID (NOTE: It is unlawful to include an employee’s entire SSN);
• Name and address of legal entity that is the employer;
• All applicable hourly pay rates in effect during the pay period and the number of hours worked at each rate; and
• Amount of Paid Sick Leave available to the employee.