Seyfarth Synopsis: California healthcare employers are facing primetime levels of costly litigation alleging claims based on miscalculation of the regular rate of pay. Healthcare employers are often targets because non-exempt healthcare employees may be paid myriad different incentives—premiums, bonuses, differentials, on-call pay, and more—that may need to be included in the regular rate of pay, as we explain below.
The regular rate of pay in the California healthcare system is about as easy to understand as the plot twists in Grey’s Anatomy. The regular rate of pay is at its core the product of a fraction – but you want to ensure you don’t Nip/Tuck anything you shouldn’t, that the dollar numbers on the top and hours number on the bottom of the fraction for each workweek are correct, and that the resulting numbers are correctly included on wage payments.
It Starts With the Workweek
Just like under federal law, in California a “workweek” for overtime and regular rate purposes doesn’t necessarily start at the same day or time for everyone. The workweek is any seven consecutive days starting with the same calendar day each week. The workday is any consecutive 24-hour period beginning at the same time each calendar day.
For most employers, the workday and workweek are the same defined period for all non-exempt employees (like Sunday at 12 a.m. to Saturday at 11:59 p.m.). But particularly with healthcare employers, different non-exempt employee populations may have different workweeks and workdays, based on their regular work schedule. For example:
- Night shift employees may not have a 12 a.m. workday start time like the day shift population, but instead have workday/week that begins at noon.
- Some hospitals and residential care establishments may have an exception to normal overtime rules, where non-exempt employees are on an “8 and 80” schedule, which results in a fixed period of 14 consecutive days as the period for calculating overtime.
This means there may be several different workweeks to account for throughout a healthcare employer’s departments and operations when figuring out the regular rate of pay.
Then How Do We Figure Out the Regular Rate of Pay?
The regular rate of pay is the weighted average rate of (almost) all forms of pay for work performed by non-exempt employees in the workweek. It can also include monies earned after the fact that relate back to a workweek (such as a quarterly bonus). This means you add up all these forms of compensation associated with work or performance covering that workweek, and this total generally is divided by the total hours worked by that employee in the workweek.
So, when a non-exempt employee earns compensation in addition to the base hourly rate, the regular rate of pay will be higher than the employee’s base hourly rate. It’s this higher rate that is used to calculate the amount paid for overtime and double time premiums, California paid sick leave, meal and rest period premiums, and reporting time pay.
In a General Hospital, What Hours Count for the Regular Rate Calculation?
Some types of hours do, some don’t (and make sure to check any CBAs for exceptions to the usual rules). Here are some examples:
What’s In
- Regular hours
- Education hours
- Controlled standby time
What’s Out
- Meal and rest period premiums
- Unworked reporting time pay hours
- Uncontrolled standby time
- Vacation, sick pay, PTO, etc.
And How Do We Treat Different Types of Pay for the Regular Rate?
Unfortunately this is where things can get a bit tricky. Here are some common examples of types of pay that would be in (or out) of the regular rate of pay calculation:
What’s In
- Preceptor pay
- Hazard pay
- Shift differentials
- Extra shift bonuses
- Standby pay
- Commissions
- Non-discretionary bonuses
- Attendance bonuses
- Bonuses designed to incentivize workers to work harder or more efficiently
What’s Out
- Overtime (the premium [e.g., the .5])
- Premium pay for work on weekends, holidays, or other special days (if premium is at least 1.5x base rate).
- Discretionary bonuses (spot bonuses or other unexpected bonuses)
- Gifts not based on hours worked, production, or efficiency and that aren’t pursuant to an agreement
- Percent of total earnings bonuses
- Payments to profit-sharing plans or trusts
- Contributions to employee benefit plans
Is This Prescription the Same for Flat-Sum Bonuses?
No! A flat-sum bonus is generally speaking a bonus that does not increase in rough proportion to hours worked. And, how to deal with flat-sum bonuses may be as surprising to healthcare employers operating in California as the diagnoses in House.
Instead of following federal law, in California, for regular rate purposes, flat-sum bonuses are divided by straight-time hours only (i.e. not necessarily all hours worked) to determine the addition to the regular rate. This amount is multiplied by 1.5 for each overtime hour and 2.0 for each double time hour in the applicable pay period in order to calculate the regular rate of pay adjustment.
Up To Your Scrubs in Regular Rate Calculations – Now What?
First, don’t assume that your payroll provider is getting it right. Payroll providers need specific instructions about what to include in the regular rate of pay calculations. The healthcare industry often utilizes more pay codes than the “normal” employer, so the regular rate calculation and how different categories of pay appear on the wage statement will need to be reviewed and directed by the employer.
Second, evaluate your payroll codes to make sure they are configured correctly in the underlying system, and that they show up the way you expect on a wage statement. Run test scenarios with different pay types and codes to ensure your system is operating as it should with holiday pay, shift differentials, bonuses, etc. This is technical and will take a lot of time and understanding, but it’s important.
Third, don’t be shy to ask for support. Seyfarth has a team of attorneys and analytics professionals who specialize in the healthcare industry. Whether it’s a one-off question, an audit of pay codes or the regular rate calculation and application, or defending litigation, we have a team of subject matter experts who can help.
Workplace Solutions
Figuring out the regular rate doesn’t mean your Private Practice needs to end up in court. Check out our prior healthcare webinar series for additional helpful compliance tips, and tune into our new series on wage and hour tips for healthcare employers in California for even more useful insights.
