Calculation of Overtime Rates Within The Same Employment Differs Depending On The Applicable Wage Order 

Employment Law Reporter, Ervin Cohen & Jessup LLP

In Espinoza v. Classic Pizza, Inc., 114 Cal.App. 4th 968 (2003), the employer appealed a judgment for overtime wages in favor of the employee. The plaintiff employee worked at a pizza restaurant from 1994 until the middle of 1999. At the outset, he worked 62 hours per week. After his hours changed in December 1998, he worked approximately 59 hours per week. Plaintiff was paid $300 weekly in cash until he was paid by check commencing in September of 1997. While the parties agreed on the amount the employee would be paid per week, there was no general understanding as to the total hours he was to work. Further, there was no agreement as to an hourly rate of pay.  

On appeal, plaintiff asserted that the court did not properly calculate the overtime amount due. The trial court calculated the employee’s regular rate of pay by dividing his weekly salary by 60, the number of hours the trial court found he worked. The appellate court reversed, ruling that the computation of an employee’s overtime begins with the calculation of his or her “regular rate of pay.”

Owing to the two-year period during which California abandoned daily overtime, two wage orders applied to the employee’s claims, the first covering a period from October 1995 until the end of 1997, and the second beginning in 1998 until his employment termination in June of 1999. When the current daily overtime is the standard, an employee’s fixed gross weekly salary should be divided by 40 hours to arrive at the regular rate of pay. When California mandated overtime pay only for hours worked in excess of 40 hours per week (rather than eight hours a day), the fluctuating workweek method applied. Under this method, the employee’s regular rate of pay is determined by dividing the number of hours actually worked in the particular workweek into the amount of fixed weekly salary. The resulting figure is then used to determine overtime compensation.  

The court acknowledged that an explicit, mutual wage agreement for a fixed salary may serve to compensate an employee for the number of hours that the employee worked under statutory overtime requirements. However, such an agreement must be made before the work is performed and must specify a basic hourly rate of compensation upon which the guaranteed salary is based. As the parties had failed to specify any such rate, had set a very low salary and had no agreement as to the hours that would be worked, overtime was required.



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