The California Supreme Court case Ferra v. Loews Hollywood Hotel, LLC definitively answered a longstanding question of California law: Whether the statutory meaning of the wage and hours terms, “regular rate of compensation” and “regular rate of pay” have the same meaning. The Court’s unanimous decision settled once and for all that the terms “are synonymous and encompass all nondiscretionary payment, not just hourly wages.”  

The Court’s determination that the terms are synonymous means that meal, rest, or recovery period premiums (i.e., one additional hour of pay) must be paid using the current calculation for determining overtime using the “regular rate of pay,” which factors in all nondiscretionary payments (e.g., nondiscretionary bonuses, commissions, etc.).  

To ensure compliance with regular rate of pay mandates, employers should consider the following: 

• Audit existing payroll records, going back for the entire statute of limitations period of three years, to confirm meal/rest breaks or recovery premiums were paid at the employee’s “regular rate of pay” (i.e., factoring in all nondiscretionary payments).  
• If the audit shows meal/rest breaks or recovery premiums have been paid based on the employee’s “base hourly rate,” consider the following steps: 
  • Immediately update existing payroll systems (or contacting your current payroll provider) to adjust to the correct rate of pay (i.e., employee’s regular rate of pay).  
  • Initiate a payroll audit process going forward to ensure workers are complying with all wage and hour laws, including meal/rest or recovery requirements. This is especially important for those whose employees are: 
    • Paid on a piece-rate or commission basis 
    • Earn varying wage rates in a workweek; or  
    • Are eligible for non-discretionary bonuses and incentives.  
  • Consult with legal counsel to discuss and determine a strategy to reduce the potential risk of litigation for any possible violations.