Weighing in on Weighted Average Pay Calculations - How to Pay California Employees Who Earn Different Pay Rates During the Same Workweek

Suppose you have a non-exempt employee who, in a single workweek, earns different rates of pay. This can occur, for example, if an employee works on both private and public works construction projects, or they earn a different rate for travel time than they do for other types of work, or they earn a higher rate of pay if they work a swing or graveyard shift. In such instances, it is crucial for employers to understand how the employee’s regular rate of pay must be calculated for purposes of paying overtime, CA paid sick leave, break period premiums, and reporting time pay.

If an employee is paid two or more rates during a single workweek (and doesn’t receive any other compensation), the regular rate is the "weighted average" rate which is determined by dividing the employee’s total straight-time wages for the workweek by the total hours worked during the workweek. For example, if an employee works 32 hours at $22.00 an hour and 10 hours during the same workweek at $18.00 an hour, their weighted average rate (and thus the regular rate for that workweek) is $21.05. This is calculated by computing their total straight time pay for the workweek [(32hours x $22.00/hour) + (10 hours x $18.00/hour)] = $884.00 and dividing it by the 42 hours worked.

In the above instance, the regular rate for purposes of paying missed meal /rest period premiums and reporting time pay would be $21.05/hour. Under California’s paid sick leave law, an employer can opt to pay sick leave at a non-exempt employee’s regular rate of pay for that week. Alternatively, an employer has the option of doing a 90-day look back calculation in which the employee’s total wages, not including overtime premium pay, are divided by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. Accordingly, if an employee took paid sick leave during the workweek referenced above, sick leave would be paid at a rate of $21.05/hour as well.

The correct overtime rate for the above workweek would be $31.58/hour (1.5 x the regular rate of $21.05).  Note, however, that where an employee works on both private and public works projects in the same workweek, the regular rate for purposes of paying overtime for work performed on the public works project would based on the higher of the weighted average overtime rate or the prevailing wage overtime rate in effect at the time the work is performed. If an employee is paid a lower private rate and works overtime on a private job in the same workweek that they work on a higher paying public works job, the regular rate for overtime purposes on the private job would be the weighted average rate.

If an employer fails to properly calculate the regular rate of pay in the above instances, it can be held liable for, among other things, wage underpayments, interest, unpaid wage penalties, inaccurate paystub penalties, and waiting time penalties if the underpayments are not rectified prior to an employee’s separation from employment.  These issues are often raised in class action or Private Attorneys General Act (PAGA) lawsuits brought on behalf of all non-exempt employees, the latter also triggering liability for PAGA penalties. In a class action context, if a claim is alleged under California’s unfair competition law, liability can reach back to cover a time period of four years prior to the filing of the lawsuit.  PAGA penalties can be assessed for a period of one year prior to the filing of the lawsuit.  Accordingly, employers who are not in compliance regarding this issue should ensure compliance moving forward and consider whether to audit and pay restitution for past liability as well. This is a very costly issue for employers to ignore.