Many employers pay employees a shift premium as a way to ensure
proper staffing of unpopular shifts. However, a new case in which hospital
employees walked away with a $32 million judgment highlights a danger zone that
employers that use shift premiums must be aware of.
Employer Introduces Short-Shift Premium
offered employees eight- and 12-hour shifts. The 12-hour shifts were much more
favored, particularly because employees who worked them were
guaranteed four hours of overtime.
To make shorter shifts more enticing,
12-hour shift workers so that those employees earned, including overtime wages,
about the same as employees who worked the eight-hour shifts. But a problem
arose when the 12- hour shift workers didn’t put in a full 12 hours because there
wasn’t enough work—if they worked between eight and 10 hours they wound up
earning less than an employee assigned to the more lucrative eight-hour shift.
Wage and hour law requires that all remuneration for nonovertime hours be lumped together to arrive at the regular pay rate
short-shift differential of about $4 per hour to 12-hour shift workers who
worked fewer than 10 hours on any day. A 12-hour shift employee who worked 10
or more hours didn’t receive the short-shift differential. Huntington didn’t
include the short-shift differential in an employee’s regular pay rate for
purposes of determining overtime pay; thus, when 12-hour shift employees worked
overtime, they were only paid 1 ½ times
their regular base rate—not taking into account any shift differential they had
earned—for their overtime hours.
Employees Seek Back Overtime
A group of employees filed a class action against the hospital,
contending that
underpaid them for overtime because it didn’t include the shortshift premium
pay when calculating overtime wages. And now, a
superior court in
has agreed with them.1
Shift Premiums Part of Regular Rate
The court explained that employers have the right to set the base
pay rate for employees, and
was within its rights to establish differing pay rates for eight-hour and
12-hour employees. But wage and hour law requires that all remuneration for
nonovertime hours be lumped together to arrive at the regular pay rate. Thus,
the short-shift premium that was paid for hours one through eight (nonovertime
hours) had to be added to the base hourly rate when determining the overtime
rate owed.
The court noted that the short-shift premium had to be figured
into the overtime calculation even for 12-hour shift employees who never even
worked a short shift. The court explained that the premium was simply part of the pay structure for all
nonovertime hours worked by 12-hour shift employees, and the employer shouldn’t
be able to circumvent it (and the overtime pay laws) simply by requiring an
employee to work longer than the regular workday or week.
Avoiding Problems, Looking for Alternatives
This case makes it clear that when figuring an employee’s overtime
rate, you must take into account the employee’s total remuneration for the
workweek, not simply the base pay. Besides shift differentials, other types of
pay that must be added in include: commissions, certain bonuses (see CWHA January
2007 for more information), retroactive pay increases, and the value of noncash
payments such as for meals or lodging. Examples of payments that aren’t
considered wages for purposes of calculating the regular pay rate include:
expense reimbursements; cleaning and uniform allowances; gifts (cash or goods);
reporting time pay that exceeds pay for the hours actually worked; and payments
made when no work is performed (vacation, illness, lack of work, etc.).
The decision also reminds employers to examine ways to reduce
overtime liability, such as by using alternative workweeks. For more on how to
implement an alternative workweek, see our four-part series on alternative workweeks
in CWHA January through April 2008.
_
1 Mutuc v.
No. BC 288727, 2008