California travel pay: Blended rate calculation example

Travel pay can get expensive. Is there a way around it? Actually employers can get some relief: under both state and federal law, employers are allowed to pay a different rate for travel time than for regular work hours. In other words, employers are legally allowed to pay a different (lower) rate for overnight travel time than regular working time.

The rates must be at least minimum wage or higher (currently $8.00 per hour in California, set to increase to $9.00/hour after July 1st). Additionally, the travel time rates must be set prior to the activities.

"If no special rates set, all driving and travel time is compensated at the employee's standard hourly rate, and applicable overtime." Marc L. Jacuzzi explained in a recent CER webinar.

If using different rates, the employer must track all hours worked at each of the different rates—it is important to document it. The pay check stub must show the number of hours worked at each of the different rates. This is critical.

While this does provide some relief, this brings up additional calculation headaches when overtime comes into the equation. And the calculation rules are different for California employers than they are at the federal level. Let's take a look.

Calculating overtime in California: What to do with different pay rates

In California, overtime due is calculated using the "blended rate" method. Under the federal law, you can use "rate in effect" method.

The blended rate method for calculating overtime takes the total non-overtime compensation and divides it by the total number of work hours. The answer gives you the employee's regular rate of pay for that week to use for overtime pay calculations. Then that regular rate of pay is multiplied by the number of overtime hours, and multiplied by the overtime differential (50 percent for time-and-one half OT hours, or 100 percent for double-time hours).

Here's an example of calculating overtime using the blended rate method:

• The employee works 40 regular hours and is paid $25 per hour.
• She works Monday through Friday, eight hours per day.
• On Tuesday, the employee was required to drive six hours extra for a special assignment.
• She left at 5 a.m., worked from 8 a.m. to noon and from 1 p.m. to 5 p.m. with two paid 10-minute breaks, and drove three hours back – arriving at 8 p.m. Thus, 14 hours worked across all pay rates.
• The company has a policy in place that driving time is paid at $10 per hour.
• The employee's total non-overtime compensation is $1,060 (40 hours x $25 [$1,000] plus 6 hours x $10 [$60]).
• Thus, her regular rate for the calculation of overtime is $23.04 per hour ($1,060 ÷ 46 hours).
• The overtime premiums to be paid are $92.88 (4 hours x $23.04 x 50% [$46.08] plus 2 hrs x $23.04 x 100% [$46.08]). This is because double time is owed under California rules for all hours worked in excess of 12 hours in a workday.
• Total compensation for the week is $1,152.88 ($1,000 plus $60 plus $92.88).

Compare this calculation to the federal calculation, which would use the rate-in-effect method, and would not pay double time. (The rate-in-effect method uses the hourly rate in effect for the hours that "caused" the overtime).

In this case:

• The regular work would be paid $1,000 (40 hours x $25) and the driving time would still be paid $60 (6 hours x $10).
• The overtime would be calculated as: (6 hours x $10 x 50% [$30]).
• The total pay would be $1,090 ($1,000 plus $60 plus $30).

This example is to illustrate the savings generated by the federal "rate in effect" method of computing overtime premiums—and show why it's important to get the blended rate calculated correctly in California.

The above information is excerpted from the webinar "Travel Pay in California: How to Avoid Legal Jams on the Federal and State Wage and Hour Highway." To register for a future webinar, visit CER webinars.

Marc L. Jacuzzi, Esq., is a shareholder in the law firm of Simpson, Garrity, Innes & Jacuzzi. He advises clients regarding all aspects of the employer/employee relationship including hiring and termination, wage and hour requirements, employee classification, civil rights and discrimination issues, employee investigations, commission plans, employment contracts, employee handbooks and policies, confidential information agreements, reductions in force, leaves of absence, employment audits, M&A employment issues, violence in the workplace, and international employment issues.