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Rate-In-Effect Permitted As Alternative to Weighted Average For Overtime with Multi-Pay Rates

The California appellate court in Levanoff v. Dragas upheld the employer’s use of rate-in-effect, citing that the practice did not lead to systematic shortage of pay compared to weighted average, and, in fact, led to higher pay than weighted average would have.
August 9, 2021
Rate-In-Effect Permitted As Alternative to Weighted Average For Overtime with Multi-Pay Rates

Rate-In-Effect Permitted As Alternative to Weighted Average For Overtime with Multi-Pay Rates

Though federal wage & hour law has long allowed employers under specified conditions (e.g., rates agreed to up front and equaling at least minimum wage) to pay overtime at the rate in effect when the overtime work was performed to employees performing jobs at two or more different pay rates, the California Labor Commissioner has historically only allowed employers to use the weighted average method to pay overtime in this circumstance (notwithstanding a limited exception for public works employees). But, the California appellate court in Levanoff v. Dragas recently rejected the class plaintiff’s use of the California Labor Commissioner enforcement position of weighted average-only to pay overtime for work at different pay rates. Instead, it upheld the employer’s use of rate-in-effect, citing that the practice did not lead to systematic shortage of pay compared to weighted average, and, in fact, led to higher pay than weighted average would have. Hence, employers seeking to use rate-in-effect instead of weighted average need be cautioned that it is not being utilized to depress wages (e.g., manipulating work schedule to have all OT work performed at the lower rate), as this was not the court’s intent, and it could be subject to recalculation at weighted average.

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