Wage and Hour Compliance: Overtime and Regular Rate

Perkins Coie

Perkins Coie

This blog series addresses common employment-related issues for cannabis industry professionals.

This post addresses overtime rate requirements that manufacturers and retailers of cannabis products should consider to ensure compliance with applicable state and federal law.

In addition to ensuring that employee time is accurately recorded, employers should be mindful of the applicable overtime requirements and the rate at which overtime must be paid under state and federal law. For example, California law generally requires employers to pay nonexempt employees an overtime rate of 1.5 times the employees’ regular rate after eight hours in a single workday, 40 hours in a single workweek, and for time worked on the seventh consecutive workday in a workweek. California law also generally requires employers to pay double time to nonexempt employees for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

While calculating overtime should be a relatively simple process with respect to individuals who work in a single role and at a set schedule each week, it can become more burdensome with respect to employees who: (1) work in dual roles across the operation, (2) work during shifts that span multiple days, or (3) are paid at multiple pay rates during the applicable period—including due to receipt of bonuses or commissions. Actively monitoring payroll practices can enable employers to identify and correct underpayment—or overpayment—of overtime.

Along those lines, employers should be careful to ensure overtime compensation is paid at the employees’ “regular rate” of pay under the Fair Labor Standards Act (FLSA) and applicable state law. The overtime rate should reflect a multiplier of both the employee’s standard hourly rate and any other remuneration for employment paid to, or on behalf of, the employee.

For example, nondiscretionary bonuses, such as bonuses for meeting attendance or performance goals, must be added to employees’ hourly wages prior to calculating overtime for the applicable workweek. However, other categories of payments are not included in the regular rate calculation, including discretionary bonuses, discounts on company products, free samples of products, expense reimbursements, and payments made for occasional periods when no work is performed due to vacation, holiday, illness, and other categories identified under federal and state law.

This is one example of the wage and hour issues that employers should consider in the cannabis industry. We will issue further guidance on these and related topics. Companies and organizations should work with experienced legal counsel to determine the best approach to ensure compliance with these requirements.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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