Wage Compliance Mistakes Could Cost You — Are You at Risk?
Published: September 15, 2025
One of the primary issues employers must navigate is determining how to pay their employees, and that process begins with correctly classifying them. Only a limited number of positions within any company, such as managers, executives, certain administrative personnel and professionals qualify as exempt from overtime and meal and rest period requirements (a common basis for employment lawsuits). Most employers should default to classifying their employees as non-exempt and thus generally pay an hourly wage and ensure compliance with California’s laws regulating overtime, sick pay, and meal and rest periods.
When determining an employee’s hourly compensation, employers must know how to calculate the employee’s regular rate of pay. Most employers would default to the base rate of pay assigned to their non-exempt employees. Sadly, it’s not that simple. In California, if employers pay incentives or other forms of wages in addition to a base hourly rate (such as non-discretionary bonuses, commissions, per diem payments), that additional income must be included when calculating pay for overtime, sick pay, and premium pay for missed or non-compliant meal and rest period premiums. What’s more, the accepted formulas vary depending on the type of incentive pay. For example, paying an employee a flat weekly bonus of $100 for working 4 hours of overtime for an undesirable Saturday shift results in an additional $18.75 in overtime pay owed to the employee.
Employers that don’t fully understand this system can easily run afoul of California’s requirements and face costly litigation as a result. Failing to include incentive payments in the regular rate of pay means underpaying your employee’s wages. Incorrect calculation of the regular rate of pay can result in: (a) underpayment of overtime, sick pay and meal and rest period premiums for non-compliant breaks; (b) legal liability for the employer; and (c) penalties, back wages, liquidated damages, interest and attorney’s fees. Omitting just a few cents or a few dollars from an employee’s pay can result in thousands of dollars owed to the employee.
Employers must accurately account for all forms of compensation to avoid wage claims. If you have employees who are receiving incentive/commission payments and need advice on whether you are compliant with the regular rate of pay, it is best to seek guidance. For questions about compliance, please contact Talia Delanoy or another trusted Weintraub Tobin employment attorney.