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Paying Employees for Sick Leave Under California's Healthy Workplaces, Healthy Families Act

(posted: September 30th, 2015)

Paying sick leave under the new law

As regular readers know, the new mandatory paid sick leave law in California (Healthy Workplaces, Healthy Families Act) is now effective. As of July 1, 2015, employers had to start providing the paid sick leave (PSL) benefit to their employees.

One question that frequently arises is how the employer pays the employee for the sick day, especially in situations where more than a single straight hourly rate is involved.

Three Methods of Calculation

There are three basic methods for calculating how to pay employees who take PSL; one method applies to exempt employees and the other two apply to nonexempt employees. Employers can use one of the following three calculation methods:

  • Calculate paid sick time for exempt employees in the same manner as wages are calculated for other forms of paid leave time.
  • Calculate paid sick time for nonexempt employees in the same manner as the "regular rate of pay" for the workweek in which the employee uses paid sick time, regardless of whether the employee actually works overtime in that workweek.
  • Calculate paid sick time for nonexempt employees by "dividing the employees total wages, not including overtime premium pay, by the employee's total hours worked in the full pay periods of the prior 90 days of employment."

Regular Rate of Pay

Employers who choose the second option for paying nonexempt employees need to be familiar with the term "regular rate of pay." Employers may be familiar with this term as regular rate of pay is also used for overtime calculations.

The "regular rate of pay" is the compensation an employee normally earns for the work he/she performs. The regular rate of pay includes a number of different types of payments, such as hourly earnings, salary, piecework earnings and commissions, made to the employee. The regular rate of pay can never be less than the applicable minimum wage.

The following discussion demonstrates how to calculate regular rate of pay in different situations.

Straight Hourly Employees

Calculating the regular rate of pay for a purely hourly employee with no other rates of pay or other types of earnings is straightforward - it is simply that employee's hourly rate.

Employee With Multiple Rates of Pay
Sometimes, an employee earns more than one rate of pay.

In this situation, employers can't simply use the rate that would have been earned on the sick day. Instead, employers who use the "regular rate of pay" method for calculating PSL will need to determine the "weighted average" of all rates the employee earned in that workweek. This rate is established by dividing the total compensation for the week by the total hours worked in the week.

Commissions, Piece Rates and Bonuses

If an employee is paid by a piece rate or a commission, either of the following methods may be used to determine the regular rate of pay for purposes of calculating how much to pay the employee for PSL:

  • Divide the employee's total earnings for the workweek by the total hours worked during the workweek to arrive at the regular rate:%%Example: A piecework employee works 42 hours during one workweek (Monday through Thursday) and calls in sick for eight hours on one day (Friday). The total piecework earnings for the 42 hours are $450. The regular rate of pay is $450 42 or $10.71 per hour. This is the rate of pay that would be used for the eight hours of sick leave that the employee took ($10.71 x 8=$85.68).
  • Note that the piece or commission rate is used as the regular rate.

Optional 90 Day "Look Back" Method

An employer can also choose the option of a 90 day "look back" calculation for nonexempt employees. This method requires dividing the employee's total wages, not including overtime premium pay, by the employee's total hours worked in the full pay periods of the prior 90 days of employment.

Deadline for Paying

PSL must be paid no later than the payday for the next regular payroll period after the sick leave was taken. You may make the adjustment to an employee's pay for the same payroll period in which he/she took the leave, but the law permits you to delay the adjustment to the next payroll.

Best Practices

  • Choose the calculation that works best for your workforce. You may need to use different payment methods for different types of workers (e.g., hourly versus commissioned).
    
  • Account for the payment of PSL on the paycheck stub or separate itemized wage statement for that pay period.
  • Keep records. The PSL law requires you to keep records for at least three years documenting the hours the employee worked, paid sick days accrued by the employee and paid sick days used by the employee.
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