In June 2021, a California appellate court ruled that, in very limited situations, it may be lawful for an employer to use the “rate-in-effect” method for calculating the regular rate of pay for purposes of establishing the overtime rate of pay for dual-rate employees (employees who work at different rates of pay within a single pay period).

The plaintiff employees argued that California law required employers to only use the “weighted average” method, not the “rate-in-effect” method, but the Court did not agree. While the California Division of Labor Standards Enforcement (DLSE) Manual requires the use of the “weighted average” method in all situations, the Court held that statements in the DLSE Manual are not binding, and therefore, California law does not mandate the use of the “weighted average” method in all situations. Here, the “rate-in-effect” method resulted in a greater overtime payment to employees than the “weighted average” method would have.

This ruling simply confirms that employers may, in very limited situations, when it benefits employees, lawfully use the “rate-in-effect” method without violating overtime pay requirements.