January 7, 2019

Overtime compensation for non-exempt employees is an area where employers often misunderstand what is required.  For example, some employers think that because an employee is salaried, rather than hourly, the employee is not entitled to overtime pay.  This is not true.  Whether a person is salaried or hourly is not the determining factor.

Compliance with the overtime pay provisions of the Federal Labor Standards Act (“FLSA”) may not be sufficient to comply with state law.  Employers must comply with both.  Wherever California’s labor laws provide greater protection to an employee than the FLSA, employers must comply with the California law.

Overtime Pay Exemptions Under California Law
Under California law, employers must pay overtime compensation to each employee who works overtime unless the employee falls within an exemption (hence the term “exempt employee”.) For example, an administrative, executive, or professional employee is exempt and therefore is not entitled to overtime pay.  An administrative, executive, or professional employee is one who:

  1. Is “engaged in work which is primarily intellectual, managerial, or creative,”and “which requires exercise of discretion and independent judgment,”and
  2. Is paid a monthly salary equivalent to at least twice the state minimum wage for full time employment.

[Cal. Code Regs., Tit. 8, §§ 11040, subd. 1, and 11170, subd. 3.]

An employee is “primarily” engaged in intellectual, managerial, or creative work if more than half of the employee’s work time is devoted to such duties.  Thus, California law focuses on the amount of time the employee spends on his or her specific duties.  By contrast, the comparable federal law for determining exempt administrative, executive, or professional employees focuses on the employee’s “primary duty” and on the reason for which the employee was hired.  Therefore, employees who are exempt under federal law as administrative, executive, or professional employees might not be exempt under state law, and vice versa.  [Cal. Code Regs., Tit. 8, §§ 11040, subd. 1, and 1170, subd. 1.]

There are also overtime exemptions in both federal and California law for certain employees in the health care or computer software fields.  [Cal. Code Regs., Tit. 8, § 11040, subd. 1.]

A common misconception is that all employees who are paid commissions are exempt from overtime pay requirements.  There is a federal exemption for certain employees of retail or service establishments who are paid commissions and who meet other criteria. There is no exemption in California that depends solely on whether the employee is paid commissions.

There is an overtime exemption for California “outside sales” employees who “customarily and regularly work more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.”  [Cal. Code Regs., Tit. 8, § 11040, subd. 1(C) and 2(M).]

There is a narrow overtime exemption for certain California “inside sales” employees if (1) the employee’s earnings, for the week in which the employee worked overtime, exceed one-and-one-half times the minimum wage, and (2) more than half of the employee’s compensation that week is commissions.  [Cal. Code Regs., Tit. 8, §§ 11040, 11070, subd. 3(B); Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 803; Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662.]  “Earnings” includes hourly wages plus only those commissions that are a percentage of the price of the product or service being sold.  This exemption applies to employees who are in either the retail industry or in a professional, technical, or clerical occupation, and whose work must principally involve sales activities (not manufacturing, promotion, or customer service).

Profession-specific exemptions to the overtime requirements include state and local government employees, sheepherders, employees at certain live-in alternatives to incarceration for substance abuse, participants in a “national service program” under 42 U.S.C. § 12571, interstate truck drivers, drivers transporting hazardous material, movie projectionists, certain workers at radio or television stations, irrigators, taxi drivers, certain airline employees, student nurses, and caretakers/attendants employed by nonprofit organizations.

Employers should bear in mind that if an employer fails to properly compensate a California employee for overtime, the employer is liable for not only the unpaid overtime wages, but also interest, as well as the employee’s reasonable attorney’s fees and costs if any.  [Cal. Lab. Code § 1194.]

Overtime Pay Exemptions in Other States
Overtime pay laws differ from one state to another.  Therefore, businesses with employees in more than one state must take special care to ensure, when identifying exempt and non-exempt employees for purposes of overtime compensation, that they comply with the laws of the state in which each employee works.

When is Overtime Pay Owed to Non-Exempt Employees in California
Pursuant to California Labor Code section 510(a), unless the employee is exempt or has an alternative workweek schedule (for which there are separate rules,) the employee must be compensated for overtime as follows:

Eight hours of labor constitutes a day’s work.  Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee.  Any work in excess of 12 hours in one day shall be compensated at the rate of no less than twice the regular rate of pay for an employee.  In addition, any work in excess of eight hours on any seventh day of a workweek shall be compensated at the rate of no less than twice the regular rate of pay of an employee.

Need more information?
ESKRIDGE LAW may be contacted by phone (310/303-3951), by fax (310/303-3952) or by email (geskridge@eskridgelaw.net).  Please visit our website at eskridge.hv-dev.com.

This article is based on the law as of the date posted at the top of the article.  This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.