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This article provides an overview of the major ways in which California overtime laws are more generous to employees than the federal law, thereby imposing greater compliance obligations on employers. It assumes a basic understanding of the federal Fair Labor Standards Act (FLSA) and refers readers to relevant resources for additional information and comparison.
These matters are generally covered in the following sections:
In addition, the article covers employer obligations with respect to communications and record-keeping, as well as enforcement of overtime payment laws.
California is known as being a leader in pro-employee labor laws. See California: Birthplace of Legal Theories.
Many large organizations and global corporations have hundreds, or thousands, of employees in California. Any business located in California must comply with California overtime payment laws. Organizations located in other states or countries—but with even one employee working in California—must also be cognizant of California wage-and-hour laws regarding the payment of overtime.
The role of HR with regard to California's overtime payment laws is to meet the following broad objectives:
HR's role in California overtime pay compliance also involves these distinct functions:
Overview of FLSA Overtime
Succinctly stated, the federal Fair Labor Standards Act (FLSA) requires payment of overtime to employees who work more than 40 hours in a single workweek at a rate not less than time and one-half their regular rate of pay, unless exempt. The FLSA also requires payment of a minimum wage.
For foundational information about the FLSA, see:
Overview of California Overtime
In California, a nonexempt employee may not work more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday and over 40 hours in the workweek. Eight hours of labor constitutes a day's work, and employment beyond eight hours in any workday or more than six days in any workweek is permissible provided the employee is compensated for the overtime at not less than:
See California Division of Labor Standards Enforcement (DLSE) Overtime.
Comparison of California Law and Federal Overtime Law
Against the framework of the FLSA overtime law, HR professionals with employees in California must compare the California overtime requirements. Employers must then abide by the California law so long as it does not thwart the FLSA. This often means being more generous to employees in California than is required under federal law with some exceptions.
Multiplicity of laws and wage orders
Typically, a state has a single wage-and-hour overtime payment statute and a single wage-and-hour order or regulation implementing that statute. California has numerous laws and regulations and, currently, 17 wage orders applicable to different industries or occupations. California's Industrial Welfare Commission (IWC) wage orders are the counterpart to U.S. Department of Labor (DOL) regulations. A good starting point for understanding California overtime payment laws is the IWC website.
The IWC divides its wage orders according to industries and occupations. The wage orders are:
The "industry" orders are numbers 1 through 3 and 5 through 13. The "occupation" orders are numbers 4 and 14 through 17. Employers in California must determine where a particular employee falls within the regulatory scheme at the outset of any wage-and-hour analysis. If an employer is covered by an industry order, then the industry order takes precedence over an occupation order. See Which IWC Order?
Key areas of difference
Several important terms come up in wage-and-hour issues. The significance of statutes and regulations is usually driven by the definitions of the words used, so understanding the definitions under all applicable laws is essential. Employers must not assume that words used in the statutes, regulations and wage orders mean the same as in common usage. Typically, definitions are set out near the beginning of the statute or regulation and apply consistently throughout.
California law regarding wages and the payment of overtime is found generally at California Labor Code §200-§243, §510 and §1171-§1206. California administrative regulations can be found at 8 California Code Reg. §11000 et. seq. as well as in the wage orders listed above. The wage orders are presumed by the California courts to be reasonable and lawful until a party demonstrates otherwise. The California Division of Labor Standards Enforcement (DLSE), the state's counterpart to the DOL, occasionally releases interpretative bulletins that address specific fact situations. The interpretative bulletins constitute mere opinions rather than substantive law. Courts vary to the extent and deference given to the DLSE opinion letters.
Employers must address a hierarchy of issues when considering a wage-and-hour issue in California:
Independent contractors. Employers that try to circumvent California's complex overtime payment laws by merely designating workers as independent contractors take a significant risk. California Labor Code §226.8 sets forth harsh penalties for employers that willfully misclassify workers as independent contractors. An employer can be subject to fines up to $25,000 per violation if the state finds that the employer committed a pattern or practice of misclassification. Consequently, misclassifying employees can be costly. Employers should consult with legal counsel and be cautious when classifying workers as independent contractors. See How do I know if an individual is considered an employee or independent contractor in California?
Exempt and nonexempt. These are key terms under California law, just as they are under the FLSA. See What is the difference between California overtime exemption requirements and federal overtime exemption requirements?
Under federal law, several categories of workers may be eligible for an exemption from certain provisions of wage-and-hour laws, including:
The above list is not exhaustive. Employers should consult with legal counsel to determine whether specific employees are exempt from any provisions of federal wage and hour requirements.
Exempt workers are paid to get the job done, not to work a set number of hours. Employers should not treat exempt workers like hourly employees—intensively monitoring and recording their comings and goings. Exempt positions are not supposed to provide a mechanism to evade overtime laws while still treating exempt employees as though they were nonexempt in terms of closely monitored work hours. Thus, employers may not simply designate any employee as exempt. Exempt employees typically must meet a legal standard to be classified as such, which could include meeting a duties test and a salary test. See FLSA Overtime Security Advisor.
California covers the same general areas of exemption as does the FLSA, but divides the areas somewhat differently, places additional requirements on some of the exemptions and also has several unique exemptions. See Exceptions to the General Overtime Law.
In California, white-collar exemptions (executive, administrative and professional) have both salary and duty criteria that differ from those under the FLSA. Workers must meet both the federal and state salary minimums for a position to be exempt from all minimum wage and overtime laws. Under state law, the salary component is tied to California's minimum wage. Exempt employees must earn a monthly salary of at least two times the state minimum wage for full-time employment, and so whenever the minimum wage goes up, the minimum salary for exempt employees increases as well. California exemptions are discussed in greater detail in "California Overtime Exemptions" below.
Workweek and workday. Key to the FLSA is the definition of a workweek. However, California overtime law also depends on the definition of a workday. A workday is a consecutive 24-hour period that is consistent throughout the year. If the employer fails to define its own workweek, the California Labor Commissioner will use the default of Sunday through Saturday, with the workday lasting from 12:01 a.m. to midnight. Under certain circumstances, California allows employers to establish a workweek different from the typical workweek of five eight-hour days of work. See DLSE—Glossary and Summary of Interim Wage Order—2000.
Work. The definition of work is another area in which California law diverges from law under the FLSA and the law of most states. What constitutes work is a very fact-specific determination. It is not always clear under the FLSA what is and is not work. This determination becomes even more complicated when one must consider whether a California definition of work trumps the federal definition of work in a particular context.
California law on working hours is contained in Labor Code §500-§558 and §1171-§1206, as well as in the many wage orders described above. The definitions of work and working hours interact with the provisions regarding payment of minimum wages and overtime wages. California regulations regarding working hours can be found at 8 Cal. Code Reg. §11000 et. seq.
Unless otherwise expressly agreed to by parties to a contract, eight hours of labor constitutes a day of work. In California it is the level of the employer's control over employees that is critical, rather than the mere fact that the employer requires the employee to perform certain activities.
"Hours worked" under California law is defined as hours in which a worker is "subject to the control of the employer."1
What are the rules regarding reporting time or "show-up" pay in California?Definitions of work become even more complex under California law, in which the definition is dependent in part on California's many fact-specific wage orders. In 1994 the DLSE issued an opinion letter addressing two narrow questions of what constitutes work under California wage-and-hour law. The opinion letter compared and contrasted the definition of hours worked between the FLSA and California law. (Keep in mind that "hours worked" is just one of many operative terms in the federal and California wage-and-hour laws.) The letter pointed out that the FLSA contains no definition of hours worked and that the DOL relies on definitions first set out in a Supreme Court opinion of 1944 that was expanded in a 1946 Supreme Court opinion. Later the DOL attempted to clarify the FLSA definition by saying in 29 C.F.R. §778.223 that "[a]s a general rule the term 'hours worked' will include: (a) All time during which an employee is required to be on duty or to be on the employer's premises or at a prescribed workplace and (b) all time during which an employee is suffered or permitted to work whether or not he is required to do so."2
The DLSE opinion stated the definition used by the California Industrial Welfare Commission: " 'Hours worked' means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so."3 The DLSE then concluded, "There is a substantial difference between the definition of hours worked adopted by the IWC and that used by the Department of Labor for enforcement of the FLSA. Under California law it is only necessary that the worker be subject to the 'control of the employer' in order to be entitled to compensation."4
Comp time and makeup time. California allows for comp time based on a specific procedure and also has a distinct procedure called "makeup time," which the FLSA does not. See, for example, Labor Code §513 and In California, is make-up time allowed without incurring overtime when that time takes an employee beyond eight hours of work in a day?
For a brief discussion of these circumstances, see Managing Workplace Flexibility in California.
In comparison, compensatory time for nonexempt employees is not permitted in the private sector under the FLSA.
Interns. California also has Opinion Letter dated April 7, 2010, on the conditions under which the DLSE deems an intern not an employee entitled to wages and, therefore, ultimately exempt from the state's overtime pay requirements. California's position is very similar to the U.S. DOL's position under the FLSA, despite having fewer discrete points to consider. See Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act.
Minimum wage. There is also the definition of minimum wage to consider. Although some exceptions apply, almost all employees in California must be paid the higher minimum wage as required by state law. There is an exception for learners, regardless of age, who may be paid not less than 85 percent of the minimum wage rounded to the nearest nickel during their first 160 hours of employment in occupations in which they have no previous similar or related experience. There is also an exception for sheepherders. These two exceptions illustrate the importance of placing each individual employee in California in the right category at the outset of any wage-and-hour analysis. Employers must also take into account local ordinances that may require additional consideration. See Is the minimum wage in San Francisco different than the California state minimum wage? Tipped employees. In California, tips left on the table or on a credit card charge are deemed property of the employee; the employer is obligated to turn that money over to the employee. An employer can impose a mandatory tip pool among restaurant employees, but a supervisor who acts as the agent of the employer cannot share in those tips. Employers may not use an employee's tips as a credit toward the employer's obligations to pay minimum wage. See Tips and gratuities.
For federal resources on this topic, see Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA) as well as other toolkits referenced at the beginning of this article.
California Overtime Exemptions
As with the FLSA, California recognizes several exemptions from overtime requirements. The exemptions are similar to, but not identical to, their federal counterparts. See IWC Wage Order 4-2001.
As stated earlier the salary basis requirements are determined differently under the FLSA and California law. Under state law, to meet the white-collar exemptions (executive, administrative and professional) standard for a salaried employee in California, the worker must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week as defined in Labor Code §515(c). This amount may not be reduced for poor performance or lack of productivity.
Under federal law, as of December 1, 2016 the standard salary level (otherwise known as the salary minimum) will be $913 per week or $47,476 annually for a full-year worker. This rate will be automatically updated every three years. Also as of December 1, 2016, the FLSA does allow employers to include nondiscretionary bonuses, incentive payments and commission payments to satisfy up to 10 percent of the minimum salary requirement for exempt employees. For guidance on federal salary requirements for exempt employees, see Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA) and Fact Sheet: Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees.
Another critical difference regarding the white-collar exemptions (executive, administrative and professional) between the federal FLSA and California is that California has a 50 percent rule. The term "primarily engaged in" in California means that more than one-half of the employee's work time must be spent engaged in exempt work. This meaning differs substantially from the federal test, which simply requires that the "primary duty" of the employee falls within the exempt duties. In California, the question to ask is not if the position engages in exempt duties, but rather if the position engages in exempt duties more than 50 percent of the time each week.
A California employee who qualifies for the executive exemption is an employee:
An executive employee must also earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week as defined in Labor Code §515(c).
The administrative exemption is the one that most often snags employers under both the FLSA and California law. Employees claimed exempt under the administrative exemption are usually female employees—a reason to be especially cautious about deeming a particular position eligible for the administrative exemption. Case law is replete with employers unsuccessfully claiming the administrative exemption for secretaries, file clerks, bookkeepers, paralegals and project managers. A California employee qualifies for the administrative exemption if the employee meets all of the following requirements:
A California employee qualifies for the professional exemption if the employee meets one of the following requirements:
Computer software occupations exemption
California's computer professional exemption is significantly different from the FLSA's exemption. To qualify as exempt under California law, an employee must receive pay at a rate set by the Division of Labor Statistics and Research that is adjusted annually on October 1 of each year to be effective on January 1 of the following year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers. See History of Rate of Pay for Exemption for Computer Software Employee.
In addition to the compensation requirement, an exempt computer professional employee must meet all the following criteria:
Outside sales exemption
Both California and federal law have an overtime exemption for outside sales employees. The key term here is "outside," which may not include an established home office because the home office may be deemed part of the employer's place of business. The gist of the exemption is the employee making sales "on the road." A California employee qualifies for the outside sales exemption if the employee meets the following criteria:
Commissioned salespersons exemption
Federal law has an exemption for commissioned salespersons employed at a "retail or service" establishment. California maintains a similar but different commission exemption for employers subject to Wage Orders 4 and 7. No other wage order other than 4 or 7 has such an exemption. A California employee qualifies for the commissioned salesperson exemption if the employee meets the following criteria:
In 2012, the case of Muldrow v. Surrex Corp., 202 Cal. App. 4th 1232, a California court broadly interpreted the term "primarily engaged." Consequently, an employee may still be primarily engaged in sales when performing activities that are related to sales activities, but that are not actual selling. However, employers should consult with legal counsel before determining whether employees meet the standard for any exemption.
See Does the state of California have specific rules regarding the payment of commissions as a form of compensation?
California Law on Alternative Workweeks
A fundamental principle of FLSA overtime law is that each workweek must stand on its own. (Exceptions exist for police, firefighters, and hospital and nursing home employees.) Under the FLSA a workweek is generally defined as seven consecutive 24-hour days. Typically, employers require their employees to work five consecutive days of eight hours each.
However, some industries require 24/7 manufacturing or customer service. Also, some employees desire greater flexibility than provided by this model. California has been a leader in developing laws to address both sets of needs.
To satisfy the needs of recruits and employees while still keeping labor costs at a reasonable and predictable level—and thereby remaining competitive—California employers have availed themselves of California Labor Code §511, which allows them to define alternative workweeks and workdays under certain conditions. An employer is allowed to change its defined workweek or workday if the change is intended (at the time) to be permanent. It is not necessary for all classes of employees to have the same workweek or workday. However, employees on public works and those in agricultural occupations subject to IWC Order 14 are not eligible for alternative workweeks. Certain employers with collective bargaining agreements are not subject to all the requirements of the California regulations concerning alternative workweeks.
Alternative workweeks and workdays provide an opportunity for employers to fine-tune their defined work schedules. Alternative work schedules should be grounded primarily in the needs of the job being done and in the desires of the workers; the opportunity to avoid paying overtime should not be the goal, but rather a possible ancillary benefit to the employer. See What are the rules for alternative workweek schedules in California?
Generally, overtime pay is required in California whenever an employee works more than eight hours in a workday (or in excess of an established alternative workweek) or more than 40 hours in a workweek or during the first eight hours during the seventh consecutive day worked in the same workweek. Employees earn double time if they work more than 12 hours in a day or more than eight hours on the seventh consecutive day worked in the workweek. It is possible under a properly established alternative workweek for an employee to work more than eight hours a day and still be compensated—without overtime—at the regular rate of pay for the extra hours.
The 17 wage orders contain different alternative workweek rules. The following is a general discussion of rules that may apply to a legitimate alternative workweek program under California law, with several noted exceptions:
Employers should proceed with caution in implementing alternative workweeks. For a detailed discussion of how to accomplish this process in a legally compliant manner, see How to Implement Alternative Workweek Schedules in California.
Domestic Worker Bill of Rights
Labor Code §1540 prohibits a domestic work employee who is a personal attendant from being employed for more than 9 hours in any workday or more than 45 hours in any workweek unless the employee receives one and one-half times the employee's regular rate of pay for all hours worked in excess of 9 hours in any workday or 45 hours in the workweek. See The Domestic Worker Bill of Rights FAQs.
Wage Payment Obligations
Overtime wages must be paid no later than the payday for the next regular payroll period following the payroll period in which the overtime wages were earned. An employer is in compliance with the labor code relating to total hours worked by the employee if the overtime hours are recorded as a correction on the itemized statement for the next regular pay period and if the statement includes the dates of the pay period for which the correction is being made. See Labor Code §204(b)(2).
An employee who is discharged must be paid all wages, including overtime, and accrued but unused vacation or paid time off, immediately at the time of termination. Upon resignation, if an employee provides 72 hours' notice, the employee must receive his or her final check on his or her final day of work. If the employee does not provide 72 hours' notice, the employer has 72 hours to give the employee his or her final check. See Paydays, pay periods, and final wages.
California law also mandates a pay stub with payment of wages that contains certain information. The pay stub must be issued to the employee with each pay check. The DLSE provides an example pay stub for an employee paid on an hourly wage.
California Labor Code §226 requires each pay stub to include the following information for the corresponding pay period:
Effective July 1, 2013, temporary services employers must also include the rate of pay and total hours worked for each temporary services assignment worked by the employee.
Employers must retain a copy of each pay stub for at least three years.
Requests to Inspect or Obtain Copies of Payroll Records
Employers are required to permit current and former employees to inspect or copy payroll records pertaining to that current or former employee. See Labor Code §226(b).
An employer that receives a written or oral request from a current or former employee to inspect or copy his or her payroll records must comply with the request as soon as practicable, but no later than 21 calendar days from the date of the request. Failure by an employer to permit a current or former employee to inspect or copy his or her payroll records within the 21-calendar-day period entitles the current or former employee to recover a penalty from the employer in a civil action before a court of competent jurisdiction.
Employers are required to keep accurate payroll records on each employee, and such records must be made readily available for inspection by the employee upon reasonable request. Additionally, when a piece rate or incentive plan, such as a commission plan, is in operation, piece rates or an explanation of the incentive plan formula must be provided to employees. The employer must maintain accurate production records. See Personnel files and records.
Employers must retain payroll records for at least three years.
Enforcement of California Overtime Laws
California has a multilayered scheme to enforce its wage and hour laws. The Private Attorneys General Act of 2004 empowers employees to act as private attorneys general on their own behalf and on behalf of other current and former employees to seek civil penalties for California Labor Code violations. A successful employee acting as a private attorney general receives 25 percent of the civil penalty awarded and collected, plus reasonable attorney fees and court costs.
The DLSE has seven units charged with different aspects of enforcement:
Both federal law and California law require employers to communicate legal rights to employees by means of posters and, in some instances, text in employee handbooks. Employers must post both federal and California current minimum wage requirements, numerous other posters, and the applicable California wage orders in an area commonly frequented by employees to ensure that they can easily read the postings during the workday. Copies of the required postings are available from the California Department of Industrial Relations. Posters and notices must be updated when the content changes.
Wage Theft Prevention Act
California's Wage Theft Prevention Act (WTPA) took effect January 1, 2012, and added California Labor Code §2810.5. Employers are required to give new nonexempt employees at the time of hire, and in certain circumstances current, nonexempt employees, a notice about their wages and other employment-related information. The following specific items must be included in the notice:
If the above information changes during employment, the employer must notify the nonexempt employees within seven days or on their next itemized wage statement, if possible. The Labor Commissioner has created a template notice that satisfies the requirements of §2810.5.
Templates and Tools
Agencies and organizations
Laws and regulations
1 Division of Labor Standards Enforcement. (2006). The 2002 update of the DLSE enforcement policies and interpretations manual (revised). Retrieved from http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf
2 California Department of Industrial Relations, Division of Labor Standards Enforcement. (1994, February 3). Letter regarding compensable time. Retrieved from http://www.dir.ca.gov/dlse/opinions/1994-02-03-3.pdf
5 California Division of Labor Standards Enforcement. (n.d.). Glossary: Professional exemption. Retrieved from http://www.dir.ca.gov/dlse/Glossary.asp?Button1=P
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