California’s workplace overtime rules do not apply to those workers who qualify for exemption under one or more categories, including:
● Executive Exemption: Executive employees are exempt from overtime if paid on a salary (current minimum is $640 per week; $2,773.33 monthly) and if primarily (over 50%) engaged office or non-manual management of at least two personnel below them in the chain of command and with authority to exercise discretion and independent judgment on the post. “Management” means having and exercising the authority for full responsibility over the planning, recruiting, work priorities and allocation, coordination, documentation (e.g., statistics, evaluations of personnel performance) and production results of a company or a distinct area of a company. See also, “The California Executive Exemption”;
● Administrative Exemption: Administrators are exempt if paid on salary as above for executives and if primarily (over 50%) engaged office or non-manual work on planning, organizing, or enabling production concerning, for example, creation or execution of the management policies or general business operations of his/her employer or his/her employer’s customers. An exempt administrator must regularly and customarily exercise independent judgment and discretion in his/her position. See also, “Administrators and Overtime Pay in California”; “The California Administrative Exemption”;
● Professional Exemption: An individual is an exempt professional if paid on salary as above and primarily (over 50%) engaged in one of several specified licensed occupations (including law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting) or in an “occupation commonly recognized as a learned or artistic profession.” As above, an exempt professional must regularly and customarily exercise independent judgment and discretion in his/her position.
A worker is exempt from California’s overtime rules if he meets the detailed duties and compensation requirements for an inside salesperson; an outside salespersons; or an computer employees. There are a host of other avocations (for example, interstate truck drivers) that may be exempt from California overtime rules because of the preemption of federal or other laws.
Classification of a worker as exempt from overtime is a detailed, sometimes complex process, best accomplished with the aid of a skilled employment law attorney.
Basic Rules and Rates for Weekly or Daily Hours
California requires employees who are not “exempt” receive overtime pay for time worked beyond forty hours in any one workweek or after eight hours in a workday.
A “workweek” is any seven consecutive days, starting with the same calendar day each week beginning at any hour on any day, so long as it is fixed and regularly occurring. It is thus a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods.
A “workday” is a consecutive 24-hour period beginning at the same time each calendar day, but it may begin at any time of day.
California’s overtime (“premium”) rates range from 1.5x to 2.0x an employee’s regular rate of pay. “Regular rate” is generally that worker’s total compensation for the workweek (including wages, piecework pay, bonuses and commissions) divided by the number of working hours in that week. In no case may the regular rate of pay be less than the applicable minimum wage.
The rules include:
● Hours worked over 40 hours in a workweek are compensable at 1.5x regular rate;
● Hours worked over eight, but less than 13, in a workday are also compensable at 1.5x regular rate;
● Hours worked over 12 in a workday are compensable at 2.0x regular rate;
● The first eight hours worked on the seventh consecutive day in a workweek are compensable at 1.5x regular rate; and
● Hours worked over eight on the seventh consecutive day in a workweek are compensable at 2.0x regular rate.
These are some of the basic rules. There are many other applicable laws and regulations an employer must also grasp and apply. For instance, an employer may establish different workweeks for different employees, but once an employee’s workweek is established, it remains fixed regardless of his or her working schedule.
California also provides detailed rules for workers who qualify for exemption from overtime pay. See, e.g., “California’s Exemptions from Overtime”, “Administrators and Overtime Pay in California”; “The California Administrative Exemption”; “The California Executive Exemption”; “Is Your Commissioned Inside Sales Representative Exempt From Overtime?” and “The California Computer Professional Exemption.”
Navigation through and compliance with California’s overtime standards is best accomplished with the help of experienced legal counsel.
Clearly Written Agreements are the “Ounce” of Prevention
Commissions payable to former employees present a special set of issues for California business. The importance of actions to prevent disputes increases over 2012 as the state will require all employee commission agreements to be in writing by December 31. See, “Employee Commissions”
California requires that all earned compensation must be paid at least twice per month. An employer also must usually pay a worker all earned compensation immediately upon termination or be subject to penalty for each day of delay up to a 30 day maximum. However, an employee may not have earned a sales commission at termination if, for instance, the company requires the customer’s actual payment of funds before commission on those funds is owing. The employer must pay such a commission earned after termination immediately upon the receipt of the funds.
Determination of just when a commission is “earned” can become quite contentious at or following termination unless there is a clear written guideline. What of the commission for a particular account a salesperson was instrumental in securing but which did not actually close until shortly after that employee has departed the company? Is a commission earned when the customer agrees to do business, makes an order, pays for an order, or receives and is satisfied with the order?
The answer can legitimately be any of these, depending on the scope of the salesperson’s responsibilities to ensure completion of the transaction. However, that proper “earning point” could be anyone’s guess if there is no written standard. It also could be a litigation nightmare if a salesperson leaves employment before the employer considers one or more commissions have been earned and the stakes are high enough.
Actions that can reduce the potential for such post-termination disputes include:
● Unambiguous contract terms with each salesperson establishing the worker’s responsibilities for a successful complete transaction and a corresponding point in that transaction when the commission is earned and payable; and
● Where possible, forthright and constructive communication between management and the salesperson at termination to confirm or reach specific written resolution on the latter’s rights to commissions on pending transactions.
Skilled legal counsel can almost certainly help anticipate and deal with the grey areas on commission rules before any problems actually arise.
For more information, see the DLSE’s FAQ on Paydays, Pay Periods and the Final Wages.
Termination for Absence or Lateness
As “at-will” status permits either the employer or the employee to freely end the relationship even with no advance notice and for no reason at all, obviously a business can legitimately terminate an “at-will” worker for not showing up or for being late. However, there are some practical considerations.
Normally, management should not be moved to make such a significant move on a single instance or a few isolated occurrences. Termination is rarely the first solution since a company has usually gone through some expense and time to train an individual worker. The majority of absent or tardy employees are willing and able to improve their reliability by a discussion alone.
It also matters why the worker has been absent or late. If the employer is aware the employee was injured on the job but must fill the person’s position to maintain operations, that company should take care to document the business necessity of having to lay off that injured worker. An individual may have a discrimination claim if he can show that management terminated him or her because he/she has filed or who intends to file for workers’ compensation insurance recovery.
Similarly, certain workers unable to work due to any illness, injury or temporary disability may be entitled to unpaid leave and reinstatement to their old or a comparable position. Such rights depend on the size of the company among other factors. For instance, in California, any business with five or more persons on its payroll must provide up to four months unpaid leave for an employee unable to work due to medical complications of pregnancy, childbirth or newborn care.
While an employee exercising a right to any such unpaid leave is entitled to have his or her former job back or a comparable position as long as he/she returns to work within the legally specified time limit, such worker is entitled to no greater protection against a business-related termination than if he or she was not out on a leave. For example, if a company must for business reasons lay off a significant number of workers, those out on leave are entitled to no greater protection than if they were still working at the time.
Thus, again, management must take particular care when laying off a worker currently out on a protected leave. This is a situation where a company should almost certainly seek the guidance of skilled legal counsel. Among the many precautions, an employer should document the business reasons for the decision to the greatest extent reasonably possible. Even then, management should communicate forthrightly with the person on leave and seriously consider offering that worker severance pay in exchange for a signed release document.
See also, “Written Employee Attendance Policy,” “Pregnancy Disability Leave, Employers’ Obligations,’ “Disability and Leave of Absence Policies, Keeping Up with Changing Employment Laws,” and “Termination Of Employees, How To Fire A Troublesome Worker Without Getting Burned.’
State Reveals Its Template for Notice to All Newly Hired Employees
Our October 21, 2011 blog “Added Notice Requirement for California Employers” alerts employers to a required notice to newly hired workers, effective January 1, 2012, specifying basic but vital information. Under the Wage Theft Protection Act (Assembly Bill [A.B.] 469), the notice must include:
- The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable;
- The regular payday designated by the employer;
- Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;
- The employer’s name, including any “doing business as” names used by the employer;
- The physical address of the employer’s main office or principal place of business, and a mailing address, if different;
- The employer’s telephone number;
- The name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and
- Any other information the California Labor Commissioner deems material and necessary.
The Act also specifies that the Labor Commissioner and its Department of Labor Standards Enforcement (DLSE) issue as soon as possible a template notice for employer use. This state-recommended on-line template is now available. The DLSE FAQ page adds that although the state has thus far only issued the template in English, employers must provide the notice “in the language the employer normally uses to communicate employment-related information to the employee.” Thus, if management normally communicates with workers in another language, such as Spanish or Chinese, the notice must be in the applicable tongue. The DLSE plans to provide templates in other languages soon.