Overtime Obligations of Employers
Exempt & Non-Exempt Employees
BASED ON THE FAIR LABOR STANDARDS ACT (FLSA), THE INDUSTRIAL WELFARE COMMISSION (IWC), AND THE A.B. 60.
“This is a quick summary of the overtime provisions of federal and state requirements. For an in-depth analysis of the specific requirements applicable to you, please contact Mohajerian Law Corp. at www.mohajerianlaw.com. This newsletter is not intended to be legal advice and is for informational purposes only.”
Overtime computations and the requirements regarding who should be paid overtime have always been a point of difficulty for employers. The rules by which some people are entitled to overtime payment and some are not can be extremely challenging to understand. Failure to pay overtime is one of the leading causes of claims against employers, probably more than wrongful discharge, harassment, and stress combined.
Starting Point
An important mind-set for business owners is to start with the premise that everyone is entitled to payment of the overtime they have worked. There are numerous rules that apply based on the industry you are in. However, the most common include:
• Hours worked in excess of 8 in one day are paid at time and a half.
• Hours worked in excess of 40 a week are paid at time and a half.
• Hours worked in excess of 12 a day are paid at double time.
Further, if you have employees who work alternative schedules, such as 10 or 12-hour shifts, you need to determine further the rules which may apply.
Who Is EXEMPT From Overtime Payment Requirements?
The rules that govern the exemptions from overtime payment requirements are often narrowly interpreted by the labor commissioner, and should be given extreme care in application to avoid expensive mistakes. Exempt positions are not subject to payment for overtime requirements. While employer policy may allow for overtime payment, there are no restrictions on rates used or the number of hours for which payment is required. There are seven exemption categories under the FLSA and IWC orders.
1. Executive Exemption
• Receives at least two times the state’s minimum wage as a salary for full-time employment – also known as the “minimum salary level test.”
• The position has a primary responsibility for the management of the company or a recognized department of the company.
• The position has direct supervisory role for two or more persons.
• The position has the authority to hire and fire, give consideration of pay, or make a recommendation on either.
• The position can handle employee complaints and discipline issues.
• The position devotes less than 50% of their time focusing on tasks other than that are managerial.
• The position has the ability to use discretionary power on a regular basis.
• OR, owns at least 20 percent of equity interest in the company and actively assists in its management.
2. Learned Professional Exemption
• The position has the primary duty of performing work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized study.
• In most cases, only certified or duly licensed occupations are exempt under state law. This can include: law, dentistry, medicine, optometry, engineering, teaching and accounting.
• Wage Orders 1 (Manufacturing), 4 (Professional, Technical, Clerical, Mechanical, and Similar Occupations), 5 (Public Housekeeping), 9 (Transportation) and 10 (Amusement and Recreation) allow for exemptions for the positions that require learned professionals.
• The minimum salary test must be met.
3. Creative Professional Exemption
• Position’s primary duties include performing work requiring invention, imagination, originality, or talent recognized in a field of artistic or creative in nature.
• The position’s minimum salary meets the ‘Minimum Salary Test.’
4. Administrative Exemption
• Position’s primary duty of performing office or non-manual work that is directly related to the management or operations of the company.
• Regularly exercises discretion and independent decision-making in the performance of intellectual work.
• Regularly assists a proprietor or other exempt administrator only under general supervision or duties that require special training and knowledge.
• Position devotes more than 50% of time to the above activities.
• Position meets the ‘Minimum Salary Test’ requirement.
5. Outside Sales Exemption
• Primary duty of position is to make sales, obtain orders, or solicit contracts for services.
• The person filling the position is 18 years or older.
• Position usually works outside of office selling items or services.
• Position performs outside sales more than 50% of time.
6. Computer-related Occupational Exemption
• Job titles of position can include: computer programmer, systems analyst, computer systems analysts, applications systems analysts, and systems engineer and systems specialist.
• Position is primarily engaged in intellectual or creative work that requires the exercise of judgment.
• The position is highly skilled and proficient in highly technical applications related to computer systems.
• Position is paid; at least, $44.63 per hour (may change every year).
• Position is primarily engaged in one of the following:
• The application of systems analysts techniques.
• The design, development, documentation, analysis, creation, or otherwise of computer systems.
• The design, development, documentation, analysis, creation, or otherwise of computer software applications.
• A combination of these duties.
7. Highly Compensated Positions
• Any position that is guaranteed a total annual compensation of $100,000 or above.
• Position regularly performs functions under exemptions listed above.
• Excluded from this exemption are “blue collar” workers – police, fire, other emergency and the like.
• Total base salary for this position can include base salary, commission, non-discretionary bonuses, and more.
• Total annual compensation can not include:
• Medical insurance payments.
• Life insurance payments.
• 401k pension plan payments.
• Retirement plan contributions.
• Other fringe benefit costs.
NOTE: If you have employees who perform exempt functions part of the time and non-exempt the other part, anytime spent in non-exempt functions must adhere to overtime requirements.
What About Seventh Day Work Rules?
There are requirements on how employers can treat overtime on the seventh day work week, according to A.B. 60. These requirements include:
• Employees must be paid time-and-a-half the regular rate for the first eight hours worked on the seventh consecutive day worked in a work week.
• Double time must be paid for all hours worked beyond eight on any seventh consecutive day of a workweek.
• Part-time exemption is eliminated. Part-time employees who work on the seventh consecutive day must be paid according to the rules.
• Workweeks must remain constant. If the workweek runs from Monday to Sunday, the seventh workday in the workweek will be Sunday.
Are There General Overtime Rules I Should Follow?
• Only straight time hours apply toward computing overtime hours worked in excess of 40 hours in a week.
• Only work hours actually work count toward computation.
• An employee’s regular pay rate is used for overtime calculations.
Which Work Order Applies to My Company?
California employers are subject to both state and federal wage and hour laws. Typically, whichever law is more favorable to the employee will prevail. In California, there are 17 wage orders that may apply to your company.
Wage Orders set forth information such as the minimum wage, hours, overtime requirements and limitations, and meals/rest periods. Employers are generally classified by the main function/purpose of the company. To comply, it is very important to determine the appropriate Wage Order that is applicable to your company. However, determining the correct Order can be difficult and costly if mistakes are made. Any Wage Order determination should be made with your company’s legal counsel to ensure you are in full compliance of all laws and orders.
General Recommendations
• Have a detailed job description in the employee manual that outlines the status of the position, its functions, and other pertinent information.
• Keep detailed written time records for all employees, exempt or non-exempt.
• Pay for all overtime worked, as required by applicable IWC regulations.
• Post the required IWC Order that pertains to your industry.
