Until the federal government finalizes new rules regarding the salary floor for exempting employees from overtime pay, the current provisions of the Fair Labor Standards Act (FLSA) still apply.
As of January 1, 2018 California's overtime minimum wage is one and a half times the current California minimum wage rates of $10.50 per hour for businesses employing 26 or more workers. For those employers with 25 or less, the current wage is set at a minimum of $10.50 per hour.
In other words, if you earn at least the California minimum wage rate, you are entitled to at least 1.5 times your regular hourly wage for all overtime worked.
That part is simple enough. Part of the problem with overtime pay for some employees is whether the time they have worked is indeed "overtime" based how they are classified by their employers.
Exempt and Nonexempt Rules
The federal Fair Labor Standards Act (FLSA) provides three tests, which generally must be satisfied for an employee to be classified for the FLSA overtime exemptions and overtime requirements. These are the salary basis test, salary level test, and a duties test.
The Fair Labor Standards Act website makes it clear that those employees whose jobs are included by the FLSA are either "exempt" or "nonexempt." All nonexempt employees are entitled to overtime pay, but exempt employees are not.
The FSLA rules currently state,
With few exceptions, to be exempt an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also (c) perform exempt job duties. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). Most employees must meet all three "tests" to be exempt.
The FSLA website also notes that employees who earn more than $100,000 per year are "almost certainly exempt."
While these stipulations are still in effect, most experts agree that the federal government and the Department of Labor (DOL) will be issuing new rules by October 2018 which will almost certainly raise the minimum salary for exemption status.
CA Labor Laws and Overtime Pay
California overtime pay is based primarily on the number of hours worked in a day for almost all nonexempt private sector California employees not covered by collective bargaining agreements. In California, however, employers must also account for weekly totals when calculating overtime.
With some exceptions, hourly employees in California are entitled to a higher overtime pay rate for all hours worked above 40 hours in a single work week. This is defined by the FLSA as any seven consecutive work days.
In addition, California labor law overtime rules require that any employee working more than 15 hours in a single day to be paid at least one and a half times their normal rate for all hours worked over the overtime limit.
California Labor Laws and Overtime Eligibility
The FLSA automatically qualifies certain types of workers who meet overtime pay requirements for guaranteed overtime for all hours worked over 40 in a single week. This includes the daily overtime limits set by California overtime laws.
If employees are primarily engaged in manual labor, or example, such as construction workers or retail workers, they are typically protected by overtime laws.
In California, employees do not have a legal basis for refusing to work overtime, the exception being certain specific Wage Orders or a company policy or union contract providing that option. There are, however, limitations on the amount of overtime employees can be required to work.
Overtime Exemptions in California
Because of the nature of some work environments, and the working hours required in certain industries, there are specific exemptions to overtime eligibility in California.
As of the beginning of 2018, executives, administrators, and other professionals who earn at least $455 per week, or $23,660 per year, still do not have to be paid overtime under the current FLSA rules.
Other exempt positions include some transportation workers, certain agricultural and farm workers, and some live-in employees such as housekeepers. Independent contractors are also exempt from California labor laws overtime provisions.
In addition, external salespeople, are also exempted from California overtime requirements, as are certain computer-related positions.
Common Exempt Categories of Employees
The FLSA provides a series of tests as guidelines to determine if your employees are exempt from overtime. The tests are used to determine the overtime eligibility of an employee based on pay rate, working conditions, skill level, and other factors.
In addition, if an employee’s position fits into one of the four main exemption categories to overtime law: executive, administrative, professional, and outside sales - then that employee will be exempted from both California and federal overtime regulations. Here are descriptions of these categories:
Executive Overtime Exemptions
A job is classified as an Executive position if the full-time responsibility is management of two or more employees. The employee must spend no more than 20 percent of their time doing other activities, or 40 percent in a retail environment, and it should be a salaried position.
Administrative Overtime Exemptions
Administrative positions are classified as such if the primary duty is non-manual work related to business operations, management policies, or administrative training. The position must be salaried to fulfill the requirements, and no more than 20 percent of the employee’s time can be spent doing activities that do not fit in the categories described above, or 40 percent in a retail environment.
Professional Overtime Exemptions
To be classified as a Professional position, the primary duties of the job must require advanced knowledge and extensive education. This category can include artists, certified teachers, and skilled computer professionals.
The job must be salaried, primarily intellectual, and the employee must be expected to use discretion and judgment. No more than 20 percent of the worker’s time can be used doing activities that are not directly related to the duties described above in order to be classified as a Professional.
Outside Sales Overtime Exemptions
An Outside Sales position is classified as exempt if the main duties are making sales or taking orders outside of the employer's main workplace. The position may be paid either on a salary or commission-based structure, cannot require more than 20 percent of the employee’s time in work other than sales in order to fall under this classification.
Calculating Overtime in California
A difficult part of payroll management is calculating overtime pay. However, using a step-by-step approach is helpful:
- First, identify those hours that must be paid on an overtime basis
- Decide whether you need to pay time-and-one-half or double-time for those hours
- Determine the "regular rate" you must use to calculate the overtime pay
Here's are some additional tips:
Regular Rate of Pay
When calculating overtime pay in California, you must use the employee's "regular rate" of pay, not the normal hourly amount. The regular rate is not simply an employee's normal hourly amount.
The regular rate is a term used to mean the employee's actual rate of pay once all hourly earnings plus many other types of compensation are considered. The regular rate must include nearly all forms of pay normally received by that employee.
Only hours worked at straight-time apply to the weekly 40-hour limit. This prevents the practice of "pyramiding" overtime in which an employee earns overtime on top of overtime already paid.
Payroll Management and Compliance With California Labor Laws
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