Few payroll issues can be as contentious and prone to disputes as overtime. This is why California employers must strive to be compliant with California Labor laws regarding overtime.

No one wants to unintentionally "cheat" an employee of pay that is due them. And few employers will knowingly short their workers when it comes to legitimate overtime pay. But it happens.

Being aware of the California labor laws, overtime pay laws in particular, can help employers avoid this.

There are a few basic issues to keep in mind when considering overtime pay. One of these is answering the question, "Who is eligible for overtime?" and the second is, "What qualifies as overtime?"

Calculating Overtime Pay in California

This can be a challenging aspect of payroll management since calculating overtime pay involves a number of factors. For most employers, a simple step-by-step approach can be helpful:

• Identify the hours worked that qualify as overtime
• Establish the "regular rate" you must use to calculate any overtime pay
• Determine if these are "time-and-one-half" or "double-time" pay hours

Here are a couple of other considerations to keep in mind:

What is "Regular Rate of Pay"?

In California, when calculating overtime pay, an employer must use the employee's regular rate of pay, not simply their normal hourly wage. 

"Regular rate" is a term that means the employee's actual rate of pay including all hourly earnings plus many other types of compensation. The regular rate must include nearly all forms of pay normally received by that employee.

Weekly Hours as Overtime Basis

California provides that employee only be paid overtime for any hours in the workweek that exceed the applicable daily maximum or that exceed the applicable weekly maximum, whichever the number of hours is greater. This typically means that only the hours worked at regular pay, or "straight time", apply to the weekly 40-hour limit.

This avoids "pyramiding" or duplication of overtime pay for the same hours of work.

California Labor Laws: Overtime Eligibility

In California overtime pay is generally based on the number of hours worked in a work day. This applies to almost all nonexempt private sector California employees not covered by collective bargaining agreements. However, the state of California also requires employers to account for weekly totals when calculating overtime.

This means that, with a few 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. A work week is defined by the federal government as any seven consecutive work days.

In addition, California labor law overtime rules require that any employee working more than 12 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. If the employee works more than 12 hours in a single day, they are to paid at least two times their normal rate for those hours.

Consequently, calculating overtime pay for nonexempt employees is based both on daily hours worked and total hours worked in a work week. 

Overtime Eligibility and the FLSA

The federal Fair Labor Standards Act (FLSA) automatically qualifies certain types of workers for guaranteed overtime for all hours worked over 40 in a single week if they meet overtime pay requirements. This includes the daily overtime limits set by California overtime laws.

For example, if employees are primarily engaged in manual labor, such as construction workers or retail workers, they are typically covered by California labor law overtime requirements.

Most employees are considered nonexempt and must be provided overtime pay. Some positions, however, are exempt and excluded from overtime pay.

The FLSA defines exempt jobs on their website as follows:

"Some jobs are classified as exempt by definition. For example, "outside sales" employees are exempt ("inside sales" employees are nonexempt). For most employees, however, whether they are exempt or nonexempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do.

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."

Keep in mind that California employees do not have a legal basis for refusing to work overtime, with 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.

All straight time hours worked must be paid on the regular payday of the payroll period in which they were earned. However, under California labor law, overtime wages can be paid no later than the regularly scheduled payday of the payroll period following that in which overtime was earned, or one payroll cycle. 

Staying in Compliance With California Labor Laws

If you would like to learn more about your company's obligations, or have resources to help you manage your payroll requirements, Accuchex has partnered with HR Solutions Partners to offer its customers the most up-to-date and professional human resources management solutions available.

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