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California Overtime Laws – Are you doing it right?


Overtime laws are in place to protect employees from being over worked and under paid. The federal overtime laws, outlined in the Fair Labor Standards Act (FLSA), set the basic standard for how employers should handle and pay overtime.

California has set up additional laws regarding overtime that build upon top of the FLSA. Where California and federal laws differ, employers must abide by the law that offers the greatest protection and benefit to employees. In most cases, the California overtime laws offer greater employee benefit.

How to calculate California overtime

One of the primary differences between California and federal overtime law is that federal law only requires overtime to be paid when a nonexempt employee (entitled to overtime)  works over 40 hours in a week. California overtime is paid for working over 8 hours in a day and over 40 hours in a week.

According to the California Labor Code, when an employee works over 8 hours in a day, over 40 hours in a week, and up to 8 hours on the seventh workday of the workweek, they are paid 1.5 times their regular rate of pay for every extra hour worked.

If an employee works over 12 hours in a day or over 8 hours on the seventh consecutive workday, they are paid twice their regular rate for each hour over the threshold. This is commonly referred to as “double time”. These requirements may differ if an employee has a regularly scheduled alternative work week. For more information on the alternative work week, read this section of the Labor Code.

Since there are multiple variables that go into figuring overtime in California, the calculations can start to resemble an advanced calculus problem.  However, the following steps will help to eliminate errors.

  1. Calculate the total hours for each day
  2. Calculate daily overtime as outlined above
  3. Calculate total weekly hours by summing the daily totals
  4. Calculate weekly overtime as outlined above
  5. Calculate double time hours as outlined above
  6. Subtract the double time from the daily and weekly overtime amounts calculated in steps 2 and 4.
  7. Compare the totals in step 6 and award the employee the higher of the two amounts as overtime.
  8. Calculate regular hours by subtracting double time hours (step 5) and overtime hours (step 7) from total weekly hours (step 3).

These calculations must be done one week at a time. For example if you have a bi-weekly pay period you would need to calculate overtime for week 1 and then again for week 2.

Obviously, there’s lots of room for human error. To ensure accuracy and save time we recommend investing in an employee time tracking program to perform the calculations for you.

Calculate overtime rate for non-exempt employees

Calculating the regular rate of pay

The calculation for the regular rate of pay is based on the number of hours worked. Most of the time, for salaried employees, the maximum number of hours to be divided by is 40.

[Yearly Salary/52 weeks]=Weekly Rate

[Weekly Rate/40 hours]=Regular Rate of Pay

Calculating overtime

Regular Rate x 1.5 x 52 weeks= Yearly OT Claim

-Or-

Regular Rate x 2 x 52 weeks=Yearly OT Claim

Note: If there is a yearly non-discretionary bonus, commission, etc., add it to the yearly salary at the beginning of the calculation to include it as part of the regular rate of pay. Discretionary bonuses and pay for holidays or gifts are not included in the regular rate of pay.

Decide if a salaried employee is exempt from overtime

Employees can only be classified as exempt if they fit very particular criteria. There are “tests” the employee must pass to be exempt from receiving overtime. Failure to meet all of the criteria with solid proof from the employer keeps the employee classified as nonexempt.

Duties test

Every employee in California is entitled to overtime pay unless they meet every single requirement for an exemption. Mix and match requirements between the exemptions do not count. Employers must prove every point of exemption for the exemption to apply. For white-collar employees, here are the three main exemption types:

  • Executive
  • Administrative
  • Professional

Executive Exemption

Simply having the job title of “manager” or “supervisor” does not make an employee exempt under the Executive exemption.

To be exempt under the executive exemption, the individual must

  1. Be paid a salary of at least two times the state minimum wage for full time employees. The current minimum wage salary in California is $800 per week for small employers and $840 per week for large employers.
  2. Manage the entire enterprise or a specific, recognized department or subdivision of the company they work for. They must manage a minimum of two full-time subordinates in their specified department.
  3. Have authority to hire or fire directly or indirectly. The individual must have a particular weight or preference in the decision making process. They must also have the authority to review the performance of their subordinates.
  4. The individual in consideration must spend 50 percent or more of their time performing the executive duties listed above.

Administrative Exemption

This exemption is the most difficult to classify. In a sense, “easier said than done.” To fit under the administrative exemption, the employee must

  1. Do work related to the business itself: accounting, tax, HR, legal, etc. The administrative duties that fit under the exemption are separate from “production” work meaning they do not participate in any manual labor; just in office work that is fundamental for the running of the business.
  2. Be involved in work that requires critical decision making and judgement. The decisions the individual makes must be important to the company and be given particular weight. Their jobs are usually at a very high-level, not simple clerical or help-desk duties.

Professional Exemption

The professional exemption typically applies to doctors, teachers, and lawyers. To fill the professional exemption requirement, the individual must

  1. Work in a field that requires the application of advanced or specialized education and credentials. Usually professionals under this exemption have specialized academic degrees although a specialized academic degree is not always necessary.
  2. Exercise judgement in important decisions for the company or the work they do. This judgement is not the same as exercising and applying high-level skills according to the FLSA.
  3. Be practicing the profession they were trained to do. For example, an engineer working as a technician would not be exempt but an accountant practicing his profession would be exempt.

For more examples and details regarding all the above listed exemptions, feel free to read more here.

Other exemption types to note

Computer Professional Exemption

Those computer professionals who fall under this exemption, according to the California Labor Code 515.5, must

  1. Primarily engage in intellectual or creative work that requires independent judgement and discretion.
  2. Be highly skilled and proficient in the design, development, documentation, and analysis, creation, testing, and modifying computer systems, programs, or software engineering in theory or practice.
  3. Be paid on a salary basis or is paid no less than $36.00 per hour.

To continue reading about the details of the Computer Professional exemption, read this article by Michael Tracy.

Outside Salesperson

An outside salesperson must

  1. Be an adult 18 years or older
  2. Be primarily making sales and creating orders for the products or services their employer offers outside of the employer’s place of work.
  3. Over 50 percent of the outside salesperson’s time must be spent away from the employer’s office (including a home office).

If you’re interested in more examples of what makes an outside salesperson exempt, continue reading here.

Salary test

An employee is paid on a salary basis if their salary is not subject to change based on the “quality or quantity” of the work they produce. Their pay cannot be based on hours worked to pass the salary test. Their salary must also not be deducted for partial-day absences to be classified as exempt although deductions may be made for full-day absence, personal time off, or unpaid vacation for the employee to still be classified as exempt under this test.

Conclusion

While there are many details involved in the California overtime laws, pay particular attention to all of them. Be sure that both employer and employee understand the employee’s classification so they can be fairly compensated and so the employer can save time, money, and trouble by abiding by the law.

For more information and help in individual cases, please contact an employment attorney. This article is created for basic information and should not be considered a guarantee of any outcome in individual circumstances.

Samantha W.

Author:

Author Bio: Samantha is attending Utah State University studying Business and Marketing. If she’s not at work chances are you will find her on the dance floor swinging to a jazz band or experimenting in the kitchen. She loves music, reading classical literature, running, and weightlifting. Those who know her best would say she is quirky in a classy way.

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