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Overtime Pay in California

It is important to note that starting January 1, 2020 California’s minimum wage goes up to $12 an hour for employers with 25 employees or less and $13 an hour for employers with 26 employees or more. This will affect both exempt and non-exempt employees and employers should be prepared for this change.

Date

Minimum Wage for Employers with 25 Employees or Less

Minimum Wage for Employers with 26 Employees or More

January 1, 2017

$10.00/hour

$10.50/hour

January 1, 2018

$10.50/hour

$11.00/hour

January 1, 2019

$11.00/hour

$12.00/hour

January 1, 2020

$12.00/hour

$13.00/hour

January 1, 2021

$13.00/hour

$14.00/hour

January 1, 2022

$14.00/hour

$15.00/hour

January 1, 2023

$15.00/hour

 

I have had questions from several of our California clients about the overtime pay rules for California employers.  While the federal law (FLSA) only requires OT to be paid on hours worked over 40 in a workweek, CA Labor Code and Wage Orders have a different set of rules that are more employee-friendly than the FLSA (A.B. 60; CA Lab. Code Sec. 510, Industrial Welfare Commission (IWC) Interim Wage Order--2000, the Interim Wage Order (dated 10/1/2000), and IWC Wage Orders 1 through 13 and 15).

California’s overtime laws are generally more favorable for employees than federal laws or the laws of other states. In addition to being entitled to overtime pay (at a rate of one-and-one-half times the normal pay rate or “time and a half”) after working eight hours per day or forty hours per week, California workers are entitled to double-time pay after twelve hours per day or after eight hours on the seventh work day in a week.  The law also specifically says, however, that there is also no “pyramiding” of OT hours … in other words, you don’t have to pay double OT on hours worked on a daily and weekly basis. 

Although most employees in California are entitled to overtime pay, there are some important exceptions. The most important exceptions are:

1. Union Members: If you have a collective bargaining agreement ("union contract") in force, it may contain a provision stating that an employee’s job is not entitled to the protections of California's overtime laws.  The overtime requirements do not apply to employees covered by collective bargaining agreements if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage (CA Lab. Code Sec. 514).

2. "Exempt" Employees: An "exempt" employee is an employee whose job does not qualify for overtime protections because of the kind of work the employee performs, which is known as “the duties test.” Generally, the only types of workers who are considered exempt are those who have a lot of responsibility within the company and a lot of independence to make decisions that affect the way the company is run. Remember, however, that the actual definition of an exempt employee is much more complex than this brief description. The exemptions are briefly listed as follows:

  • The Executive Exemption - This exemption applies to employees who spend over half their work time managing businesses or departments of a business;
  • The Administrative Exemption - This exemption applies to employees who spend over half their work time assisting the proprietor or other exempt individual in "servicing" a business in matters of significance;
  • The Professional Exemption - This exemption applies to employees who have certain licenses to practice a profession or who work in a "learned or artistic" profession;
  • The Computer Software Professional Exemption - This exemption applies to employees who work in highly theoretical aspects of computer software and make over $41.00 an hour;
  • The Outside Salesperson Exemption - This exemption applies to employees who usually work away from the workplace making sales and filling orders. However, the employee cannot spend significant time doing the same work as other non-exempt employees.

​3. Miscellaneous Jobs/Industries: There are some jobs and industries that have special rules for overtime and, in some cases, complete exemptions from overtime. These include some, but not all, transportation workers, household employees and agricultural employees.

The above exemptions from the overtime laws in California are summarized here by the CA Department of Industrial Relations

There is also an exception to the daily overtime rule if your company has instituted a bona fide alternate work week in which you normally work 10 hour days, 4 days a week – in which case the overtime is after 10 hours rather than 8, but still after 40 in the week.  This alternate work week must meet certain formalities and cannot be done on a person by person basis.

Nonresident Employees Entitled to California Overtime

Assume you are a California-based employer with employees living and working in several states. Occasionally, employees who neither live nor regularly work in California perform short-term assignments in California. Perhaps, for example, certain non-exempt employees attend annual meetings or trainings in California. When that happens, you adjust their schedules so that they do not work more than 40 hours in a week. They do, however, work more than eight hours per day while in California. Do you have to pay them overtime? Yes, you do.

So if you are, for example, a New Mexico-based employer, if you have employees who are working in California on a regular basis, or even on a project basis, those employees are covered by the California OT rules for the time they are working in California.  In Sullivan, et. al. v. Oracle Corporation, the California Supreme Court ruled on whether California’s overtime laws apply to out-of-state residents who perform work in California. The Court held that California’s interests in protecting all workers who perform work within the state are sufficient enough to require that California based employers must pay all out-of-state workers who perform work in California according to California’s overtime requirements.

If, on the other hand, you are a California-based employer with out-of-state employees who never work in California, you must pay them overtime according to federal or applicable state law, not California state law.

So What is the California Law on OT Pay?

The California Labor Code section 510 and applicable Industrial Welfare Commission Wage Orders require employers to pay:

1)      One and one-half of employee’s regular hourly rate for:

  • all hours worked in excess of 8 hours up to and including twelve (12) hours in any workday; and
  • for the first eight (8) hours worked on the seventh (7th) consecutive day of work in any workweek; and

2)      Double of employee’s regular hourly rate for:

  • all hours worked in excess of 12 hours per workday;
  • all hour worked in excess of eight (8) hours on the seventh (7th) consecutive day of work in a workweek.

In general, when an employee works only in excess of the weekly or the daily number of straight-time hours, the computation of overtime hours is straightforward.  Things get a little bit more complicated when an employee works more than 8 hours per workday and at the same time – more than 40 hours per workweek.  As I said above, the Wage Orders provides that overtime hours should not be “pyramided” or “double-counted” under both daily overtime and weekly overtime provisions. In other words, once an hour is counted as an overtime hour under some form of overtime, it cannot be counted as an hour worked for the purpose of another form of overtime.

Here are some examples of how to calculate OT pay under the California Wage Order:

Example 1: Daily Overtime Hours Only

Assume that in one workweek an employee works only three days  of ten hours for each workday. The number of daily overtime hours is 6 (3x(10-8) = 6). The number of weekly overtime hours is 0, because the employee worked only 30 hours during the entire workweek. 6 hours of overtime must be compensated at time and one-half the employee’s regular rate.

Example 2: Weekly Overtime Hours Only

Assume that in one workweek an employee works six days of 8 hours for each workday. The employee’s total number of work hours per week is 48, which exceeds a 40 hour workweek by 8 hours. Therefore, the number of weekly overtime hours is 8. The number of daily overtime hours is 0, because the employee never worked more than 8 hours per workday. 8 hours of overtime must be compensated at time and one-half the employee’s regular rate.

Example 3:  Weekly Overtime Hours are Greater than Daily Overtime Hours

Assume that in one workweek an employ works six days of 11 hours for each work day. To determine how many hours of overtime the employee worked, we must calculate (1) weekly overtime, (2) daily overtime and (3) compare both numbers. Whatever the number is greater should be deemed as employee’s overtime hours. In this example, the employee’s total number of hours worked during the workweek is 66 (11 x 6) of which 26 hours are weekly overtime (66-40).  The employer’s daily overtime is 16 (6x(11-8)=18). Because the employee’s weekly overtime is greater than his daily overtime, the employer shall be compensated at time and one-half of his regular rate for 26 hours of overtime.

Example 4:  Daily Overtime Hours Are Greater that Weekly Overtime Hours

Assume that in one workweek an employee works four days of 11 hours for each work day. In this example, the employee’s total number of hours worked during the workweek is 44 (11 x 4) of which 4 hours are weekly overtime (44-40).  The employer’s daily overtime is 12 (4 x (11-8)=12). Because the employee’s daily overtime is greater than his weekly overtime, the employer shall be compensated at time and one-half of his regular rate for 12 hours of daily overtime.

Example 5: Double Time for Seventh Consecutive Workday and Hours Over Twelve

Assume that in one workweek an employee works seven consecutive days and has the following schedule: Monday -11 hours; Tuesday – 15 hours; Wednesday – 14 hours; Thursday – 9 hours; Friday – 8 hours; Saturday – 14 hours; and Sunday – 10 hours;

In this example, in one workweek the employee worked a total of 81 hours. There are 41 hours of weekly overtime (81-40) and 25 daily overtime hours (11-8=3; 15-8=7; 14-8=6; 9-8=1; 8-8=0; 14-8=6; and 10-8=2; 3+7+6+1+0+6+2=25). As you can see there are more weekly hours than daily overtime. Therefore, the employee’s total overtime hours are 41. However, on Tuesday, Wednesday and Saturday, the employee worked more than twelve hours, which are subject to a double-time pay rate. Analogously, on his seventh consecutive day, the employee worked more than 8 hours, which are also should be paid at a double time rate. Therefore, 9 hours should be compensated at double time (15-12=3; 14-12=2; 14-12=2; and 10-8=2).

The final calculations are as follows: Regular Straight Time: 40 hours; One and one-half Time: 32 hours; and Double Time: 9 hours.

Regular Rate of Pay

Both California Overtime Law and Federal Overtime Law require that you be paid overtime based on your "regular rate of pay." However, this regular rate or pay is not simply your given hourly rate of pay, but is rather a computed rate based on all the compensation that you make for the week. It should be noted that this blog cannot cover every possible issue relating to the computation of the regular rate of pay and you should contact a payroll professional if you have a particularly challenging issues.

The basic rule for computing the regular rate of pay is that it is computed by taking all the compensation that you made during that week and dividing it by the total number of hours worked. Unfortunately, it is never quite that simple. The Department of Labor has issued dozens of regulations that control exactly how the regular rate is to be computed is various situations, and the highlights of those are covered here.

The first thing is thing you need to determine is that the total compensation for the week is. The rule is that all payments of any kind, either cash or non-cash, must be included in the regular rate of pay. Everything of value that the employer gives you must be included unless it meets one of the following exceptions:

  • Small occasional gifts, such as Christmas gifts that are not based on production or efficiency.
  • Vacation, Holiday, or sick pay.
  • Discretionary bonuses. The bonus must be 100% discretionary. That is, the amount and whether it will be paid must not be tied to any type of performance measure.
  • Retirement or life-insurance contributions that are irrevocable.
  • Daily or other type of overtime pay (just means that overtime is not "double counted").
  • Extra pay for 6th, 7th day pay or holidays provided that the pay is 1.5 the employees normal rate. That is, if you receive 1.5x for holiday work, you won't also get 1.5x if that work was also overtime.
  • Extra pay for odd-hours work that is at least 1.5x the bona fide hourly rate. This, "night pay" will not be included in the calculation if it is at least 1.5x. However, if it is less than 1.5x, then it is included and thus increases your overtime pay.

Thus, unless it is listed above, it is used in computing your regular rate of pay. Thus, any type of production bonus, commission, extra pay, shift premium, or any other type of payment is included. Tips are not included as these are seen as being paid directly from the customer to the employee.

What if an Employee Earns Different Rates of Pay in the Same Workweek?

If you are paid two or more rates by the same employer during the workweek, the regular rate is the “weighted average” which is determined by dividing your total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours.

For example, if you work 32 hours at $10.00 an hour and 10 hours during the same workweek at $8.00 an hour, the weighted average (and thus the regular rate for that workweek) is $9.52 This is calculated by adding your $400 straight time pay for the workweek (32 hours x $10.00/hour) + (10 hours x $8.00/hour) = $400) and dividing that number by the 42 hours you worked.

Makeup Work Time

Employees may make a written request to make up time missed because of personal obligations later in the same workweek without having to be paid overtime for working more than 8 hours in a day. Hours in excess of 11 in a day must be paid at overtime rates even if they are makeup hours. A signed written makeup time request must be submitted for each occasion. Overtime does not have to be paid to employees who made up time in advance of planned time off, but then decided not to take the time off.

This exemption does not apply if the employee works more than 40 hours in a week or more than 11 hours in a day. One request every 4 weeks may be submitted if the personal obligation is a recurring fixed event (i.e., 2 hours off on the same day each week for a course or appointment). The employer may deny requests. Employers may inform employees of the makeup time provision, but they are barred from encouraging or soliciting employees to request time off to be made up later in the week (CA Lab. Code Sec. 513).


Poms & Associates Risk Services can assist your organization in many areas related to human resources, employment, and organizational development. Your HR Team is also available to provide answers to day-to-day questions with regard to compliance with various regulations. In addition, we can assist organizations with training, document preparation and compliance assessments on a per project basis. For more information please contact us at (505) 797-1354 or email us at info@pomsconnects.com

Disclaimer – Please Note:

The author makes every effort to offer accurate, and practical Human Resources management, employer, and workplace advice, both on this website, and linked to from this website, but he is not an attorney, and the content on the site, while authoritative, is not guaranteed for accuracy and legality, and is not to be construed as legal advice. Additionally, employment laws and regulations vary from state to state and country to country, so the site cannot be definitive on all of them for your workplace. When in doubt, always seek legal counsel or assistance from State, Federal, or International governmental resources, to make certain your legal interpretation and decisions are correct. The information on this site is for guidance, ideas, and assistance only.