In the United States, employees are protected under Federal statutory law and State statutory law. If State law provides greater protections then that is the law that applies. Federal law provides the minimum protection or default protection for all employees.
Please find below the requirements for overtime pay under both Federal law and California law.
OVERTIME PAY REQUIREMENTS UNDER CALIFORNIA STATE LAW
The Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999 ("the Act"), became effective on January 1, 2000. The Act restored the requirement that employees be paid an overtime premium for all time worked past eight hours in one workday.
In California, the general overtime provisions are that a non-exempt employee 18 years of age or older, or any minor employee 16 0r 17 years of age who is not required by law to attend school and is not otherwise prohibited by law from engaging in the subject work, shall not be employed more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in a workday and over 40 hours in the workweek. Eight hours of labor constitutes a day’s work and employment beyond eight hours in any workday or more than six days in any workweek in any workweek is permissible provided the employee is compensated for the overtime at not less than:
- One and one-half times the employee’s regular rate or pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day or work in a workweek; and
- Double the employee’s regular rate or pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight hours in the seventh consecutive day of work in a workweek.
There are, however, a number of exemptions from the overtime law. An exemption means that the overtime law does not apply to a particular classification of employees. There are also a number of exceptions to the general overtime law stated above.
WORKDAY AND WORKWEEK
A workday is any consecutive 24-hour period beginning at the same time each calendar day. The 24-hour period may begin at any hour of the day, but thereafter must be consistent and unchanged. Overtime pay is based on the number of hours worked in excess of eight (8) hours within a 24-hour period or in excess of an established alternative workweek. (See appropriate Industrial Welfare Commission (IWC) Order; Labor Code §§ 500 & 510)
An employer may change the workday and/or the workweek as long as the change is intended to be permanent. It is also not necessary for all employees to have the same workday or workweek. (Labor Code § 500, et seq.)
A workweek means any seven (7) consecutive days starting with the same calendar day each week. A workweek is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. A non-exempt employee (not employed in an agricultural occupation) is entitled to overtime for actual hours worked in excess of eight (8) hours in a workday or forty (40) hours in a workweek, whichever is greater (Labor Code § 500)
ALTERNATIVE SCHEDULES
Certain flexible scheduling arrangements, in which an employee works over eight (8) hours in a workday without overtime pay, are permissible under the Labor Code and the IWC Orders. The types of allowable arrangements depend on the IWC Order involved. Before an alternative work schedule is implemented, an employer must meet specific requirements. If an alternative schedule is not implemented correctly, the employer may be subject to significant liability. (See Labor Code § 511 and the appropriate IWC Order) Employers in the “health care industry” may implement, pursuant to the election procedures set forth in the Order, an alternative workweek schedule consisting of 12 hour days (maximum 3 days per week). However, strict procedures must be followed to make the arrangement valid. (See IWC Orders 4 and 5) Other employers may implement alternative workweeks consisting of no more than 10 hours per day within a 40-hour workweek. (See Labor Code § 511 and appropriate IWC Order)
WAGES
Wages are defined to include all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation. Wages can be paid based on any hourly rate, salary, commission or piece rate. (Labor Code § 200)
COMMISSIONS
State law allows employers to compensate employees, in whole or in part, on a commission basis. (Labor Code § 200) To qualify as commission wages, the employee must be involved in selling a product or service and the commission earnings must be a percentage of the price of the service or product sold. (Labor Code § 204.1; Keys Motors, Inc., v. DLSE (1988) 197 Cal.App 3d 557)
Draws against commissions to be earned at a later date are legal only if the draw is equal to at least the minimum wage due the employee for all hours worked in each pay period. The draw may be reconciled against earned commissions at an agreed date or when the commission is earned if there is an express agreement to that effect between the employer and the employee. If no express agreement exists, the draw will be considered the basic wage in lieu of salary and fix the employee’s minimum compensation. (Agnew v. Cameron (1967) 247 Cal.App.2d 619)
In general, once commissions have been earned they cannot be forfeited. (Dana Perfumes v. Mullica (9th Cir. 1959 268 F.2d 936) However, whether commissions have been earned or forfeited is based on contract interpretation and must be determined on a case-by-case basis. No commissions will be found to be owed an employee where a contract provides that the employee is to receive no commission on accounts where payment is not received until a set number of days (as an example, 30 days) after separation of employment. (American Software, Inc., v. Ali (1996) 46 Cal.App.4th 1386) On the other hand, commissions may be found to have been earned and payable to the employee after separation of employment where the contract terms are overly harsh and the employee lacked meaningful choice in the contract negotiations. (Ellis v. McKinnon Broadcasting Co. (1993) 18 Cal.App.4th 1796)
Upon termination of employment, an employer must pay the employee at the time of termination all commission wages earned that can be reasonably calculated at the time of termination. (Labor Code § 201) Where an employee voluntarily quits his or her employment without advance notice, all commission wages that can be reasonably calculated at the time must be paid to the employee within 72 hours of termination of the employment relationship. (Labor Code § 202)
BONUSES
A bonus is performance-based compensation to be paid to an employee in addition to the employee's regular salary. (Duffy Brothers v. Bing & Bing (1939) 217 App.Div. 10, 215, N.Y.S. 755) In general, an employee who voluntarily quits his or her employment before the payout date of the bonus is not entitled to receive the bonus. (Lucian v. All State Trucking (1981) 116 Cal.App.3d 972) Bonuses constitute additional salary, and thus, must be paid in accordance with Labor Code §§ 201 and 202 when an employee is terminated or voluntarily quits his or her employment.
PIECE RATE
Piece rate or piecework is defined as work paid for according to a set rate per unit. Webster’s Collegiate Dictionary. A piece rate must be based upon an ascertainable figure paid for completing a particular task or making a particular piece of goods. The piece rate earned must equal or exceed the State’s minimum wage rate for all hours worked. (See appropriate IWC Order and Minimum Wage Order)
REPORTING TO WORK PAY
When an employee reports to work at his or her regularly scheduled time, but the employer finds it necessary to send the employee home because there is no work, the employee must be paid for at least half of the hours scheduled to work, but in no case, less than 2 hours nor more than 4 hours at the employee’s regular rate of pay. If an employee reports for work a second time in any one workday and is furnished less than 2 hours of work, the employee shall be paid for 2 hours at the employee’s regular rate of pay. These reporting pay requirements do not apply when: (1) the work is interrupted due to an Act of God or other cause not within the employer’s control; (2) operations of the employer’s business cannot commence or continue due to threats to employees or property or upon advice of civil authorities; or (3) public utilities fail. (Industrial Welfare Commission Orders, § 5)
“CALL BACK” and “STAND BY” TIME
An employer is obligated to pay the wages of an hourly employee for all time that the employee is under the control of the employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so. In Section 2 of Industrial Welfare Commission Orders 4 and 5, there is a modified definition of hours worked for employees in the health care industry.
On-call or standby time at the work site is considered hours worked for which the employee must be compensated even if the employee does nothing but wait for something to happen. “[A] n employer, if he chooses, may hire a man to do nothing or to do nothing but wait for something to happen. Refraining from other activities often is a factor of instant readiness to serve, and idleness plays a part in all employment in a stand-by capacity.” (Armour & Co. v. Wantock (1944) 323 U.S. 126) Examples of compensable work time include, but are not limited to, meal periods and sleep periods during which times the employees are subject to the employer’s control. (See Bono Enterprises v. Labor Commissioner (1995) 32 Cal.App.4th 968 and Aguilar v. Association For Retarded Citizens (1991) 234 Cal.App.3d 21)
Whether on-call or standby time off the work site is considered compensable must be determined by looking at the restrictions placed on the employee. A variety of factors are considered in determining whether the employer-imposed restrictions turn the on-call time into compensable “hours worked.” These factors, set out in a federal case, Berry v. County of Sonoma (1994) 30 F.3d 1174, include whether there are excessive geographic restrictions on the employee’s movements; whether the frequency of calls is unduly restrictive; whether a fixed time limit for response is unduly restrictive; whether the on-call employee can easily trade his or her on-call responsibilities with another employee; and whether and to what extent the employee engages in personal activities during on-call periods.
TRAVEL TIME
Travel time is considered compensable work hours where the employer requires its employees to meet at a designated place, use the employer’s transportation to and from the work site and prohibits employees from using their own transportation. (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575)
Compulsory travel time longer than the employee's normal commute is considered compensable time. Travel time to a job site within reasonable proximity of the employee's regular work site is not compensable. If an employee has no regular job site, travel time to the new job site each day is not compensable. If an employee has a temporary work location change, the employee must be compensated for any additional time required to travel to the new job site in excess of the employee's normal commute time.
The definition of hours worked is found in the Industrial Welfare Commission Orders and means the time during which the employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so. State law does not distinguish between hours worked during the "normal" working hours or hours worked outside "normal" working hours, nor does it distinguish between hours worked in connection with an overnight out-of-town assignment.
Under state law, if an employer requires an employee to attend an out-of-town business meeting, training session, or any other event, the employer cannot disclaim an obligation to pay for the employee's time in getting to and from the location of that event. Time spent driving, or as a passenger on an airplane, train, bus, taxi cab or car, or other mode of transportation, in traveling to and from this out-of-town event, and time spent waiting to purchase a ticket, check baggage, or get on board is, under such circumstances, time spent carrying out the employer's directives, and thus, can only be characterized as time in which the employee is subject to the employer's control. On the other hand, time spent taking a break from travel in order to eat a meal, sleep or engage in purely personal pursuits not connected with traveling or making necessary travel connections (such as, for example, spending an extra day in a city before the start or following the conclusion of a conference to sightsee), is not compensable.
The rate at which the travel must be paid depends upon the nature of the compensation agreement. If the employee has agreed to pay a fixed hourly rate of pay for any work performed, then travel time must be paid at that regular hourly rate, or if applicable, the required overtime rate. An employer may establish a separate rate of pay for travel before the work is performed for hourly employees, provided the rate does not fall below the statutory minimum wage. Salary non-exempt employees must be paid at the appropriate overtime rate for any hours worked in excess of 8 in a day or 40 in a week, computed by converting the weekly salary to an hourly rate. (Labor Code Section 515)
All necessary expenses incurred in connection with employer-required travel must be reimbursed to the employee. (Labor Code Section 2802)
WHAT IS THE REGULAR RATE OF PAY AND HOW IS IT DETERMINED?
Overtime is based on the regular rate of pay, which is the compensation you normally earn for the work you perform. The regular rate of pay includes a number of different kinds of remuneration such as hourly earnings, salary, piecework earnings, and commissions. In no case may the regular rate of pay be less than the applicable minimum wage.
Ordinarily, the hours to be used in computing the regular rate of pay may not exceed the legal maximum regular hours which, in most cases, is 8 hours per workday, 40 hours per workweek. This maximum may be affected by the number of days one works in a workweek. It is important to determine what maximum is legal in each case. The alternate method of scheduling and computing overtime under most Industrial Welfare Commission Wage Orders based on the alternative workweek schedule of four 10-hour days or three 12-hour days does not affect the regular rate of pay, which in this case also would be computed on the basis of 40 hours per workweek.
The agreed upon regular hours must be used if they are less than the legal maximum regular hours. For example, if you work 32 to 38 hours each week, and there is an agreed workweek of 35 hours is the figure used to determine the regular rate of pay. However, in circumstances where the workweek is less than 40 hours, the law does not require payment of overtime premium unless the employee works more than eight hours in a workday or more than 40 hours in a workweek. In other words, assuming you are employed under a policy that provides for a 35-hour workweek, the law does not require the employer to pay the overtime premium until after 40 hours in a workweek. If you work more than 35 hours but fewer than 40 hours in a workweek, you will be entitled to be paid for the extra hours at your regular rate of pay, as overtime premium pay is only required after 40 hours in a workweek.
IF AN EMPLOYEE WORKS UNAUTHORIZED OVERTIME IS THE EMPLOYER OBLIGATED TO PAY FOR IT?
Yes. California law requires that employers pay overtime.
IS A BONUS INCLUDED IN THE REGULAR RATE OF PAY FOR PURPOSED OF CALCULATING OVERTIME?
Yes, if it is a non-discretionary bonus. A non-discretionary bonus is included in determining the regular rate of pay for computing overtime when it is based upon hours worked, production or proficiency.
Discretionary bonuses, or sums paid as gifts at a holiday or other special occasions, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not included for purposes of determining the regular rate of pay.
ARE ANY AMOUNTS EXCLUDED FROM THE REGULAR RATE OF PAY?
Yes, there are certain types of payments that are excluded from the regular rate of pay including sums paid as gifts for special occasions, expense reimbursements, payments for occasional periods when no work is performed due to vacation, holiday, failure of the employee to provide sufficient work, premium pay for Saturday, Sunday or holiday work, and discretionary bonuses.
ARE SALARIED EMPLOYEES ENTITLED TO OVERTIME?
It depends. A salaried employee must be paid overtime unless they meet the test for exempt status as defined by Federal and State laws, or unless they are specifically exempted from overtime by the provision of the Industrial Wage Commission Wage Orders regulating wages, hours and working conditions.
Please call our office for a free evaluation if you are a salaried employee.
FINAL PAY
Employees who are discharged must be paid all wages due at the time of termination. (Labor Code § 201) “All wages” include any earned, but unused vacation pay. (Labor Code §227.3) There is no requirement under California law that an employer pay accrued sick leave upon termination. An employer must pay a discharged employee at the place of discharge. (Labor Code § 208)
An employee who does not have a written agreement for a definite period of employment and who quits without giving prior notice, must be paid his or her wages within 72 hours. If the employee gives at least 72 hours notice of his or her intention to quit, those wages must be paid at the time of quitting. An employee who quits must be paid at the office or agency of the employer in the county where the employee worked. An employee who quits without 72 hours notice may request that his or her final wage payment be mailed to a designated address. The date of mailing will be considered the date of payment. (Labor Code § 202)
An employer who willfully fails to pay any wages due an employee who is discharged or quits within the time frames provided under Labor Code § 201 or Labor Code § 202, may be assessed continuing wages as a penalty from the date the wages were due up to a maximum of 30 days. (Labor Code § 203) The penalty is calculated by multiplying the daily wage rate of the employee by 30 days. (Mamika v. Barca (1998) 68 Cal.App.4th 487) Penalties under Labor Code § 203 may be avoided if the employer can show that a good-faith dispute existed concerning whether any wages were due. A “good-faith” dispute means that the employer’s defense, based on law or fact, if successful, would preclude any recovery on part of the employee. (Title 8 California Code of Regulations § 13520)
Even if there is a dispute, the employer must pay, without requiring a release, whatever wages are due and not in dispute. If the employer fails to pay what is undisputed, the “good faith” defense will be defeated whatever the outcome of the disputed wages. (Labor Code § 206)
SEVERANCE PAY
There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer’s policy with respect to severance pay. Severance pay plans provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (ERISA), are subject to federal law. Contact the U.S. Department of Labor at www.dol.gov. In certain limited situations, California laws may apply. However, a thorough review of the facts is necessary before a determination can be made.
UNEMPLOYMENT INSURANCE
California participates in a joint federal/state unemployment insurance program, which is designed to reduce the impact of economic fluctuations and assist those persons who become unemployed through no fault of their own.
With few exceptions, all California employers are covered under the unemployment insurance law and must pay the appropriate unemployment insurance tax. A former employee will be ineligible for benefits if he or she is out of work for one of the following reasons:
- Voluntary quitwithout good cause; (Unemployment Insurance Code § 1256)
- Discharge for willful misconduct; (Unemployment Insurance Code § 1256)
- Refusal of suitable work; (Unemployment Insurance Code § 1258)
EMPLOYEE BENEFITS AND SEVERANCE PAY
VACATION PAY
Paid vacations are not required under California law. If an employer has an oral or written vacation policy, such vacation benefits are considered wages and are earned by the employee on a pro rata basis for each day of work. Because vacation is a form of deferred wages and vests as it is earned, vacation wages cannot be forfeited. (Suastez v. Plastic Dress Up (1982) 31 Cal.3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595). When an employment relationship ends all vacation earned but not yet taken by the employee must be paid at the time of termination. (Labor Code §227.3). If employees are subject to a collective bargaining agreement, the provisions pertaining to vacation benefits in the collective bargaining agreement will apply. (Labor Code §227.3)
SICK PAY
There is no legal requirement under California law for employers to provide paid sick leave. Employees should refer to their employer’s policy with respect to paid sick leave. However, most employers participate in the State Disability Insurance Plan (SDI), which they pay for through payroll deductions. (Unemployment Insurance Code §2601, et seq.) Employers are required to give newly hired employees and employees leaving work due to pregnancy or non-occupational sickness or injury a copy of a notice of their disability insurance rights and benefits due to sickness, injury or pregnancy. (Unemployment Insurance Code §2613) Additional information concerning disability insurance can be obtained from your local office of the Employment Development Department (EDD) or through their website at www.edd.ca.gov.
If an employer has a sick leave policy, the employer must permit an employee to use in any calendar year, the employee’s accrued and available sick leave, in an amount not less than the sick leave that would be accrued during 6 months at the employee’s current rate of sick leave, to attend to an illness of a child, parent, domestic partner, or spouse of the employee. (Labor Code §233)
WORKERS’ COMPENSATION INSURANCE
All employers, except the state, are required to have workers’ compensation insurance to cover injuries or illnesses sustained on the job. (Labor Code §3700, et seq.) An employee who suffers a work-related injury or illness that requires medical treatment beyond first aid must notify his or her employer in writing within 30 days of the injury or illness. (Labor Code §5400) Contact the local Division of Workers’ Compensation office for more information regarding workers’ compensation claims and benefits at www.dir.ca.gov/dwc.
HOLIDAYS
California law does not require that employers provide employees with paid time off for holidays, observe any holidays, or pay an employee any additional compensation for working on a holiday. Employees should refer to their employer’s policy with respect to paid holidays.
MEDICAL AND/OR LIFE INSURANCE
There is no requirement under California law for employers to provide employees with medical and/or life insurance. Employees should refer to their employer’s policy with respect to medical and life insurance benefits. An employer who provides employee medical benefits and discontinues those benefits must provide employees with written notice at least 15 days in advance of the discontinuance of coverage. (Labor Code §2806) A terminated employee may be entitled to continued coverage under the federal COBRA act or California's continued coverage requirements. Contact the Department of Health Services at www.dhs.ca.gov. Any health benefits provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001, et seq. (ERISA), are subject to federal law. Contact the U.S. Department of Labor at www.dol.gov.
PENSION AND RETIREMENT PLANS
Employee pension and retirement plans are not required under California law. Employees should refer to their employers’ policy with respect to pension plans. Any pension plans provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001, et seq. (ERISA), are subject to federal law. Contact the U.S. Department of Labor at www.dol.gov.
SEVERANCE PAY
There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer’s policy with respect to severance pay. Severance pay plans provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001 et seq. (ERISA), are subject to federal law. Contact the U.S. Department of Labor at www.dol.gov. In certain limited situations, California laws may apply. However, a thorough review of the facts is necessary before a determination can be made.
OVERTIME PAY REQUIREMENTS UNDER FEDERAL LAW
FAIR LABOR STANDARDS ACT OF 1938 (FLSA)
This fact sheet provides general information concerning the application of the overtime pay provisions of the FLSA.
Characteristics
An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work.
Requirements
Unless specifically exempted, employees covered by the Act must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such.
The Act applies on a workweek basis. An employee's workweek is a fixed and regularly recurring period of 168 hours -- seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.
The regular rate of pay cannot be less than the minimum wage. The regular rate includes all remuneration for employment except certain payments excluded by the Act itself. Payments which are not part of the regular rate include pay for expenses incurred on the employer's behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays, and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions, and payments for occasional periods when no work is performed due to vacation, holidays, or illness.
Earnings may be determined on a piece-rate, salary, commission, or some other basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked.
Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. In addition, section 7(g)(2) of the FLSA allows, under specified conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed. The requirements for computing overtime pay pursuant to section 7(g)(2) are prescribed in 29 CFR 778.415 through 778.421.
Where non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate.
Typical Problems
Fixed Sum for Varying Amounts of Overtime: A lump sum paid for work performed during overtime hours without regard to the number of overtime hours worked does not qualify as an overtime premium even though the amount of money paid is equal to or greater than the sum owed on a per-hour basis. For example, no part of a flat sum of $180 to employees who work overtime on Sunday will qualify as an overtime premium, even though the employees' straight-time rate is $12.00 an hour and the employees always work less than 10 hours on Sunday. Similarly, where an agreement provides for 6 hours pay at $13.00 an hour regardless of the time actually spent for work on a job performed during overtime hours, the entire $78.00 must be included in determining the employees' regular rate.
Salary for Workweek Exceeding 40 Hours: A fixed salary for a regular workweek longer than 40 hours does not discharge FLSA statutory obligations. For example, an employee may be hired to work a 45 hour workweek for a weekly salary of $405. In this instance the regular rate is obtained by dividing the $405 straight-time salary by 45 hours, resulting in a regular rate of $9.00. The employee is then due additional overtime computed by multiplying the 5 overtime hours by one-half the regular rate of pay ($4.50 x 5 = $22.50).
Overtime Pay May Not Be Waived: The overtime requirement may not be waived by agreement between the employer and employees. An agreement that only 8 hours a day or only 40 hours a week will be counted as working time also fails the test of FLSA compliance. An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, also will not impair the employee's right to compensation for compensable overtime hours that are worked.
OVERTIME LAW