State and federal law provide many wage and hour protections for California employees. Keller Grover offers experienced and aggressive representation of employees who have been the victim of wage and hour violations. We are actively involved in pursuing both individual claims and class action claims on behalf of employees who have been victimized by a company’s failure to comply with the law.

One of the most common wage and hour violations is to mis-classify an employee as “salaried”, and then fail to pay legally required overtime for all hours worked over eight (8) in a day and 40 in a week. Some basic overtime information is provided below.

Overtime at a Glance

Many employees are told by their employer that they are “exempt” from receiving overtime compensation because they are salaried or have a certain title, like “Manager.” In many cases this is not true. California law requires that, regardless of any title an employee may hold, overtime pay is required if the employee does not meet all of a particular overtime exemption’s requirements. For example, to qualify for the exemption that applies to most retail stores in California, a salaried employee must spend more than 50% of their working hours in certain specified managerial duties. Time spent in non-managerial activities like selling, working the cash register, stock room work, cleaning, and generally doing the same tasks as hourly employees does not count as managerial time.

Under California law, employees who do not fall within a recognized overtime exemption are entitled to one and one-half times their “regular rate” of pay for all time worked; over eight (8) hours in a day; over 40 hours in a workweek; and for each of the first seven (7) hours worked on the seventh day of a workweek (if the employee has not had a day off).

An employer must pay double the employee’s regular rate for all time worked over 12 hours in a day and for any time worked over eight (8) hours on the seventh consecutive day of the workweek.

Many so-called salaried employees in California do not fall within any recognized exemption and should be receiving overtime compensation. In many cases, these misclassified employees work a substantial number of extra hours every week for which they are entitled to compensation.

Regular Rate

Overtime is based on the “regular rate.” For an employee who is paid a salary but should be receiving overtime compensation, the regular rate is determined by taking the employee’s total annual salary and dividing it by 2080. In other words, you do not calculate the regular rate based on the 50 or 60 hours a week the employee is forced to work, but rather on a 40 hour week for 52 weeks (40 hrs. x 52 weeks = 2080).

By way of example, a salaried employee making $40,000 a year who should be receiving overtime pay has a regular rate of $19.23 per hour ($40,000 divided by 2080) and an overtime rate of $28.85 per hour ($19.23 multiplied by 1.5). Bonus payments can push up the regular rate even higher.

Limitations Period for Overtime Claims

The limitations period for wage claims is three (3) years. California Code Civ. Proc. Section 338(a). However, a more generous four (4) year limitations period is available under the state’s Unfair Competition law. California Bus. & Prof. Code Section 17208.

A misclassified salaried employee making $40,000 annually who works an average of 10 hours of overtime a week, would be entitled to back overtime wages of approximately $60,000 if the employee had been employed for the entire four year limitations period. Many times, the employer has similarly misclassified from dozens to hundreds of other employees.

 

Examples of Different Types of Exemptions

Retail Overtime Exemption

Managerial misclassifications are rampant in the retail industry. Over the past five years, dozens of retail chain stores, restaurants, fast food outlets, and video stores have paid tens of millions of dollars to settle class action overtime claims because managers, assistant managers and/or management trainees were misclassified as overtime exempt.

There are two exemptions from the state’s overtime requirements under which retail employers try to fall: The executive exemption and the administrative exemption. In general, to meet one of these exemptions and avoid paying salaried managers overtime compensation, all of the following criteria (plus others) must be met:

• The employee must earn a minimum annual salary of $28,080;
• The employee must regularly supervise the work of at least two (2) other employees;
• The employee must be able to hire and fire employees;
• The employee must regularly exercise “discretion and independent judgment,” as opposed to simply following a prescribed set of operational rules.

Most importantly, under California law, an employee has to actually spend more than 50% of his or her workweek performing these exempt tasks. The problem for many retailers is that salaried managers actually spend the bulk of their time doing exactly the same work as hourly associates.

Inside Sales Overtime Exemption

Certain inside sales employees covered by a specific California Wage Order are not entitled to overtime pay. If an inside sales employee has earnings that exceed one and one-half times the state minimum wage and more than one-half of the employee’s compensation represents commissions, the overtime exemption applies.

The minimum wage is currently $6.75 per hour. Thus, for the exemption to apply, the employee must earn the equivalent of at least $10.13 per hour worked and at least half of that income must be commission based. To qualify as a “commission,” the employee must be involved principally in selling a product or service, not making the product or rendering the service, and the employee’s compensation must be a percent of the price of the product or service.

Many employers fail to meet the exemption by paying too little in commissions in relation to the total compensation and/or using commission programs when employees are not really selling a product or service.

Outside Sales Exemption

California law completely exempts outside salespersons from minimum wage and overtime requirements. To be considered an outside salesperson, the employee must customarily and regularly work more than half their working time selling items or obtaining orders or contracts for service away from the employer’s premises or some other fixed location.

Many companies try and avoid overtime for driver and route employees by paying them a base salary and “commissions” on the volume or dollar value of the product they handle. However, many companies have been forced to pay large class action overtime settlements because the route employees don’t actually do any selling. For the most part, they merely drop off product and place it on the rack.

In-House Mortgage Employees and Commissioned Stock Brokers:

California employers must comply with both the California Labor Code and the federal Fair Labor Standards Act. When state and federal law covers the same subject (e.g., minimum wage), employers must comply with the law that provides greater benefits or protections to employees. In most cases, California law provides greater wage and hour protections than the federal Fair Labor Standards Act. Most in-house mortgage employees and commissioned stockbrokers would likely be found overtime exempt under state law. However, the federal inside sales and administrative exemptions appear not to apply to many inside mortgage company employees and securities brokers who receive no base compensation. Because both of these groups of employees are often very highly compensated, the amount of back overtime liability can be quite staggering. A number of large nationwide brokerage firms recently settled FLSA overtime cases where the back overtime topped $25 Million per case.

Computer Software/Systems Administrator:

Certain computer software/systems administrator employees may be exempt from overtime. However, before one even looks at the job duties and responsibilities test, the employer must meet a special salary test. Exempt computer software employees must receive a minimum of $41.00 for each hour worked. If the employee only worked 40 hour workweeks, the annual compensation would be $85,280.00. If the employee worked an average of 45 hours a week, the annual compensation would total $95,940.00. If an employer fails to pay at least $41.00 for each hour worked, the exemption does not apply.

Even if the employer is paying the required minimum wage (described above), the exemption will not apply unless the employee is engaged in certain specific tasks, such as the design and development of computer systems or the design of software or hardware for operating systems. This is often a difficult exemption to meet.