In this post, I use the term “wage and hour law” to refer to the requirement that certain employees be paid overtime, receive half-hour meal breaks and ten-minute rest periods, and also be issued paychecks that accurately reflect the number of hours they worked during the pay period. To employment lawyers, the term encompasses much more than that and all of the topics discussed below can become incredibly complex and contain many wrinkles. But what follows is intended merely to provide an introduction to the topic for someone who has no background in the area.
Exempt vs. Non-Exempt
Both California and federal laws require that all employees be classified as either exempt or non-exempt from overtime. The default rule is that all employees are not exempt and must receive overtime, meal breaks and rest breaks. An employee cannot simply agree to be considered exempt from overtime. Nor can an employer unilaterally decide to classify its employees as exempt.
Rather, whether an employee is properly exempt from overtime presents a factual question that depends on if an employee’s duties, responsibilities, compensation structure, and professional background satisfy one or more of the “exemptions” from the overtime laws. Since an employer’s decision to classify an employee as “exempt” is not determinative of whether overtime is due, it follows that an employee who is salaried and “misclassified” as exempt from overtime may still recover overtime pay and many related penalties.
Moreover, that all of the foregoing remedies apply to an individual who is improperly classified as an independent contractor. Without going into detail on the law concerning the distinction between an independent contractor and an employee, one should not that employment is the default rule for anyone who provides services in California and a service-provider will be found to be an employee unless the party who engages them can prove they fit within certain narrow exceptions.
Exemptions From Overtime, Meal & Rest Periods
Although this post will not discuss any of them in detail, the major exemptions in California are listed below along with a shorthand guide to their key requirements:
- administrative exemption (employee sets company policies)
- executive exemption (employee’s primary duty is to manage two other employees)
- learned professional exemption (employee holds certain professional licenses or duties consistent with a licensed individual)
- creative professional exemption (employee is an artist, writer or similar creative-type)
- outside sales exemption (50% of employee’s time is spent outside office)
- computer professional exemption (programmer-type job with a salary in excess of $84k)
There are a variety of other exemptions and a more exhaustive list can be found here: http://www.dir.ca.gov/dlse/faq_overtimeexemptions.htm. In addition, there is an exemption from overtime that applies to “inside sales” employees who are paid primarily on commission but it only applies to overtime–not meal or rest periods–and has specific and exacting requirements concerning the employee’s weekly income and commission payments.
If an employee’s position is not covered by an exemption then the employee is entitled to be paid overtime. Overtime equal to “time and a half” is due on any day when an employee works more than eight hours in California and it is also due for all hours worked when an employee has worked seven consecutive days. In addition, an employee is due double time for all hours worked in excess of twelve and all hours in excess of eight on the seventh consecutive day of work.
In California, the amount of overtime an employee is due is calculated based on the employee’s “regular rate” of pay. The regular rate is either a stated hourly wage or, if the employee receives an annual salary and a non-discretionary bonus or a commission, then the regular rate is the sum of the salary and bonus divided by 2080. The number 2080 comes from an attempt to convert an annual salary into an hourly wage for a normal workweek and is the product of 52 weeks * 40 hours/week.
For example, the regular rate of pay would be $45.67/hour for an employee whose annual salary is $70,000 and who is also entitled to a non-discretionary annual bonus an $25,000. Under California law, employees are entitled to receive 1.5 their rate of pay for all daily hours worked in excess of eight but less than twelve. So, in this example, a non-exempt employee who worked ten hours in a single day is entitled to an additional payment for two hours of overtime equal to $137.01 ($45.67 * 1.5 * 2 hours).
If the employee worked more than twelve hours, then the employee is paid double time for all hours in excess of twelve. So, in the example above, if the employee worked fourteen hours in a day, the overtime payment would be: $456.70 [($45.67 * 1.5 * 4 hours) + ($45.67 * 2 * 2 hours)]
Finally, employees who work seven consecutive days are entitled to additional overtime on the seventh day of work. Namely, time and a half for all hours up to eight and double time for all hours over eight. So, if an employee worked for ten hours on a seventh consecutive day of work, the overtime due would be: $730.72 [($45.67 * 1.5 * 8 hours) + ($45.67 * 2 * 2 hours)].
Non-exempt employees are entitled to receive one unpaid, thirty-minute meal break after they have worked for five hours and they must take it by their sixth hour of work. They are entitled to a second unpaid meal break after ten hours of work. Although an employee may voluntarily agree to waive their first meal break the employee may not be compelled or pressured into doing so. If an employee waives their first meal break that employee must take a meal break after working more than ten hours.
The penalty for failing to provide employees with a meal break or failing to pay employees when they involuntarily work through a meal break is a penalty equal to one hour of that employee’s regular rate of pay. The same penalty applies if an employee waives both the first and the second meal break, even if both waivers are voluntary. Thus, in the example above, an employee who worked through lunch on three consecutive days in a week because he was under pressure to satisfy a deadline would be owed $137.01 ($45.67 * 3). Even if two meal periods are missed in one day, an employee may only recover a single penalty payment.
Non-exempt employees are also entitled to one paid ten-minute rest period after four hours of work, another rest period after six hours of work, and a third rest period after ten hours of work. Rest periods are generally paid, the employee can be required to stay on the employer’s premises, and the employer can have some input on when they occur. An employee may waive a rest period, but it must be voluntary. An employee who is not provided with a rest period or who is coerced to work through it is entitled to a penalty equal to that employee’s regular rate of pay for each day a rest period is missed. Even if multiple rest periods are missed in a day, the employee may only recover a single penalty payment of one hour of pay.
“Waiting Time Penalties” For Failing To Pay All Wages Due At Termination
California employment laws go far beyond requiring the payment of overtime and provision of meal and rest periods. An employee who is not paid all overtime due prior to their last day of employment is entitled to receive “waiting time penalties” if their employer acted willfully in failing to pay that overtime. There are nuances in calculating the amount due but waiting time penalties are generally equivalent to six additional weeks of compensation.
In the example above, the employee whose regular rate of pay would receive waiting time penalties equal to $10,960.80 ($45.67 * 8 hours/day * 30 days). And this amount could increase if the employee’s regular work day generally stretched beyond eight hours. Unpaid waiting time penalties accrue interest at 10% annually.
Section 226 of the California Labor Code that all California employees who are not exempt from overtime receive a paystub that contains certain information, including the number of hours an employee worked during the pay period. An employee who is misclassified as exempt from overtime often will receive a paystub that does not include the total number of hours worked. An employee who receives an inaccurate itemized paystub can recover up to $4,000 ($100/pay period).
Private Attorney General Act (“PAGA”)
Many sections of the California Labor Code do not provide for a particular civil penalty. PAGA provides a default remedy for a breach of one of these provisions. The penalty is $100 for each violation and $200 for each subsequent violation. The downside, from an employee’s perspective, is that 75% of all funds recovered under PAGA must be paid to a state agency. But, there is significant uncertainty around PAGA and employers are often inclined to settle cases rather than test just how far PAGA reaches. Thus, including a PAGA claim can provide significant leverage to an employee in litigation. A PAGA claim has a one-year statute of limitations.
Prevailing Party Attorneys’ Fees & Costs
Under virtually all circumstances, an employee who proves that his employer violated a provision of the California Labor Code can recover attorneys’ fees and costs from that employer.
California Labor Code & Wage Orders v. Fair Labor Standards Act
California wage and hour law overlaps with, but is not identical to, the federal Fair Labor Standards Act (“FLSA”). Two key differences are that California sets a higher minimum wage ($9/hr vs. $7.25/hr) and California provides for daily overtime whereas overtime is calculated on a weekly basis under the FLSA (i.e. it is not due if the employee works more than eight hours in a day but less than forty hours for the entire week).
In addition, the FLSA does not provide for double time in the event more than twelve hours are worked in a day, nor does it require meal or rest periods. Finally, California’s unfair competition law effectively sets a four-year statute of limitations for a violation of the overtime laws whereas the statute under the FLSA is shorter: two years but extended to three years if the employer “willfully” violated the law.
However, the FLSA is more protective of employees than California law in a few key respects. First, it provides a liquidated damages penalty for willful violations that doubles an employee’s recover. In effect, an employer who willfully fails to pay overtime must make a payment to the employee equal to three times the employee’s regular rate of pay (i.e. time-and-a-half multiplied by two). Second, a release of claims under the FLSA is categorically unenforceable unless approved by a court or the Department of Labor. A release of claims arising under California law may be enforced if a “good faith dispute” exists as to whether claims are due. Third, certain exemptions, including the commission sales exemption, are more difficult to satisfy under the FLSA than California law.
Example Of Potential Recovery
Employees who work significant overtime over period of many years may see a substantial recovery. Returning to the example of an employee whose regular rate of pay is $45.67 and, over the course of four years, worked an average of eight overtime hours per week, missed three meal periods and three rest periods per week, then the recovery would be as follows:
- Unpaid overtime: $113,992.32 plus 10% interest ($45.67 * 1.5 * 8 hrs * 52 wks * 4 yrs)
- Meal periods: $28,498.08 plus 10% interest ($45.67 * 3 periods * 52 wks * 4 yrs)
- Rest periods: $28,498.08 plus 10% interest ($45.67 * 3 periods * 52 wks * 4 yrs)
- Waiting time penalties: $10,960.80 plus 10% interest ($45.67 * 8 hours/day * 30 days)
- Inaccurate itemized wage statement: $4,000 plus 10% interest
- PAGA: $5,200/violation ($200/pay period * 26 periods * 1 yr) – employee receives 25%
Thus, the total recovery for a single employee who works significant overtime in a position that is misclassified as being exempt could recover in excess of $190,000 plus interest and attorneys’ fees. A similar recovery may apply to a misclassified independent contractor.
Contact Sebastian Miller Law for further assistance.
Disclaimer: All materials have been prepared for general information purposes only to permit you to learn more about Sebastian Miller Law, P.C, its services and experience. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.