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WAGE AND HOUR LAWS

Minimum Wage

If you are a non-exempt employee, under no circumstances may an employer pay you less than the minimum wage, even if you agree to a lower wage. The current minimum wage in California is $9.00 an hour.  In San Jose, it is currently $10.30 an hour.

Additionally, in California, your employer may not count your tips toward the minimum wage.  If you are paid by piece rate or commission sales, your employer must still pay you at least the current minimum wage.

Overtime

In California, an employer must follow the list of rules below with regards to payment of overtime for employees in California. There are some exceptions to these rules for certain employees that are discussed below.

  1. An employer must pay an employee 1.5 times their regular rate of pay for any time worked more than 8 hours in a day.
  2. An employer must pay an employee 2 times their regular rate of pay for any time worked more than 12 hours in a day.
  3. An employer must pay an employee 1.5 times their regular rate of pay for any time worked more than 40 hours a week, unless those hours have already been counted as an overtime hour, for example when computing daily overtime.
  4. An employer must pay an employee 2 times their regular rate of pay for any time worked more than 8 hours in a day on the seventh consecutive day in a workweek.
  5. The Statute of Limitations for claiming unpaid regular wages, overtime and wages for missed meal and rest breaks is three years under the state Labor Code. You can claim one additional year, for a total of four years, if you add an unfair business practice claim under the Business and Professions Code or if you had a written contract for these wages. You may claim these wages by filing a claim with the Labor Commissioner or a lawsuit in civil court, however, to make the unfair business practice claim, your claim must be made through a lawsuit filed in civil court.

There is also federal law mandating overtime pay in some situations but California law is usually better for California workers under which to pursue claims.

Wage and Hour Basics

Minimum Wage

If you are a non-exempt employee, under no circumstances may an employer pay you less than the minimum wage, even if you agree to a lower wage. The current minimum wage in California is $9.00 an hour.  In San Jose, it is currently $10.30 an hour.

Additionally, in California, your employer may not count your tips toward the minimum wage.  If you are paid by piece rate or commission sales, your employer must still pay you at least the current minimum wage.

Overtime

In California, an employer must follow the list of rules below with regards to payment of overtime for employees in California. There are some exceptions to these rules for certain employees that are discussed below.

  1. An employer must pay an employee 1.5 times their regular rate of pay for any time worked more than 8 hours in a day.
  2. An employer must pay an employee 2 times their regular rate of pay for any time worked more than 12 hours in a day.
  3. An employer must pay an employee 1.5 times their regular rate of pay for any time worked more than 40 hours a week, unless those hours have already been counted as an overtime hour, for example when computing daily overtime.
  4. An employer must pay an employee 2 times their regular rate of pay for any time worked more than 8 hours in a day on the seventh consecutive day in a workweek.
  5. The Statute of Limitations for claiming unpaid regular wages, overtime and wages for missed meal and rest breaks is three years under the state Labor Code. You can claim one additional year, for a total of four years, if you add an unfair business practice claim under the Business and Professions Code or if you had a written contract for these wages. You may claim these wages by filing a claim with the Labor Commissioner or a lawsuit in civil court, however, to make the unfair business practice claim, your claim must be made through a lawsuit filed in civil court.

There is also federal law mandating overtime pay in some situations but California law is usually better for California workers under which to pursue claims.

Missed meal and rest break law in California

Unless an employee is exempt under one of the exemptions discussed below a employer must follow these rules:

  1. For every shift worked that is 5 hours or longer the employer must provide the employee with an unpaid, uninterrupted 30-minute meal break.
  2. For every shift worked that is 10 hours or longer the employer must provide the employee with two unpaid, uninterrupted 30-minute meal breaks. If you work 12 hours or less in a day though, the second meal break can be waived by mutual agreement.
  3. Your employer must permit you to leave the premises for your meal break. An “on-duty” meal is permitted only under very limited circumstances, if you and your employer have a written agreement and it must be compensated at your regular rate of pay.
  4. For every 4 hours worked, or major fraction thereof, the employer must provide the employee with a paid, uninterrupted 10-minute rest break.
  5. If the employer does not provide the employee with either a meal or rest break, that employer then owes the employee an additional hour’s pay for each workday on which the employee missed a meal break and each workday on which the employee missed a rest break.

Exceptions to overtime and meal and rest break requirements

There are some employees that are exempt from overtime and meal and rest break requirements and therefore cannot bring successful claims for these types of unpaid wages. Some of these exemptions are very rare so it would be impracticable to list them all here. The more common exemptions are:

1. The Executive Exemption

Employees who spend over half of their working hours managing a business or a department of a business are generally exempt.

2. The Administrative Exemption

Employees who spend over half their working hours assisting either a business owner or an employee exempt under a different exemption are exempt so long as they were assisting the other person in matters of significance.

3. The Professional Exemption

Employees who work in “learned or artistic” professions or have certain licenses to do specific jobs can be found to be exempt under this exemption.

4. The Computer Software Professional Exemption

Employees who work in computer software and make over $41.00/hour can be found to be exempt under this exemption.

5. The Outside Salesperson Exemption

Employees who generally work away from their employer’s office location can be found to be exempt under this exemption. However, this exemption does not apply if the employee spends significant time doing the same work as other non-exempt employees.

Examples of employees who have been found to be entitled to overtime pay are:

  1. Bookkeepers
  2. Secretaries
  3. Clerks
  4. Insurance claims adjusters and investigators
  5. Probation officers
  6. Police Detectives
  7. Satellite Dish installers
  8. Electronics technicians
  9. Financial or escrow workers who work for real estate or title companies.

Other exemptions include persons employed by the federal government, parents, children, and spouses of the employer; and employees covered by a collective bargaining agreement if certain wage levels and overtime premiums are met. For more information on who is exempt and who is, check here:

http://www.dir.ca.gov/dlse/faq_overtimeexemptions.htm

Common Overtime Problems with Salaries

I Pay or Receive a Salary

One of the biggest misconceptions about the payment of wages and the right to overtime is the idea that people who are paid a salary are not entitled to overtime.  This myth comes from employers believing that if someone gets a salary and the worker agrees they do not have to go to the bother of tracking hours or paying overtime.  There are several reasons why this occurs.  The three most common reasons are: (1) we agreed to a salary and that agreement should be upheld; (2) in my country a salary is the norm and I did not realize you could not pay a salary; and (3) I gave the person a title of a manager and a lot of responsibility doesn’t that make him exempt.

With the above in mind, the fact remains that there are many people who are paid a salary who are entitled to overtime. If someone told you that you are not entitled to overtime or do not need to pay overtime in a salary situation, this may be wrong.

If you are paid a salary, you are still entitled to overtime unless you meet all of the requirements for one of the exemptions listed below.  These additional requirements are difficult to meet and many people in simply do not meet them.

Who Must Prove the Exemption?

In 1947, the Supreme Court decided the case of Walling v. General Industries Co., in which it held that the employer must prove every point of an exemption in order for it to apply.

Exemptions

Executive Exemption

In order to be exempt from overtime pay under the Executive Exemption, you must be an bona-fide “executive.”  In order be considered an “executive” you must be paid a salary of at least $640/week and:

  1. Manage the entire enterprise in which you work or a customarily recognized department or subdivision.
  2. Direct the work of at least 2 subordinates in your department.
  3. Have authority to hire or fire – directly or indirectly.
  4. Exercise independent business judgment.
  5. Spend more than 50% of your time doing the above.

The executive exemption is sometimes incorrectly called the “supervisors” exemption.  It is important to know that there is no “supervisors” exemption.  You can supervise people and still be entitled to overtime.

Many people see requirement #2 and think that if you supervise 2 people, you are exempt.  This is simply not the case.  First of all, if you only supervised 2 people, it is extremely unlikely that you would spend 50% of your time supervising them. More than likely, you will be considered a “working foreman” and would be entitled to overtime.

In addition, the most important item above is that you must be an executive in charge of a real department or subdivision of the enterprise.  Jobs such as “Team Lead”, “Development Manager”, and “Project Manager” are likely not in charge of a fixed department.  The DLSE enforcement manually aptly puts the challenge of this exemption in that an “employee must be in charge of the unit, not simply participate in the management of the unit.” This is why most low and mid level managers are improperly classified under this exemption. If you were told you were not entitled to overtime because you are a “manager,” you can email us with a brief description of your job duties and we can tell you whether or not this exemption might apply to you.

To meet requirement #3, you must be able to do the following: hire or fire, AND review performance. You do not need to be the one that actually performs the hiring or firing, but your opinion must be given strong preference. If a voting system is used, and you only get one vote like everyone else, then your opinion is not being given strong preference and you don’t meet the exemption. You do not need to both hire and fire, participating in either one will be sufficient. However, you must take part in performance reviews or other activities which relate to the advancement of employees.

Remember that job titles are not used in determining exemption from overtime.  Just because you company prints “Director of Operations” or “Manager” on you business card does not make you exempt.  If you spend 50% of your time doing the same type of work as your subordinates, it doesn’t matter what your title is, you are probably entitled to overtime.

Administrative Exemption

The administrative exemption is fairly straight forward to explain, but it ends up being a bit tricky in practice.  A common way to explain it is that workers in a company are classified as either administrative or production.  The classification is fairly straight forward for most employees.  Production work is anything that relates to the end products or services that your company provides.  Administrative work is anything that relates to supporting the business itself.  Examples of administrative work include accounting, human resources, tax, and legal.

Production work is easy to understand in the case of companies like Honda.  Honda produces cars.  If you are working at Honda producing cars, you are doing production work.

In cases where the company provides a service, the service is considered the “product” made by the company.  For instance, courts have held that an Insurance Company “produces” the settlement or adjustment of claims.  As a result, an insurance adjuster even if highly skilled and who uses a lot of discretion is really a production worker and not an administrator and entitled to overtime.

Business Judgment Over Matters of Substantial Importance

In addition to working on the administrative side, you must also exercise business discretion over matters of substantial importance before you can be exempt from overtime.  The technical terms commonly used for this is “discretion and independent judgment” on matters “directly related to management policies or general business operations” that are “decisions in significant matters.”

For simplicity, many people say that this exemption requires “discretion and independent judgment.” This is simply a misstatement used to reduce the requirements of this exemption.  If you can decided to work on a task today rather than tomorrow, you are exercising discretion and independent judgment. You are exercising discretion in that you could choose today or tomorrow to work on the task.  You are exercising independent judgment in that you boss will not care which one you choose as long as you get it done.  However, this is not what the exemption requires.  Obviously, whether you do the task today or tomorrow makes little or no difference.  Thus, it is not a “significant matter.” In addition, it has nothing to do with the “management policies or general business operations” of the company.

 Professional Exemption

The professional exemption has a very strict meaning.  I am sure that you act professionally in you job and may even consider yourself a professional.  However, the legal meaning of the Professional Exemption has nothing to do with this.  In order to meet the Professional Exemption you must:

  1. Be licensed by the State of California in an area such as law, medicine, engineering, accounting, etc. and working in that field  OR
  2. Have an advanced degree (Masters or better, a BS will NOT count) and perform work that requires such a degree in a way that is intellectual and varied. OR
  3. Work in a recognized field of artistic endeavor. (Actors, screen writers, artists, but not technical writers, cartonnists, or industrial artists.)
  4. AND exercise discretion and independent judgment in the above areas.
  5. AND be paid a basic minimum salary.

This exemption is usually pretty clear cut, but it does have two sides to it: the artistic and the learned.

In order to qualify as any type of artist, you must be given no more than the subject matter of your work. That is, if you are told the details of what to draw or write, you will not be exempt. As such, highly skilled artitst that work as cartoonist, computer animators, and industrial artist are all entitled to overtime.

Most people who qualify for the learned side of the exemption hold some type of license to practice — that is, doctors, lawyers, CPAs, professional engineers, etc. In general, computer programmers do not qualify as professionals under this exemption as there is no requirement for any type of degree in order to enter the profession.

Off the Clock Work

“Off the Clock” violations typically occur when labor is performed and not properly recorded.  This can include construction workers who show up to the company shop to load tools or equipment and then travel to a job site.  In this example, workers may not receive pay until they arrive at a job site and their work hours begin there.  It can also include retail or restaurant workers who perform cleaning, set up work, or even have to go through security clearance or to change into work clothing and then clock into work.

We urge you to consult an attorney in these situations.

Independent Contractors

The classification of workers as “Independent Contractors” is widespread.  Who would not like to avoid paying payroll taxes, possibly paying workers by the job or by the day without having to keep track of their hours or pay overtime.  At its essence, the use of Independent Contractors is a way to shift all of the responsibility an employer has plus some of the risk to a worker.

One may think that the determination of when someone is an independent contractor or employee is complex.   However, the first inquiry is as simple as the saying “if it walks like a duck, quacks like a duck and swims like a duck, ITS A DUCK.”  By that we mean, before complicating the issue, look at it in its most basic form.  A Carpentry company who hires an electrician who has his own tools, a license and charges $95.00 an hour to come in and do 3 hours of wiring is an independent contractor.  That same Carpentry company that hires a worker to frame a house for a week or an open ended amount of time, has them do work under its license, and pays him $12.00 an hour with an admonition that he has to show up at 7:00 a.m. every day until the job is done does not have an independent contractor arrangement.

If a worker is an independent contractor rather than an employee, that worker is not entitled to overtime pay, Workers’ Compensation Insurance, California State Disability Insurance, Unemployment Insurance, or various other benefits. However, many employers say that their employees are independent contractors because they want to avoid wage and hour requirements, and pay less taxes and Workers’ Compensation Insurance Premiums. Just because your employer says that you are an independent contractor, (and even if you agree with your employer that you are an independent contractor), that does not mean that you are an independent contractor under California law.

Under California law, there is no clear-cut test for determining whether a worker is an employee or an independent contractor.  However, the presumption is that someone is an employee or not an independent contractor.   After this presumption there is no one simple test cannot cover all different types of occupations or arrangements. Instead, there is a list of factors that the judge or jury must consider in determining if someone is an employee or independent contractor.

Below is a list of factors that a judge is also supposed to consider in determining whether a worker is an employee or an independent contractor.

Answer Weighs towards independent contractor Questions Answer Weighs towards employee
NO DOES THE EMPLOYER CONTROL HOW THE WORK IS DONE? (this is the most important question) YES
Yes Is the worker is engaged in a distinct occupation or business? No
Yes Does the worker provide their own tools, equipment, and/or place of work? No
Yes Does the work being performed require a lot of specialized skill No
Short time Over how long a period of time are the services to be performed? Long time
No Is the work being performed part of the regular business of the employer? Yes
By the job Is the method of payment by the job or by salary/by the hour? Either by salary or by the hour
Independent contractor Do the parties believe they are creating an employee-employer relationship or a independent contractor-employer relationship Employee
No Is the work the type of work that is usually performed with supervision? Yes

The analysis above is from the California Supreme Court Case S.G. Borello & Sons v. Dept. of Industrial Relations (1989) 48 Cal.3d 341. It is presently the controlling law in the state of California.

Why it matters whether a worker is an employee or an independent contractor

Why it matters whether a worker is an employee or an independent contractor
The burden to prove that a worker is an independent contractor is on the employer. If the employer either cannot submit evidence sufficient to prove that it is more-likely than not that the worker is an independent contractor rather than an employee, or if after all the evidence Is submitted on both the employer’s side and on the employee’s side it is more-likely-than-not that the worker is an employee, then as a matter of law that the worker is an employee rather than an independent contractor.

Employees are legally entitled to the following benefits to which independent contractors are not.

  1. Workers’ Compensation insurance
  2. Unemployment insurance (so long as the worker was not working in the US illegally)
  3. Social Security benefits (so long as the worker was not working in the US illegally)
  4. California State Disability Insurance
  5. Legal remedies for workplace harassment and discrimination under the California Fair Employment and Housing Act and federal law
  6. Health and safety protections under Cal-OSHA.