The California Labor Code mandates all employees (unless classified as ‘exempt’) are due overtime compensation for all time worked over 40 hours per week and or over 8 hours for each day worked. California employers must stay in compliance with the following Overtime Compensation rules:
- Payment of one and one half times the employee’s regular rate of 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 of work in a work week.
- Payment of time and one half the hourly rate over 8 hours per day. Payment of time and one half the hourly rate over 40 hours per week.
Mitigate risk: Using a modern time clock system, you should be able to rely on a product that automatically calculates or flags overtime for you. Do not rely on your employees to report overtime. There could be a number of reasons why they may fail to report it, but you are still legally responsible. In fact, if you show that you have taken concrete steps to automatically flag and calculate and pay overtime, it will go a long way in avoiding overtime claims. In other words, document and have an objective way to prove all employees hours for each day and pay period.
- Payment of double the hourly rate for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a work week.
Mitigate Risk: If employees are working long hours (regardless if on a temporary or on-going basis) California employers need to continually monitor employee hours and document overtime and make sure all overtime is properly paid pursuant to California Labor Code.
- Business owners may ask an employee to work overtime, however, you must ensure that the overtime is compensated using the above rules pursuant to the California Labor Code.
- California employers may set limits on employees working overtime (or to discourage it altogether.) However, employers should have a written policy that the employee acknowledges (signs), as well as posting the written policy in a general area (such as a break room) if applicable.
If an employee violates this policy, you must still compensate them for the overtime. However, you are allowed to discipline them. If you have warned the employee and they continue to violate the policy, you are allowed to terminate them for this. (As long as you appropriately compensate the overtime, of course.) If you are experiencing a problem employee you should consult a competent labor law attorney before taking any action to terminate that employee.
What about salaried employees?
Salaried employees can be ‘exempt’ from overtime rules, or ‘non-exempt.’ If they are not exempt from overtime rules, you need to pay overtime according to the California Labor Code.
What makes an employee exempt? To determine this, speak with an attorney to discuss an employee whose exemption status you want to verify, however, there is California Status or specific exemptions listed in the Industrial Welfare Commission Wage Orders.
What risks exist for employers?
If you fail to pay overtime compensation, you can be liable for the unpaid amounts, along with interest plus attorney fees and costs of your employee. If that employee is no longer with your company, you may also be liable for waiting period penalties (per Labor Code Section 203.) Furthermore, some disgruntled employees can exploit bad publicity against you.
It should go without saying that you or your managers should not retaliate or terminate an employee because they have complained about issues related to overtime pay (including bringing a lawsuit against you regarding overtime pay.) In some cases, proof that you retaliated can increase your liability and open the door for new legal problems. There are alternative solutions (which should be discussed with a business lawyer). The best cure, of course, is prevention.
This Article is part of our “Mitigating Wage & Hour Risk” series.
Here are the top 2 ways to avoid risk.