As explained in various posts on this blog, California employees are presumed to deserve overtime pay for any hours worked over 40 in one week or 8 in one day, even if they are paid a salary, unless the employer can prove that an exemption to that rule applies.

The "computer software professionals" exemption is rarely used successfully by employers in overtime cases and such employees are usually non-exempt employees.

One of the reasons that this exemption is so rare is that the employee must make at least $49.77 per hour (adjusted for inflation each year), which based on a 40-hour week translates to $103,521.60 per year.

California just made the unprecedented decision to dramatically lower this threshold to $36 per hour, or $74,880 per year based on a 40-hour week, effective January 1, 2008.

This exemption will still be difficult for employers to satisfy, because most of these employees do not work a 40-hour week, so the $36 per hour threshold will still be unsatisfied if the employee is not paid a substantial amount of money.

For example, if an employee is paid a salary of $90,000 per year, but works 50 hours per week, the employee is essentially only being paid $34.62 per hour, so the exemption would not apply. In this example, the employee would have a substantial (and relatively simple) case for unpaid overtime.

As a basic rule of thumb, if you are a computer professional in California being paid a salary and working overtime, your employer likely owes you some unpaid overtime and you should contact an attorney as soon as possible to learn what rights you have.

Q: My employer pays me at one rate of pay for my regular work, but then pays me minimum wage for travel and attending seminars after-hours. How is my overtime supposed to be calculated?

--Bad at Math (CA)

A: Calculating overtime for an hourly employee who is paid at two separate hourly rates is a fairly complicated analysis and does not come up very often, but hopefully the explanation below makes some sense to you. If you need more help understanding the calculation, please feel free to contact me.

Introduction to the "Regular Rate" (versus the "Base Rate")

An employee's "regular rate" of pay is a legal term for the number used to calculate their "overtime rate" of pay, which is either 1.5 or 2 times the "regular rate," depending on how many hours are worked.

What I call the "base rate" of compensation is the typical rate at which you are paid in a regular day, week or hour of work, whether at an hourly rate, salary, commissions, etc.

Some people get confused by the term "regular rate" and mistake it as a synonym for what I call the "base rate". However, the "regular rate" is only used to calculate the "overtime rate". It really has no other purpose and often bears little resemblance to an employee's actual "regular wages".

In fact, the "regular rate" can often differ greatly from the "base rate," as explained below.

Calculation of "Regular Rate" for Hourly Employees

For hourly employees, the "regular rate" is determined by taking all of the money an employee is paid in any given week and dividing it by the total number of hours worked that week.

The Usual Situation

Hourly employees are usually paid just a straight hourly rate for their "base rate". So, for most hourly employees their "regular rate" is the same as their "base rate".

• Employee is Paid $15 per hour ("base rate")
• ($15/hr X 45 hours=$675)/45=$15 ("regular rate")

For purposes of this example, we will assume that he employee worked 40 regular hours and 5 overtime hours. To calculate overtime pay, the "regular rate" is multiplied by 1.5 to determine the "overtime rate", which in this example would be $22.50.

The most common way to calculate overtime in this situation is to multiply the "base rate" by 40 hours to get the employee's "regular pay" ($600), multiply the "overtime rate" by 5 to get their "overtime pay" ($112.50), and add the two figures together ($712.50) to calculate the wages owed.

However, this is not technically correct, because what the law says is that the employee is entitled to additional "premium pay" for overtime hours worked. So really the way this should be calculated is to multiply the number of hours worked by the "base rate" ($675) and then multiply the 5 overtime hours by the difference between the "overtime rate" and the "regular rate" ($7.50) to determine the additional "premium pay" owed and add the two figures together ($712.50) to calculate the wages owed.

The reason you must subtract the "base rate" from the "overtime rate" is because the employee has already been compensated partially for the overtime hours worked at the "base rate".

While both methods seem to work in this example, the reason the longer version is correct becomes apparent from the next example.

The Complicated Situation

When an employee is paid at two different hourly rates for different tasks, the employer must calculate the "regular rate" using a "weighted average" of the different hourly rates.

Using the same example above, assume that the employee is paid $10 per hour for time spent doing janitorial duties at a retail sales job and that the first 40 hours of the week were spent doing sales work at $15 per hour and the last 5 were spent doing janitorial work.

First, calculate the "regular rate," which is done the same as above--by adding all of the money earned by that employee for the week and dividing it by the number of hours worked:

• [($10/hr X 5 hours=$50)+($15/hr X 40 hours=$600)]/45=$14.44

Second, calculate the "overtime rate" by multiplying the "regular rate" by 1.5 ($21.67). Finally, calculate the "overtime pay" by taking the difference between the "overtime rate" ($21.67) and the "base rate" for the overtime hours ($10.00) and multiply that number ($11.67) by the number of overtime hours worked (5) to determine the additional "premium pay" owed ($58.35).

The total pay for this week should be $708.35.

Again, I know this analysis is complicated, but if you have any questions about whether you are being paid overtime correctly, you should contact an employment law attorney.

Yesterday, it was reported that Wal-Mart had reached a settlement with the Department of Labor to settle unpaid overtime claims by its employees.

The odd thing about this settlement is that Wal-Mart turned itself in to the Department of Labor and negotiated a quick settlement with the government and the employees had no say in what they settled for.

Apparently, the settlement included absolutely NO penalties, NO interest and it is unclear whether the employees are even getting anywhere near what they are actually owed in unpaid overtime.

A case where an employer admits they broke the law and turns themselves in for it would usually be an easy case to win. Also, federal law allows courts to double the amount of overtime wages due as a penalty for not paying those wages in the first place. It looks as though these employees are actually receiving less than half of what they are owed.

The California labor commissioner is now apparently negotiating with Wal-Mart to settle overtime claims against the company under California law. It would be in these employees' best interest to seek out their own personal legal counsel so that they get every penny they deserve.

Thank you to Wake Up Wal-Mart for the additional information.

Although this series on commissioned salespeople and overtime might not be the most exciting employment law topic, for those with large unpaid claims, it probably is the most exciting. I leave this topic with the following points.

Minimum Wage Test

The final test that must be met before commissioned salespeople can be considered "exempt" from overtime wages is the "minimum wage" test.

Each week a commissioned salesperson must make at least 1.5 times the California minimum wage. Otherwise, they are automatically considered non-exempt for that week.

For employees with low "base" pay or those who are paid 100% commission, this puts the unwelcome burden on employers of paying overtime to those salespeople who are not very good at their job and do not make any commissions for the week.

However, many employers simply pay a "base" rate of 1.5 times the minimum wage to stop this from happening in the first place.

Must Actually "Sell"

Some employees have "sales support" positions. They are the ones who actually install the product or provide technical support for the salespeople but do not actually "sell" to the customer.

This probably should just go without saying, but in order to be classified as "exempt" for being a commissioned salesperson, you actually have to be "selling" something.

Common Misclassifications in California

Some of the professions that are most often misclassified include the following groups:

• Financial Planners
• Stock Brokers
• Mortgage Brokers
• Other Financial Industry Salespeople
• Those who provide "sales support" but do not actually sell, and
• Commercial Equipment Salespeople

If you belong to one of these professions, you very well may have a large unpaid wages claim to pursue!

Even if you meet the criteria to be classified as "exempt" from overtime pay as a commissioned salesperson, the business your employer is engaged in can also automatically qualify you for overtime, regardless of how you are paid.

Commissioned salespeople can only be "exempt" if their employer is a "retail or service establishment". Whether your employer qualifies is very complicated and there might not even be a straight answer.

Basically it comes down to the question of whether what your employer sells is often sold at "retail". This is opposed to "wholesale," although that does not shed much light on things, either.

The basic test (to which there are many exceptions) is whether the type of product your employer is selling is something sold to the general public, as opposed to other businesses.

One of the best examples from my own experience is a client who sold those self-checkout kiosks you see in grocery stores, Home Depot, etc. This was all his company sold, so this was pretty much a "slam dunk" that his employer was not a "retail or service establishment" and he had overtime claims exceeding $100,000 per year.

An example from the other extreme would be electronics salespeople in stores like Best Buy or Circuit City. These salespeople really only sell to the general public, so their employer clearly is a "retail or service establishment".

In order for an employee to qualify as "exempt" from overtime pay as a commissioned salesperson, the main test that must be met is the employee MUST make more than 50% of their wages in the form of "commissions". This test is not as straightforward as it might sound at first.

What are "commissions"?

Many employees receive what their employers call "commissions" as part of their wages each pay period, but few give thought to what this term actually means.

Under California law the term has a specific definition. It means wages an employee receives that are calculated as a percentage of the purchase price of the good or service sold.

So, for example, if you receive a set amount of money for each item you sell, no matter how much you sell it for, these wages are NOT commissions under California law. These types of wages are considered along the lines of a "bonus" in California, not "commissions".

So, any wages an employer calls "commissions" that do not meet this test cannot be counted towards the 50% commissions threshold.

If a salesperson is paid a base amount plus these types of "commissions," that employee is almost certainly entitled to overtime pay.

How is the 50% measured?

It is not totally clear under California law what time period is used to measure whether an employee makes more than 50% in commission pay.

Arguably the measurement is week-to-week, so an employee may be considered "exempt" one week and "non-exempt" the next.

The representative period likely depends on the sales-cycle of a particular industry, but if your commissions dramatically go up and down from one pay period to the next, there is at least a strong argument that you are owed at least some unpaid overtime.

Hopefully you are starting to see how complicated this exemption can get and how it can be very difficult for employers to squeeze their salespeople into its parameters.

This is the first in a series of posts dealing specifically with the issue of commissioned salespeople and unpaid overtime. This is an area most employees, many employers, and even a large percentage of California attorneys do not understand correctly.

Top salespeople often make a very comfortable living and never even think about whether they are legally entitled to overtime pay.

Usually only salespeople who are wrongfully terminated or seek legal advice for other reasons ever recover these amounts because a lawyer tells them about their claims.

If you are a salesperson, these posts are required reading, because you might be getting cheated out of some very substantial amounts of wages, regardless of how much money you are making in regular wages.

"Commissioned" DOES NOT Equal "Exempt"

Many salespeople assume because they are "commissioned" they are not entitled to overtime. However, whether or not a salesperson is truly "commissioned" is determined by a complicated legal analysis.

Further, even if a salesperson is "commissioned," this is only one of many requirements that must be met before an employer can treat an employee as truly "exempt" from overtime pay.

Hopefully this series will help some of these employees realize their current (or former) employers owe them some substantial wages that might be worth pursuing.

"I make a good living--why should I care about getting overtime, too?"

For those who have not been following this blog, it would be helpful for you to review my earlier posts on common mistakes employers make in calculating the rate of overtime pay and the number of overtime hours worked to see just how much money might be owed.

It is not unheard of for salespeople to be owed hundreds of thousands of dollars if they work enough overtime, make enough money in regular wages and have worked for their employer long enough.

These employees are getting cheated out of their wages either because their employers are ignorant of the law or the employers are happily pocketing these extra wages because the employees do not know their rights. Either way, the employees are legally entitled to these earned, but unpaid wages.

The next few posts will deal with determining whether or not a salesperson is entitled to unpaid overtime wages. In my experience, many of them are.

Employers and employees are often confused about how many hours an employee must work before overtime must be paid. California law is more complicated than most states on this point, but it is also much more generous to employees than most.

Employers must pay all non-exempt employees overtime at the rate of time-and-one-half for all hours worked:

1) Over 40 in one week,

2) Over 8 in one day, and

3) For hours 1-8 on the seventh-consecutive workday in a workweek.

Employers also must pay employees double time for all hours worked:

1) Over 12 in one day, and

2) Over 8 on the seventh-consecutive workday.

The math can get a little tricky here, which is where many employers violate the law and over time these "little" mistakes, such as ignoring double-time pay for certain hours, can add up to "big" liability.

There is an exception to this rule for "make up time". If an employee wishes to miss part of one day of work and then "make it up" the next day or later in the week, these hours do not count as overtime even if they are more than 8 in one day.

However, permission to "make up" time must be requested in writing before-the-fact and an employer cannot coerce an employee into making such a request.

Employers, either through ignorance or intentionally, often make big mistakes in calculating overtime rates of pay for their employees and these often turn into big claims by the employees for unpaid wages later on.

Overtime Rate NOT Just 1.5 Times Hourly Rate

To calculate an employee's "overtime rate" of pay, you first have to calculate their "regular rate" of pay, which is the number multiplied by 1.5 to get an "overtime rate".

Most employers do not include commissions, bonuses and other additional money an employer earns in calculating the employee's "regular rate" for overtime purposes.  Employers usually just take the employee's hourly rate, multiply it by 1.5 and use that as the overtime rate.

However, under California law the "regular rate" is generally calculated by taking all of an employee's regular wages (hourly pay, salary, bonuses, commissions, etc.) earned in a given week and dividing it by 40.  The overtime rate is then multiplied by 1.5.

This can make a very big difference in how much money an employee gets paid in overtime.

An Example

Assume a salesperson makes $24 per hour as a "base", makes an additional $1,000 per week in commissions and works 20 hours of overtime each week.

This person's employer most likely calculates his overtime pay by taking his hourly rate ($24) and multiplying it by 1.5 to arrive at an overtime rate of $36 per hour.  This equals $720 of overtime pay each week, or $37,440 per year.

What the employer should do is take the regular hourly pay for the week ($24 X 40 hours=$960) and add it to the commissions earned ($1,000) to arrive at the total weekly pay ($1,960).  This number should then be divided by 40 to arrive at a "regular rate" of $49.  This is multiplied by 1.5 for an overtime rate of $73.50 per hour.  This means the employee should be receiving $1,470 of overtime pay each week, or $76,440 per year.

So, each year this employer is getting away with paying the employee $39,000 less than he is legally entitled to!  Employees in California are entitled to recover up to four years of unpaid wages, which in this case equals roughly  $156,000.

Assuming there are ten such salespeople working for a company, this quickly adds up to over $1.5 Million over four years.

Defense attorneys for large corporations in California have been trumpeting the case of In re Farmers Ins. Exch., 466 F.3d 853 (9th Cir. 2006) for the proposition that insurance claims adjusters are now exempt employees who are not entitled to overtime pay. However, this is not true when it comes to employees in California.

Case Brought in Oregon

Although the case is a 9th Circuit opinion, the case was brought in Oregon. Sometimes in California we forget that there are other states in the 9th Circuit besides us. As it happens, none of the Plaintiffs had a connection to California.

Case Decided Under Federal Law

This case was not only brought in another state, but also under federal (not state) overtime laws.

In 2004, the Bush Administration's Department of Labor issued new federal overtime regulations that were very anti-employee, resulting in many employees being re-classified as exempt from overtime pay.

Under these new laws, the employees who brought the In re Farmers Ins. case lost their case.

Ruling Does Not Effect California Employees

For virtually all intents and purposes, the In re Farmers Ins. case (and the 2004 change in federal law) does not affect the rights of California employees to overtime pay.

This is because California law is much more employee-friendly when it comes to guaranteeing overtime for most employees. Many employees who would be considered exempt under federal law are clearly non-exempt under California law.

The case of Bell v. Farmers Ins. Exchange, 115 Cal.App.4th 715 (2004) came to the opposite conclusion as the Court in In re Farmers Ins. While the defendant in both cases was actually the same company, the Bell case was decided based on California law (not federal).

So, in California insurance claims adjusters (and most other employees) are still entitled to overtime pay, despite what you may have read elsewhere.

On January 1, 2007, California increased its minimum wage from $6.75 to $7.50 per hour.

Putting aside the fact that an extra 75 cents for each hour worked really has no effect on people's lives (just $1,560 per year before taxes), there are some "side effects" of this increase employees should be aware of.

Background

Under California law, the presumption is that all employees must receive overtime pay at 1.5 times their hourly rate. There are "exemptions" to this rule for employees who do certain jobs, such as managers, administrators, some commissioned salespeople and some professionals.

However, the "duties test" (what an employee actually does at work) is only one element that MUST be satisfied to determine if an employee is supposed to receive overtime.

The other major test that MUST be satisfied is the "salary basis" test. This test is two-fold. First, an employee must be paid on a salary basis, meaning they receive a set amount of pay each week no matter how many hours they work.

The "Side Effect"

The second part of the "salary basis" test is the main point of this post. An employee MUST receive twice the minimum wage to be exempt from overtime pay. Commissioned salespeople MUST receive 1.5 times minimum wage to be exempt. If this criteria is not met, these employees are automatically entitled to overtime pay.

Under prior law, employees had to receive $28,080 per year to be exempt (twice the minimum wage ($13.50) X 40 hours X 52 weeks), but now that number has risen to $31,200.

So, all employers who simply pay their employees a flat salary of $30,000 per year suddenly have employees who should be (and are not) receiving overtime pay as of January 1, 2007.

Many employers may not realize the "side effect" of this change in California law and they might not even know that the exemption is tied to the minimum wage in the first place.

Overtime pay is a legal entitlement--NOT a fringe benefit. If you do not meet the criteria for overtime exemption and do not receive overtime pay, you should do something about it.