In the late 1990s, the California Industrial Welfare Commission overhauled the rules for calculating California employees’ entitlement to overtime.

The “old” 8-hour day rule (first passed in 1911) — which said employees were entitled to overtime pay whenever they worked more than 8 hours in a day — was abandoned. The “new” rule imposed the 40-hour workweek as the benchmark. So long as an employee did not work more than 40 hours per week, overtime pay was not required regardless of the number of hours the employee worked during a given day. In 1999, the California Legislature did an about-face. Declaring that “the 8-hour workday is the mainstay of protection for California’s working people,” and linking “long work hours” to social ills such as the breakdown of the family and increased rates of accident and injury, the legislature passed AB 60, which largely restores the pre-1998 8-hour workday rule. The new law, dubbed the “8-hour Day Restoration & Workplace Flexibility Act of 1999,” takes effect on January 1, 2000.

Although the new law contains familiar provisions, it also contains important changes that will have a dramatic effect on the day-to-day lives, and wallets, of many California employees and employers. The new law is complex and open to differing legal interpretations. In the coming months, employers can expect clarification by the courts, the Industrial Welfare Commission, and the State Labor Commissioner. For now, this article summarizes the key provisions of the new law of interest to design professionals.

Overtime Pay Requirements As of January 1, 2000

Time-and-a-half

Under the new law, employees are entitled to receive time-and-a-half (1.5 times their hourly rate) for any of the following:

• Hours worked in excess of 8 hours in a single workday;
• Hours worked in excess of 40 hours in a single workweek;
• The first 8 hours on the seventh day of work in any given workweek.

Double-time
Employees are entitled to double-time (2 times their hourly rate) for any of the following:

• Hours worked in excess of 12 hours in a single day;
• Hours worked in excess of 8 hours on the seventh day of the workweek.

The new law does not apply to everyone. Importantly, three categories of employees are not covered by these rules:

• “Exempt” employees (discussed below);
• Employees working an approved alternative workweek (also discussed below);
• Union Employees with collective bargaining agreements that pay premium rates for overtime and at least 30% more than the state minimum wage.

Exempt Employees
Certain California employees have always been “exempt” from overtime pay and other wage and hour regulations. Whether an employee is exempt turns on two factors: the nature of their duties and the amount of their pay.

The duties test
Employees who perform work that is “primarily intellectual, managerial or creative,” and which requires the exercise of “discretion and independent judgment” are exempt. Essentially, this definition means executive, administrative or professional employees. Professionals, such as architects or other persons providing similar design services, are almost always considered exempt. Support staff, in contrast, are almost never considered exempt.

The salary test
Exempt employees must also be salaried — paid a guaranteed minimum amount for every week in which any work is done, regardless of the number of hours worked or the quality of the work. That salary can be reduced only for limited reasons, such as illness or vacation, and then only in full day increments. Exempt employees cannot be paid on an hourly basis.

Currently, the minimum salary requirement for exempt employees is between $900 and $1,150 per month (depending on the applicable wage order). Under the new law, the monthly salary requirement will go up and will be tied to the minimum wage. Exempt employees will be required to be paid at least twice the minimum wage for full time work (i.e., $1993.33 per month, $23,920 per year). As the minimum wage rises, so will the salary requirement for exempt employees. The salary change provisions of the new law will not take effect until after July 1, 2000.

Alternative Work Week Schedule

The new law has significant impact for employers wishing to provide employees with alternative workweek schedules. Under current law, with its 40-hour week focus, employees and employers are free to negotiate any alternative schedule so long as overtime is paid after the 40th hour of work. For example, currently an employer can require an employee to work three 13-hour days per week without paying overtime.

The new law places substantial restrictions on alternative workweek schedules. Employers may implement alternative workweek schedules only if two-thirds of the affected employees consent by secret ballot. After employees approve the alternative workweek schedule, they may “un-approve it,” thereby restoring the normal 5-day, 8-hour per day schedule, by another election with only a simple majority. All such election results must be reported to the California Division of Labor Statistics and Research.

The alternative workweek may be presented as a single schedule or a “menu of options” from which employees may choose. But, as detailed below, employers must still pay time-and-a-half if an employee works more than ten hours in a day. Also, employers must make reasonable efforts to accommodate employees who cannot, or who do not wish to, work the alternative schedule. The accommodation should not exceed 8 hours per day.

Under the new law, pay rates for alternative workweeks are determined as follows:

• Regular pay — workweek schedules of up to 10 hours per day within a 40-hour workweek do not require the payment of overtime.
• Time-and-a-half — employees who work in excess of 10 hours per day, but fewer than 12 hours in a single day, are entitled to time-and-a-half; so are employees who work more than 40 hours in a given work week or who are required to work on a day other than their regularly scheduled days.
• Double-time — employees who work more than 12 hours in a day on a regularly scheduled day are entitled to double-time for hours in excess of 12. Employees who work more than 8 hours in a day not regularly scheduled for that employee are entitled to double-time for hours in excess of 8.

The new law does contain a “grandfather clause” which provides that if an employee is already voluntarily working an alternative workweek schedule of not more than 10 hours a day, the employee may continue to work that alternative workweek schedule without being entitled to daily overtime if the employer approves a written request of the employee to do so.

The alternative workweek provisions of the new law are complex. Before you or your firm attempt to implement an alternative schedule, consult with an attorney or other employee benefits specialist. Failure to properly structure or implement an alternative schedule could lead to an invalidation of the schedule and civil monetary penalties.

Make-up Time

Under the current law, any short-term absence within a 7 day workweek can be “made-up” within that same period as long as overtime is paid after the 40th hour of work. Although the new law also recognizes the need of employers and employees for flexibility to occasionally work more than 8 hours on a given day without overtime implications, to make up for brief absences, it adds significant restrictions.

Under the new law, employees otherwise eligible for overtime after 8 hours may make-up lost time if the make-up time hours are worked in the same workweek in which the time was missed and the employee does not exceed 11 hours of work in one day or 40 hours of work in one workweek. In order to use the make-up time option, the employee must provide a signed written request and obtain the employer’s advance approval. Employers are prohibited from encouraging or otherwise soliciting employees to make such requests. Note: under the new law, employees working alternative schedules are ineligible to use the make-up time provisions.

Again, the new law’s provisions concerning make-up time are confusing and complex. Employers wishing to implement make-up time provisions should first consult with a qualified attorney or other employee benefits specialist.

Civil Penalties

Under current law, an employer that miscalculates an employee’s entitlement to overtime is potentially liable only for the difference between what it paid the employee and the pay to which the employee is entitled. There are no penalties. The new law imposes civil penalties on employers who violate overtime rules, even through an innocent error.

Employers will be liable for $50 per employee for each pay period for the first violation and $100 per employee of each period for all violations thereafter. Of course, the employer must also pay the lost or unpaid wages due to violations.

Conclusion

The 8-hour Day Restoration & Workplace Flexibility Act presents California employers with significant new administrative burdens and, for the first time, exposes them to monetary fines for innocent errors in calculating employee overtime. As with any new law, the devil is in the details. Employers would be well advised to consult their labor and employment counsel as to exactly how the new law will affect them and their employees.

Douglas Melton, ESQ is a senior associate at the law firm of Long & Levit LLP in its San Francisco office. Long & Levit LLP is internationally recognized for its expertise in advising and defending architects, engineers and other design professionals. Mr. Melton’s practice focuses on advising and defending employers concerning matters ranging from wage and hour laws to harassment and discrimination issues.