Last year, the court in Arechiga v. Dolores Press approved an arrangement by which a nonexempt hourly employee could receive a fixed weekly salary that was intended to cover both regular and overtime wages for that workweek. The decision was enticing to California employers, but it was an unusual result, seemingly contrary to California Labor Code section 515 which would seem to discourage such arrangements.
Indeed, it was too good to be true. Governor Brown has now signed A.B. 2103, which amends Labor Code section 515 to specifically prohibit such fixed wage agreements. Effective January 1, 2013, any salary or fixed wage paid to a nonexempt employee shall be deemed to cover only regular wages, and may not purport to cover overtime as well. Any overtime must be calculated by dividing the salary by 40 (based on the California standard that a “work week” is 40 hours). The employee would then be entitled to one and one half times that hourly rate for all overtime worked (and applicable double time where appropriate).
For any employer that entered into such an agreement, the agreement should immediately be revoked for the new year. The employer should create a new payment arrangement that recognizes separate payments for regular wages and overtime. Employers also must ensure that employees’ pay stubs reflect their different rates of pay, and the hours worked at each rate.
California Labor Code section 226 contains the criteria for a valid paystub. Employers should review the statute and compare it to their paystub to ensure compliance. Employers also should not completely rely on their payroll service to ensure compliance with the law. Typically, the payroll service is not a “guarantor” for proper payment, and the payroll service will pay in accordance with whatever they are instructed to do by the employer, legal or otherwise.