On July 22, 2015, Governor Brown signed AB 2535 that clarifies which employees for whom an employer must track hours worked and record those hours on their wage statements. The bill will become effective January 1, 2017.
Prior to this amendment, Labor Code section 226 required that an employee’s paystub include hours worked for all employees except individuals who are paid “solely” by salary and are “exempt from payment of overtime” under Labor Code section 515(a) or the governing wage order. As written, this seemed to require hours on the paystub for exempt outside sales people and executives who are not paid solely by salary but receive bonuses and stock options even though these employees do not record hours worked and hours worked is not a relevant figure when calculating their wages. In fact, in Garnett v. ADT, LLC, 139 F. Supp. 3d 1121 (2015), the district court held that exemption in Labor Code section 226 did not apply to exempt outside salespersons since they were paid solely by commission (and not salary) and, therefore, had to have their total hours worked included on their paystubs. The Garnett court noted in its decision that, “[w]hile the usefulness of reporting total hours worked for employees paid solely by commission is not entirely clear, it is nonetheless required by Labor Code Section 226 (a).”
AB 2535 amends Labor Code 226 by adding section (j) which reads:
(j) An itemized wage statement furnished by an employer pursuant to subdivision (a) shall not be required to show total hours worked by the employee if any of the following apply:
(1) The employee’s compensation is solely based on salary and the employee is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission.
(2) The employee is exempt from the payment of minimum wage and overtime under any of the following:
(A) The exemption for persons employed in an executive, administrative, or professional capacity provided in any applicable order of the Industrial Welfare Commission.
(B) The exemption for outside salespersons provided in any applicable order of the Industrial Welfare Commission.
(C) The overtime exemption for computer software professionals paid on a salaried basis provided in Section 515.5.
(D) The exemption for individuals who are the parent, spouse, child, or legally adopted child of the employer provided in any applicable order of the Industrial Welfare Commission.
(E) The exemption for participants, director, and staff of a live-in alternative to incarceration rehabilitation program with special focus on substance abusers provided in Section 8002 of the Penal Code.
(F) The exemption for any crew member employed on a commercial passenger fishing boat licensed pursuant to Article 5 (commencing with Section 7920) of Chapter 1 of Part 3 of Division 6 of the Fish and Game Code provided in any applicable order of the Industrial Welfare Commission.
(G) The exemption for any individual participating in a national service program provided in any applicable order of the Industrial Welfare Commission.
The bottom line is this amendment makes clear hours need not be reported for those who are exempt from overtime and whose pay is not determined in any way by hours worked.
Please do not hesitate to contact our office if you have any questions or concerns about this amendment and how it potentially impacts your business.