• State Labor Commissioner Clarifies "Salary Basis" Test
  • September 30, 2003
  • Law Firm: Hill, Farrer & Burrill LLP - Los Angeles Office
  • On March 1, 2002, State Labor Commissioner Arthur Lujan issued a letter to the State Industrial Welfare Commission clarifying the requirements for treating salaried employees as exempt from overtime pay under California law. In his letter, the Labor Commissioner confirmed that the "weekly salary basis" test applies to exempt employees under California law, consistent with the test used under the federal Fair Labor Standards Act. The letter rejected the "monthly salary basis test" adopted in state Division of Labor Standard Enforcement attorney Miles Locker's letter of May 2001, which generally would have required employers to pay employees their full monthly salary if they worked one day a month regardless of the quantity or quality of work performed.

    Under the "weekly basis" test confirmed in the March 1 letter, employees will be required to be paid their full salary for any week they perform work, with certain exceptions. Those exceptions allow for deductions from an exempt employee's salary for full-day absences for personal reasons, for a day or more pursuant to an employer's established sick pay policy, for intermittent leave under the federal Family Medical Leave Act or California Family Rights Act, or for work performed in the initial and terminal weeks of employment.

    Deductions are not permitted for partial days missed, jury or witness duty, disciplinary suspensions of less than a week, or partial week shutdowns. In addition, according to the Labor Commissioner, accrued vacation cannot be used for partial day absences or for full day absences caused by lack of work. However, if an entire week is missed, an employee's vacation account can be charged.

    It is important that these rules be complied with in order for the exempt status of administrative, executive and professional employees to be maintained. If they are not, then employees who would otherwise qualify for the exemptions from the state and federal overtime laws will be treated as non-exempt, and must be paid overtime for work performed in excess of eight hours a day and 40 a week. Because of the sharp increase in class action overtime cases brought on behalf of employees who contend that they are non-exempt in recent years, it is essential to periodically review your exempt classifications to make sure that the people you are treating as exempt truly qualify for the exemption. A periodic audit of your company's exempt positions, by an appropriate professional or consultant, is recommended in order to ensure compliance with these important laws.