Governor Signs Bill Eliminating Requirement to Track Hours Worked by Exempt "Computer Professional" Employees

October 1, 2008

Summary

Yesterday Governor Schwarzenegger signed a bill that eliminates the requirement for employers to track the number of hours worked by full-time employees who qualify for the "computer professional" overtime exemption and who receive annual salaries of at least $75,000.

Details

Labor Code section 515.5 exempts from overtime requirements certain "computer professional" employees such as computer systems analysts, programmers, and software engineers.  The statute limits the exemption to those computer professional employees who satisfy a stringent "duties" test, regularly exercise discretion and independent judgment, and are paid at least $36 per hour.  The minimum hourly rate is adjusted on January 1 of each year to keep pace with inflation.

Prior to the new law, an employer had the option of paying a computer professional employee an annual salary in lieu of the minimum hourly rate.  However, if the employer chose to pay the employee a salary, the employer had to make sure that in each workweek, the salary received by the employee was equivalent to at least $36 per hour worked.  Thus, paying computer professional employees on a salary basis provided little benefit to employers, because they were still required to track the number of hours worked by the employees to make sure they received no less than $36 per hour worked.

Under the bill signed by the governor, an employer may still satisfy the compensation component of the exemption by paying an employee at least $36 per hour.  However, now an employer can also satisfy the compensation component by simply paying the employee an annual salary of at least $75,000 for full-time employment (which must be paid at least once a month in increments of not less than $6,250), regardless of the number of hours worked by the employee.  In other words, as long as an employer pays an exempt computer professional employee a salary of at least $75,000 per year, there is no longer any requirement to track the hours worked by the employee or to provide any overtime pay.  In these respects, the computer professional exemption is now much more like other overtime exemptions, and much easier to administer.

The amendment does not change the detailed "duties" test associated with the exemption.  The minimum annual salary of $75,000 will be adjusted, along with the minimum hourly rate, on January 1 of each year.  The bill was designated as an "urgency statute," so the amendment took effect immediately upon the governor’s signature. 

What This Means

Many employers have computer professional employees who satisfy the criteria for the exemption.  In the past, these employers may not have taken advantage of the exemption because of the onerous hour-tracking requirement.  Now that an employer can satisfy the compensation component of the exemption by simply paying a set annual salary without tracking hours, employers may wish to take another look to consider whether they might benefit from the exemption.

This E-Update was authored by Aaron Buckley.  For more information, please contact Mr. Buckley or any Paul Plevin attorney at (619) 237-5200.

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