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Amendment to Labor Code Section 226 Itemized Wage Statement Requirements Provides Welcome Relief – and some hope – to California’s High Tech Industry

8/22/16

By: Dennis Strazulo
On July 22, 2016, Governor Brown approved Assembly Bill 2535 (AB 2535) to amend California Labor Code section 226. The amendment provides much-needed narrowing of the statute’s current requirement that an employer include hours worked on itemized wage statements for all employees except those whose compensation is solely based on salary and who are exempt from payment of overtime.
A strict reading of LC section 226, as currently written, requires all exempt California employees earning a commission or a bonus to keep track of their time. Unfortunately – nothing new in the clash between employers and the many overbroad employment laws they endure in California – this requirement does not track with the common and fair practices of most California employers. The long-standing practice of California employers has been to track hours of only non-exempt, hourly employees – not exempt employees paid by salary. However, prior to AB2535, the wording of Labor Code section 226 left employers exposed to liability for penalties if a salaried-exempt employee received so much as a holiday bonus and the employee’s itemized wage statement did not reflect hours worked.
Under the amendment, only nonexempt employees and others who are paid according to hours worked are required to have their hours logged on their wage statements. AB 2535 amends Labor Code section 226 by adding section (j) which reads, in part:
“(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…”
AB 2535 casts a wide net to adequately protect the already equitable practices of most business in California by confirming exempt employees do not have to track their time. Despite this amendment, however, thousands of high tech employees in California remain technically misclassified as exempt from overtime under state and federal law, notwithstanding their six-figure salaries. These individuals are required to clock in and out, and take timely meal and rest breaks, pursuant to antiquated laws. Silicon Valley employers, in particular, can be hopeful Assembly Bill 2525 is a step in the right direction toward modifying wage and hour exemption laws to bring them in line with current business models. At the very least, however, this amendment to Labor Code section 226 should prevent bogging down the already impacted California labor board by aligning the law with otherwise just business practices of California employers.