Amendments to Labor Code Section 226 Clarify Itemized Wage Statement Requirements Welcome Relief to California’s High Tech Industry and Other Responsible Employers


On July 22, 2016, Governor Brown approved Assembly Bill 2535 (AB 2535) to amend California Labor Code section 226. The amendment incorporates a much-needed clarification regarding the statute’s current requirement that an employer include hours worked on itemized wage statements for all employees except “any employee whose compensation is solely based on salary and who is 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 many overbroad employment laws they endure in California – this not track with the reality of the common and fair practices of a majority of California employers. The long-standing practice of California employers has been to track  hours of only non-exempt employees paid on an hourly basis – not exempt employees paid on a salary basis.  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 new 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.

The amendment also includes four other applicable situations to expand the scope of the new law, but suffice is to say here AB 2535 has cast a wide net to adequately protect the already equitable practices of most business in California, especially by recognizing the volume of properly exempt outside salespersons and computer software professionals toiling in the Golden State for responsible employers.  As such, this amendment, which takes effect January 1, 2017, should prevent unnecessary and costly litigation and bogging down of the already impacted California Division of Labor  Standards Enforcement (DLSE) by clarifying  ambiguities in the statute and aligning the law with otherwise just and actual business practices in California.