Overtime laws in

California for
Computer
Professionals

Guide for in-house counsel

By
Karthik Kannappan S - Senior Corporate counsel
Madhusmita Borthakur – Researcher K.L.E. Society LAW
College, Bangalore

Copyright © 2009 The following material is provided for informational purposes only. Before taking any
action that could have legal or other important consequences speak with a qualified professional who can provide
guidance that considers your own unique circumstances. The author does not accept any responsibility or liability
whatsoever for loss damage or costs incurred or claimed in any manner as a consequence of any action or inaction
of any person or party based on this Report. Any use adaptation modification publication reproduction
redistribution or any other action that is in violation is strictly prohibited
 A. Introduction:
1. The Fair Labor Standards Act (“FLSA”) requires that employees receive overtime pay at the
rate of time and one-half for hours worked in excess of 40 hours per week. Some states have
enacted different rules with regards to overtime laws. Pursuant to the FLSA, employees are
generally exempt from overtime laws if they fall into one of the following “white-collar worker”
exemptions: (1) executive; (2) administrative; or (3) professional.
2. In California, three principal exemptions from overtime that potentially apply to IT, Computer
and other high-tech workers are the Administrative, Professional and/or Computer professional
exemption. The state’s administrative and professional exemptions are set forth in California
Wage Order1.

B. Compensation Requirement(for administrative, professional and computer

exemptions):
There is significant difference in the compensation requirements for three potential exemptions in
California.
1. The State administrative and professional exemptions require payment on a “salary basis” of
not less than twice the minimum wages for full time employment. Effective January 1, 2008,
the minimum wage in California shall be no less than $8 per hour2.
2. The computer exemption requires payment on an hourly basis at a minimum rate of $37.94
per hour, or annual salary of not less than $79,050 for full-time employment, and paid not less
than $6,587.50 per month3. This exemption requires accurate time records to ensure that the
compensation levels are met.

C. Administrative Exemption:
1. This exemption requires that the employee be primarily engaged in non-manual work directly
related to the management policies or general business operations of the employer or its
customers, i.e., the running of business rather than the production of the products or services
offered.
2. This exemption also requires that the employee customarily and regularly exercise discretion
and independent judgment (refer point F for explanation).
3. Example:
i. If an employee is concerned with the planning, scheduling, and co-ordination of activities
which are required to develop systems for processing data to obtain solutions to complex
business, scientific, or engineering problems of employer or customer then such employee
does work directly related to management policies or general business operations.
ii.Examples of work not requiring level of discretion and judgment contemplated by the
regulations are highly technical and mechanical operations such as the preparation of a
flow chart or diagram showing the order in which the computer must perform each
operation, the preparation of instructions to the console operator who runs the computer or
the actual running of the computer by the programmer, and the debugging of a program.

D. Professional Exemption:
1. The learned professional exemption requires that the employee be primarily engaged in work
requiring advanced knowledge in a field of science or learning that customarily acquired by a

1 Refer http://www.dir.ca.gov/IWC/WageOrders2005/IWCArticle9.html

2 Refer http://www.dir.ca.gov/iwc/MinimumWageHistory.htm and http://www.dir.ca.gov/IWC/

3 Refer http://www.dir.ca.gov/dlse/LC515-5.pdf
 prolonged course of specialized intellectual instruction. The regulation expressly cite
“engineering” as a field of science or learning and not
2. The work involved should primarily be in intellectual in nature and that requires the consistent
exercise of discretion and independent judgment (refer point F for explanation).

E. Computer software field Exemption4:

1. An employee in the computer software field is exempt if ALL of the following apply:
i. The employee’s hourly rate of pay is currently not less than thirty seven dollars and ninety
four cents effective from January 1, 2009 ($37.94 per hour5).
ii.The employee is primarily engaged in work that is intellectual or creative and that requires
the exercise of discretion and independent judgment (refer point F for explanation).
iii.The employee is primarily engaged in duties that consist of one or more of the following6:
a. The application of systems analysis techniques and procedures, including consulting with
users, to determine hardware, software, or system functional specifications.
b. The design, development, documentation, analysis, creation, testing, or modification of
computer systems or programs, including prototypes, based on and related to, u ser or
system de sign specifications.
c. The documentation, testing, creation, or modification of computer programs related to
the design of software or hardware for computer operating systems.
i. The employee is highly skilled and is proficient in the theoretical and practical application of
highly specialized information to computer systems analysis, programming, and software
engineering7.

2. Exclusions: The exemption for computer professionals does not apply to an employee if any
of the following apply8:
i. Entry level: The employee is a trainee or employee in an entry-level position who is
learning to become proficient in the theoretical and practical application of highly
specialized information to computer systems analysis programming, and software
engineering.
ii.Closely supervised: The employee is in a computer-related occupation but has not
attained the level of skill and expertise necessary to work independently and without close
supervision.
iii.Hardware-related: The employee is engaged in the operation of computers or in the
manufacture, repair, or maintenance of computer hardware and related equipment.
iv.Computer Aided Design work: The employee is an engineer, drafter, machinist, or other
professional whose work is highly dependent upon or facilitated by the use of computers
and computer software programs and who is skilled in computer-aided design software,

4 Refer Division of Labor Standards Enforcement Policies and Interpretations Manual available at
http://www.dir.ca.gov/dlse/DLSEManual/DLSEManual.zip

5 The hourly rate for 2009 has increased from $36 to $37.94. Refer http://www.dir.ca.gov/dlse/LC515-5.pdf For
2008 - Hourly Rate for the “Computer Exemption” – SB 929 reduced the hourly rate computer employees must
earn in 2008 to be exempt from California’s overtime requirements to $36 per hour ($74,880 per year) from
2007’s rate of $49.77 per hour ($103,521.60 per year). This rate will adjust each year based on the California
Consumer Price Index for Urban Wage Earners and Clerical Workers.

6 Refer Section 3 (h)(ii) of the Wage Orders

7 A job title shall not be determinative of the applicability of this exemption.

8 Refer Page 240-241 in Division of Labor Standards Enforcement Policies and Interpretations Manual
 including CAD/CAM, but who is not in a computer systems analysis or programming
occupation.
v.Technical writing: The employee is a writer engaged in writing material, including box
labels, product descriptions, documentation, promotional material, setup and installation
instructions, and other similar written information, either for print or for on screen media or
who writes or provides content material intended to be read by customers, subscribers, or
visitors to computer-related media such as the World Wide Web or CD-ROMs.
vi.Entertainment industry: The employee is engaged in creating imagery for effects used
in the motion picture, television, or theatrical industry.

B. Discretion and independent judgment (29 CFR 541.207)

“Discretion and independent judgment” means that the employee compares and evaluates
possible courses of conduct and then acts or makes a decision after he or she has considered the
various possibilities, such as
1. formulating policies;
2. carrying out major assignments;
3. committing employer in matters of significant financial impact;
4. negotiating on behalf of employer;
5. deciding whether to deviate from established policies and procedures without prior approval;
6. handling complaints and
7. resolving disputes.

A. Impact of non-compliance:
1. Back pay
2. Pre- and post-judgment interest (potentially)
3. Liquidated damages in an amount equal to the plaintiff's actual damages
4. Reasonable attorney's fees

B. Practical Tips for minimizing risk:

1. Perform a wage and hour audit of existing job classifications to determine where potential
sources of liability exist and reclassify any improperly classified positions.
2. Ensure no non-exempt employee perform additional hours without 2 level of approval.
3. Review job descriptions to ensure that they contain an accurate description of the skills
necessary to do the job and the actual job duties being performed by workers in that job
classification.
4. Confirm that all employees within a given job classification are performing the same or
substantially similar job duties.
5. Review compensation plans to confirm that draw payments meet the minimum salary
standards under any applicable exemptions and to confirm that draws are not subject to
impermissible deductions.
6. Establish and maintain adequate record keeping requirements to document the number of
hours non-exempt employees work.
7. Establish and maintain a policy prohibiting improper deductions and a procedure for the
prompt repayment of any inadvertent and/or impermissible deductions from wages.
8. Ensure that individuals who assert their rights under the Act are not subject to retaliation in
any form.

C. Conclusion:
In light of the above computer software professionals deployed onsite in California could be
qualified as exempt under various category viz., executive, administrative and computer
exemptions. Compliance team and human resource team of a company must work closely to
ensure compliance.