Over the past few months, I have received quite a few calls where employers told me that they assumed their salaried employees were automatically exempt and therefore, not entitled to overtime or other statutory benefits due to nonexempt employees. This is not a good assumption. The confusion may arise because of the theory that a yearly salary, which usually exceeds a year’s worth of minimum wage by a substantial amount, sufficiently compensates the employee for any overtime. However, the Court of Appeal has held that under Labor Code section 510, “Absent an explicit, mutual wage agreement, a fixed salary does not serve to compensate an employee for the number of hours worked [pursuant to] statutory overtime requirements.” (Hernandez v. Mendoza (1988) 199 Cal.App.3d 721.) In other words, a weekly salary usually compensates the employee only for the standard forty-hour workweek rather than all hours worked in a week.

In apply the foregoing, the Court of Appeal held that an employment agreement for $300 a week served only to set the rate of pay for a standard forty-hour workweek, which works out to $7.50/hour. The employee worked significantly more than forty hours and should have been paid overtime for those excess hours using $7.50 as the regular rate of pay.

The Court of Appeal’s decision is particularly important for employers who do not require salaried employees to clock in and out because the Court of Appeal ruled in favor of the employee despite the employee’s inability to show the actual hours worked. The United States Supreme Court held that where the employer has failed to keep records required by statute, the consequences for such failure should fall on the employer, not the employee. “In such a situation, imprecise evidence by the employee can provide a sufficient basis for damages.” (Id. at 727.) This means that the employee can claim any amount of overtime and the employer must demonstrate that the employee did not actually work those hours, which becomes almost impossible if the employer did not bother to make the employ clock in and out. Lesson – have your employees clock in and out!