BILL ANALYSIS Ó AB 2535 Page 1 Date of Hearing: April 20, 2016 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair AB 2535 (Ridley-Thomas) - As Proposed to be Amended April 20, 2016 SUBJECT: Employment: wages: itemized statements SUMMARY: Provides that itemized wage statements required under current law do not need to show total hours worked for specified exempt employees for whom employers are not required to track hours. Specifically, this bill provides than an itemized wage statement shall not be required to show total hours worked by the employee if: 1)The employee's compensation is solely based on salary and the employee is exempt from payment of overtime as specified; or 2)The employee is exempt from the payment of minimum wage and overtime under: a) A specified exemption for executive, administrative, or professional employees. b) A specified "outside sales" exemption. AB 2535 Page 2 c) A specified exemption for salaried computer professionals. d) A specified exemption for parents, spouses, children or legally adopted children of the employer provided in applicable orders of the Industrial Welfare Commission. e) A specified exemption for directors, staff and participants of a live-in alternative to incarceration rehabilitation program for substance abuse provided in Section 8002 of the Penal Code. f) A specified exemption for crew members employed on commercial passenger fishing boats provided in applicable orders of the Industrial Welfare Commission. g) A specified exemption for participants in national service programs provided in applicable orders of the Industrial Welfare Commission. EXISTING LAW requires an employer to provide his or her employee an accurate itemized statement in writing containing specified information, either semimonthly or at the time the employer pays the employee his or her wages. That specified information includes showing total hours worked by the employee, unless the employee's compensation is solely based on a salary and the employee is exempt from payment of overtime under a specified statute or any applicable order of the Industrial Welfare Commission. FISCAL EFFECT: Unknown AB 2535 Page 3 COMMENTS: Under current law, employers are required to provide workers with accurate itemized wage statements at the time of payment of wages. Labor Code Section 226 lists a number of required elements that must be included on the wage statement, including the total hours worked by the employee. However, current law provides that the wage statement does not need to include total hours worked if the employee's compensation is solely based on salary and the employee is exempt from payment of overtime under specified exemptions for executive, administrative, and professional employees. This bill is sponsored by the California Employment Law Council (CELC), who argues that, in addition to employees who are exempt and paid "solely based on salary," there are large numbers of employees in California who are completely exempt from overtime but who are not compensated solely by salary. For example, CELC states that certain salespersons exempt from overtime by wage orders of the Industrial Welfare Commission are typically compensated by salary and commissions, and top level management employees may be compensated by salary plus bonus, salary plus stock options or other similar arrangements. These employees do not record the number of hours they work so employers do not have a tally of the hours worked to include on their pay stubs. CELC contends that, if hours worked are irrelevant to an exempt employee's compensation, there is no reason to include that information on that employee's paystub. CELC states that this issue was raised in a recent 2015 federal court case, Garnett v. ADT, LLC. The issue raised in that case was the requirement to include total hours worked for outside salespersons, who are exempt from overtime under existing law. In part because the plaintiff was paid solely by commission, the court found that the exemption in Section 226 for recording AB 2535 Page 4 total hours worked did not apply. The judge noted in the decision: "While the usefulness of reporting total hours worked for employees paid solely by commission is not entirely clear, it is nonetheless required by Labor Code Section 226 (a)" (citations omitted). Therefore, this bill amends Labor Code 226 in a comprehensive manner to extend the exemption from listing hours worked to all employees who are exempt under specified provisions of existing law for whom employers are not required to track hours. In working with committee staff and stakeholders, this bill has been crafted to only apply to exempt employees, and the bill makes no changes to exempt/nonexempt classifications; an employer would remain liable for a Labor Code Section 226 violation for an employee misclassified as exempt. REGISTERED SUPPORT / OPPOSITION: Support California Alarm Association California Employment Law Council Opposition AB 2535 Page 5 None on file. Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091