BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: AB 2535 Hearing Date: June 8, 2016 ----------------------------------------------------------------- |Author: |Ridley-Thomas | |-----------+-----------------------------------------------------| |Version: |April 25, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Gideon Baum | | | | ----------------------------------------------------------------- Subject: Employment: wages: itemized statements KEY ISSUE Should the Legislature clarify wage stub reporting requirements for exempt employees? ANALYSIS Existing law: 1) 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. (Labor Code §226) 2) Provides that, if an employee suffers injury as a result AB 2535 (Ridley-Thomas) Page 2 of ? of a knowing and intentional failure by an employer to provide a wage stub, the employee is entitled to recover the greater of all actual damages or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney's fees. (Labor Code §226 (e)). 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. 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 AB 2535 (Ridley-Thomas) Page 3 of ? 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. COMMENTS 1. Need for this bill? 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. Proponents note that it has been longstanding practice by employers to not list hours worked for exempt employees, as exempt employees are not paid by the hour or eligible for overtime. For example, a CEO would likely be compensated on a salary basis, perhaps with the addition of a bonus and/or stock options. Since hours worked is not a relevant figure when calculating the CEO's wages, this information would be omitted from paystubs. However, in a recent 2015 federal court case, Garnett v. ADT, LLC, the court weighed in on if outside salespeople must have their total hours worked included. In part because the plaintiff was paid solely by commission, the court found that the exemption in Section 226 for recording total hours worked did not apply. The judge noted in the decision: "While the AB 2535 (Ridley-Thomas) Page 4 of ? 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). AB 2535 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. 2. Proponent Arguments : AB 2535 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 argues that AB 2535 will clarify existing law to reflect long-standing historical practice and ensure that employees are fairly paid and that employers do not face unnecessary litigation. 3. Opponent Arguments : None on file. 4. Prior Legislation : AB 2535 (Ridley-Thomas) Page 5 of ? AB 1513 (Williams), Chapter 754, Statutes of 2015, among other things, clarifies wage stub requirements for workers who are paid on a piece-rate basis. SUPPORT Associated Builders and Contractors of California Associated General Contractors California Alarm Association California Asian Pacific Chamber of Commerce California Building Industry Association California Business Properties Association California Chamber of Commerce California Construction and Industrial Materials Association California Cotton Ginners Association California Cotton Growers Association California Employment Law Council California Farm Bureau Federation California Fresh Fruit Association California Manufacturers and Technology Association California Newspaper Publishers Association California Restaurant Association California Retailers Association California State Council of the Society for Human Resource Management Civil Justice Association of California Civil Justice Association of California Family Business Association of California FarWest Equipment Dealers Association League of California Cities Nisei Farmers League Western Agricultural Processors Association Western Plant Health Association OPPOSITION -- END -- AB 2535 (Ridley-Thomas) Page 6 of ?