Labor Employment Law Blog

On September 30, 2008, Governor Schwarzenegger approved AB 10, which amends the computer software employee exemption from California’s overtime pay requirements.  The bill, which is codified in Section 515.5 of the California Labor Code, is urgency legislation that will take effect immediately.  As amended, Section 515.5 will permit California employers to pay certain computer software employees either $36.00 per hour or an annual salary of $75,000 to satisfy the compensation component of the exemption.  Significantly, the amendment eliminates the prior requirement that even salaried employees receive not less than $36.00 per hour for all hours worked during each week, which effectively required tracking of these salaried computer professionals’ hours.  Under the amended law, employers who choose to pay their computer professionals the requisite salary of $75,000 per year are not required to track those employees’ hours.

California Labor Code Section 515.5 provides that employees in the computer software field who perform specific computer-related duties are exempt from the overtime requirements in Labor Code Section 510. In addition to a duties test, computer professionals must earn a statutorily specified minimum pay rate to be considered exempt. When Labor Code Section 515.5 was initially enacted, an employee had to earn at least $41.00 per hour to meet the exemption. Since its enactment, the Division of Labor Statistics and Research ("DLSR") has adjusted the rate on October 1 of each year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers. This adjustment has resulted in an increase in the hourly rate every year.  As of January 1, 2007, the minimum rate for the exemption was $49.77 per hour.