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.

Employers who attempt to rely on this exemption should also understand a number of other important issues.  First, computer professionals who are paid on a salary basis must be paid at least once per month, in an amount of at least $6,250.00.  Section 515.5 also provides that the minimum hourly/salary requirements shall be adjusted for inflation on October 1st of each year (to take effect on January 1st of the following year), “by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers.”  It is not yet clear whether the amount necessary to satisfy the compensation component of this exemption will be increased before the end of the year.  Employers should therefore continue to monitor developments in this area. 


Second, it is important to understand that compensation alone does not determine whether an individual qualifies as an exempt computer software employee under Section 515.5.  Such employees must also satisfy the “duties test” that is contained in the statute.  If an employee does not satisfy all of the requirements of the exemption, the employer can be liable for unpaid overtime wages as well as possible penalties.  Accordingly, while many more computer employees may be classified as exempt as a result of the new amendment, employers classifying computer professionals as exempt must be careful to ensure that all criteria are met.