The time period for the California Supreme Court to grant review of Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), has expired without review being granted. This is mixed news for employers, as the result in Arechiga, while favorable to employers, does not resolve the questions posed by the Court of Appeal’s decision.

In Arechiga, the court concluded that an employer can include overtime in a fixed salary amount. The court found that each of the requirements for doing so under older California case law was met as the employer had, before the work at issue was performed, specified: (1) the days that the employee would work each week; (2) the number of hours the employee would work each day; (3) the specific amount of the guaranteed salary; (4) the hourly rate on which the salary was based; and (5) that the salary covered both regular and overtime hours.

That seemingly simple proposition was not easily reconciled with section 515(d) of the California Labor Code. Section 515(d) was passed after the older case law on which the Court of Appeal relied in Arechiga. Section 515(d) states that the hourly rate of a non-exempt employee who is paid a salary is calculated by dividing the salary by forty. That formula does not seem to leave room to build overtime into a salary.

In addition to the issues posed under state law by including overtime in a salary, employers need to be mindful of other issues under both federal and California law. Under federal and California law, an employer must always pay overtime when an employee exceeds the number of overtime hours built into the salary. More important, under federal law, an employer can include a guarantee of overtime hours in a salary only where all of the many requirements for a “Belo” plan are met. The many detailed requirements for a Belo plan should be reviewed by an employer before implementing such a plan.

It may be best to think of the result in Arichega as no more than an arithmetic shorthand for telling an employee what the employee would earn if and only if the employee actually worked a schedule that included a regular number of overtime hours of work. Advising employees of their hourly rates and paying non-exempt employees by the hour will always be a more secure option in California.

Photo credit: Christian Baitg