California AB 10: New Computer Professional Overtime Law Takes Effect Immediately

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ICon Professional Services, a national company specializing in Independent Contractor compliance, today announced the release of comprehensive updates and information regarding major provisions of the California Assembly Bill 10 (AB 10) signed into law on September 30, 2008 by Governor Arnold Schwarzenegger.

) to a disjunctive requirement (...systems analysis, programming or software engineering

ICon Professional Services, a national company specializing in Independent Contractor compliance, today announced the release of comprehensive updates and information regarding major provisions of the California Assembly Bill 10 (AB 10) signed into law on September 30, 2008 by Governor Arnold Schwarzenegger.

The new law, which takes effect immediately, amends existing overtime exemptions contained in Section 515.5 of the California Labor Code for computer professionals in two primary areas; employee duties and compensation.

Who is Impacted?

Data released from the U.S. Department of Labor estimates nearly 220,000 computer professionals employed in California may be entitled to overtime unless specifically exempted by Section 515.5 of the California Labor Code. Unfortunately, variations in state, federal and compatibility between state lines has resulted in increasingly restrictive definitions of exemption eligibility -- and a corresponding increase in lawsuits -- in recent years.

AB 10 Amendments

A Long-Tail Test

Employers conducting business in the state of California are familiar with the numerous, complex and often time consuming requirements contained in the labor code. Prior to the enactment of AB 10, all of the following were required for the computer professional exemption:

1. The employee had to be engaged in work that was intellectual, creative and required discretion and independent judgment.

2. Primarily engaged in duties consisting of one or more of the following:

     A. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.

     B. The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

     C. The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

3. Highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

4. The employee receives $36.00 per hour or “the annualized full-time salary equivalent of that rate, provided that all other requirements of this section are met and that in each workweek the employee receives not less than thirty-six dollars ($36.00) per hour worked."

Each of the former provisions remain in effect with minor yet important modifications including:

Duties Modified Under Cal. Labor Code § 515.5(1)-(3)

Item number 3 has been changed from a conjunctive requirement (...systems analysis, programming and software engineering”) to a disjunctive requirement (...systems analysis, programming or software engineering”) thereby increasing the number of computer professionals eligible for overtime exemption than allowed under the prior interpretation.

Compensation Modified Cal. Labor Code § 515.5(4)

Item number 4 is now clarified to exempt computer professionals paid an annual salary of $75,000 or greater, or at a rate of at least $6,350 per month rather than the more restrictive prior interpretation which resulted in elimination of exemption status based upon overtime pay which resulted in a rate of less than $36 per hour. This dramatically streamlines the recordkeeping process and reduces the risk of potential lawsuits arising from employees which worked more than 40 hours in one week causing the hourly compensation rate to drop below the $36 per hour level. Effective immediately, computer professionals may be exempt from overtime if they earn $36 per hour or an annual salary of $75,000 (or greater) for full-time employment paid in monthly amounts of not less than 1/12th the annual salary.

Additional Benefits

In addition to expanding the current definition of overtime exempt computer professionals and providing much needed clarification to wage guidelines, AB 10 reduces administrative burdens since employers are no longer required to maintain hourly time records for salaried computer professionals.

Clarifications Still Required

Although AB 10 is a much needed step in the right direction, the California exemption laws still contain problematic definitions and other requirements eliminated by the Federal Department of Labor and most other state provisions including:

  • Requirements for ambiguous and difficult to define “intellectual or creative” primary duties.
  • Designation of software or hardware related to “computer operating systems” versus the more inclusive federal law related to “machine operating systems”.
  • Determination regarding pending wage and hour lawsuits.
  • Treatment of extra compensation including stock options, bonus, profit sharing or other incentives paid in equal monthly installments.

Communicating Changes

California computer professionals most likely to be impacted by the AB 10 changes may not be uniformly pleased by the prospect of annual versus hourly compensation arrangements. Advance notification and proper communication is essential to ensuring the transition is orderly and acceptable to all parties involved. Workers formerly entitled to overtime may find newly implemented revisions confusing especially in situations where overtime amounted to a large portion of earnings. Clarification of existing contracts likely to be impacted by AB 10 should be systematically evaluated and explained in a timely manner.

About ICon Professional Services:
ICon Professional Services is a leading national Human Resource Outsourcing firm specializing in the management of Independent Contractors and Contingent Workforces. Through its web-based application, ICon ensures that its clients are in compliance with tax rules for independent contractors, providing advice on employee classification guidelines, IRS audit support, tax reporting, invoice submission, and other services. These combined services protect clients from costly fines and penalties for misclassification of workers, by applying expertise that cuts through the complexities of government guidelines. Additionally, ICon offers outsourced payroll and benefits administration for certain classes of workers, including non-independent contractors, former employees and company sourced workers.

To learn more visit: http://www.icontract.com or call us at 1(800) ICON YES

This press release was distributed through eMediawire by Human Resources Marketer (HR Marketer: http://www.HRmarketer.com) on behalf of the company listed above.

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