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What is a salary?

Many of the exemptions from the wage and hour laws require that the employee earn a “salary,” a term that is not defined in California law. The California Division of Labor Standards Enforcement construes the wage orders to incorporate the federal salary basis test, as explained in a March 1, 2002 opinion letter. The U.S. Department of Labor regulations state that an employee is paid on a salary basis if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” See 29 CFR section 541.602(a).

The Sixth District Court of Appeal recently addressed the concept in Negri v. Koning & Associates, Case No. H037804 (May 16, 2013). An insurance claims adjuster was paid $29 per hour with no minimum guarantee, but did not receive premium pay when he worked overtime. The employer claimed that he was salaried because he received an unvarying minimum amount of pay equivalent to $29 per hour for 40 hours. The court rejected the argument. Since the amount of pay was based on hours worked, it was not a predetermined amount.