Assembly Bill 2103 amends Labor Code Section 515 to provide that payment of a fixed salary to a non-exempt employee can only be deemed to provide compensation for the employee's regular, non-overtime hours. Any private agreement to the contrary will be deemed unenforceable.

This bill does not preclude employers from entering into agreements to pay non-exempt employees on a salary basis as long as the employee is compensated at the proper rate for overtime work as required by law. Under California law, overtime wages must be paid to non-exempt employees for any hours worked after eight in one workday or after 40 in one work week. To determine the rate of pay for non-exempt, full-time salaried employees, employers should divide the employees' weekly pay by 40. Due to the stringent requirements regarding overtime payments in California, we recommend that employers review all non-exempt employee salary agreements to ensure compliance with the new legislation, which goes into effect on January 1, 2013.