CA Employers: Non-resident Overtime and New IRS Mileage Rate

Overtime Rules for Out-of-State Residents Working in California

California-based employers are frequently confused about the wage and hour laws that apply when it comes to their non-resident employees that work temporarily in California. Whether it concerns skilled employees or agricultural workers, the question of whether California’s overtime law should apply to non-residents for work performed within California for a California-based employer has finally been settled.

Recently, in Sullivan v. Oracle (6/30/11) — Cal.4th –, 2011 WL 2569530, the California Supreme Court considered whether non-resident employees working temporarily in California were entitled to overtime under California Labor Code Section 510 (a). Section 510 (a) provides that overtime at the rate of no less than one and one-half times the regular rate of pay must be paid to an employee for any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek.

After reasoning that the state has an interest in protecting the health and safety of all employees working in-state, the Sullivan Court ruled that California employers must pay out-of-state residents overtime according to California law rather than the overtime law of workers’ home states for work performed within California. The decision did not change existing overtime rules and left open the question of whether the California overtime law extends to non-California employers whose employees may occasionally perform work in California. However, the Court rejected the argument that California’s overtime law should also apply to non-residents’ work performed outside California for a California-based business.

In the future, the extension of the overtime rules to non-residents for work performed within the state may present some administrative and technical challenges concerning such matters as the contents of pay stubs, accrual of vacation, etc. In addition, the court’s decision left unanswered which of California’s other wage and hour laws apply, if any, to a non-resident employee for work performed within the state. These questions may be answered by future litigation and legislative developments.

Mileage Reimbursement

Pursuant to California Labor Code Section 2802, California employees must be reimbursed for their employment related expenses, including mileage for non-commuting travel (i.e. travel from job site to job site) if the employee is driving their own vehicle and the mileage is incurred in the discharge of the employee’s duties.

Although there is no California State approved mileage reimbursement rate, the California Division of Labor Standards Enforcement (DLSE) has determined employers may satisfy their obligation under Section 2802 to reimburse employees for all automobile-related expenses incurred by employees in the discharge of their duties at the IRS mileage rate. Effective July 1, 2011, the new IRS mileage rate is 55.5 cents a mile. Reimbursement at this rate will cover all reasonable operating costs incurred by employees using personal vehicles for business purposes, including gas, insurance, depreciation, etc.

Employers can find on the DLSE website the Division’s opinion letter (1993.02.22-3), and read the DLSE 2007 proposed regulatory changes to clarify that the IRS car expense is presumptively a reasonable rate for reimbursement of mileage. More information about the IRS’ mileage rate can be found on the IRS website.