Since the passage of AB 60 (California's recent overtime law overhaul) in 1999, California employers have faced confusion over some of the overtime rules that apply to their employees. One area of particular concern in a slow economy is the "salary basis rule," which requires that an exempt employee be paid a monthly salary (equivalent to twice the minimum wage or more) that is not reduced based on the amount of time he or she works. Under federal law, a whole set of rules has developed over the years for dealing with the salary requirement. For example, if a manager works Monday, but not the rest of the week, she still is entitled to her full salary for the week. If you have a sick leave program, and a manager runs out of sick leave, you can deduct for a full day's absence for illness. But if you shut down your plant for a few days, you still have to pay exempt managers. On the other hand, if you shut down for a full week you can furlough everyone without pay - even those who are exempt. The reason is that federal law talks about a minimum salary per week. AB 60 gave California employers a salary requirement for the first time, but the salary is based on a minimum per month, not per week. In May of 2001, a highly placed official in the Division of Labor Standards Enforcement issued an opinion letter interpreting that to mean that a California exempt employee has to be paid for the entire month in which he or she works, even if she only works for an hour. That would have meant that a week-long plant shutdown would have no impact on exempt salaries. The employer would still have to pay all the exempt managers, administrators and professionals. This was a scary thought for most companies - how would it make non-exempt workers feel if they got laid off for a week while their supervisors kept getting paid? And what would it cost employers who need to shut down to save money and avoid longer term layoffs? After the opinion letter was issued, the Industrial Welfare Commission, which has responsibility for issuing regulations about working conditions, made it clear that the letter did not reflect its interpretation of the new overtime rules. The letter was withdrawn, and in October, 2001, the IWC changed one of the 17 Wage Orders (Wage Order 5, pertaining to hotels, restaurants and other public accommodations) to reflect the view that the weekly salary rule used by the Federal government would apply in California as well. The IWC's action only applies to Wage Order 5 so far, but it's expected that the IWC will hold hearings aimed at expanding the rule to all of the Wage Orders. Of course, a court could interpret the statute differently, but so far no such case has been decided. For now, the IWC's rules will govern the way the California Labor Commissioner decides these issues.