California “Exempt Employee” Overview

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Exempt employees are not paid overtime.  Whether an employee is Exempt or Non-Exempt under California law is a “nuts-and-bolts” issue of employment law.  This post gives an overview of the rules.  If you need a thorough review of classification for a position, it is definitely advisable to seek the opinion of an employment attorney.

Some common California exempt employee classifications.

A. The “Big 3”: Executive, Administrative, Professional
  1. Duties.  More than 50% of the work must be duties that meet the test of the exemption — example, to be an exempt “Executive”, one must at least manage a “customarily-recognized” department or subdivision, “direct the work” of 2 or more employees, have hire/fire authority or at least have heavy influence on hire/fire decisions; and
  2. Discretion and Independent Judgment.  This means it’s a “thinking” job where the employee is relied on to make decisions for the company without oversight; and
  3. Earnings Test: Monthly Salary no less than twice minimum wage for a 40-hour week.  Keep in mind that minimum wage is evolving upwards and differs by size of employer and location.
B. Outside Sales

More than 50% of work hours are spent on sales activities outside the workplace.

C. Commissioned Sales

Earnings are over 1.5 times minimum wage and half or more of that income is from commissions.  This must be met every pay period.

D. Rules, Meet Job

Simple, right?  Actually, determining exempt status can be somewhat involved.  To correctly apply the rules, one must look at what the actual duties are, where they are performed, what decisions are made (or can be made), how the time is actually spent throughout the workweek, and see how the wages are calculated and paid over time.

Apply the correct rules, Federal versus State.  There are two similar but distinct bodies of law covering this area, the California Labor Code and the Federal Fair Labor Standards Act (FLSA).  In California, there are a number of different sources for the applicable rules, including the Labor Code, the Industrial Welfare Commission Wage Orders (which divide employer types up according to the type of industry), and also including implementing regulations and opinion letters regarding proper application of these various sets of rules.  Keep in mind that the exemptions are applied narrowly, meaning exemptions may not be upheld in close cases – tie will go to the runner.

This is a very brief summary of these issues and there are many different variations within these rules and issues that are simply beyond the scope of this “5000-foot flyover” (e.g., caretakers, domestic workers, computer professionals, non-employee independent contractors, just to name a few).

If you believe your employer should not be treating you as exempt, or if you are an employer that needs help in reviewing your present exemptions, consider consulting with an experienced employment attorney.