Table of Contents
- Exempt or Non-Exempt
- “Salaried Non-Exempt”
- Minimum Salary Threshold
- Job Duties
- Independent Judgment
- Executive (Manager) Exemption
- Administrative Exemption
- Professional Exemption
- Outside Salesperson Exemption
- Inside Salesperson Exemption
- Computer Professionals Exemption
- Physicians and Surgeons Exemption
- Truck Driver Exemption
- Union Exemption
- Private School Teacher Exemption
- Specific Overtime Exemptions
Hourly Or Salary Pay
Almost all employees are presumed “non-exempt” from wage-and-hour laws on minimum wage, overtime, tracking time worked, and providing breaks. Some types of jobs are “exempt” from these requirements allowing the employer to pay a salary instead of hourly.
Exempt or Non-Exempt
- An exempt employee is someone whose job is not subject to one or more sets of wage and hour laws. Labor Code § 515 (a); California Code of Regs., tit. 8 § 11010-11170. An exempt employee is normally an executive, administrative or professional employee, often referred to as a “white collar” employee. Other exempt employee types include some salespeople and computer professionals. Generally, exempt employees are key personnel who possess management and decision-making responsibilities. Employees are non-exempt unless they clearly meet the salary and job duties tests of an exempt position.
- An employee must “plainly and unmistakably” meet the standard required for the exemption. Nordquist v. McGraw-Hill Broadcasting Co., 32 Cal.App.4th 555, 562 (1995). This standard strongly favors the employee, and the employer has the legal burden of proving an exemption. Ramirez v. Yosemite Water Co., Inc., 20 Cal.4th 785, 794–795 (1999).
- There are generally three requirements to determine whether an employee is exempt. If all three requirements are met, the employee will usually be classified as “exempt” from minimum wage, overtime, and break requirements. There are some jobs that are subject to a different test altogether. Some employees are only partially exempt, meaning, they are protected by certain labor laws, but not others.
- Minimum Salary Threshold. The employee must be paid a salary that is at least twice the state minimum wage for full-time employment.
- White Collar Job Duties. The employee’s primary duties must consist of administrative, executive, or professional tasks.
- Independent Judgment. The employee’s job duties must involve the use of discretion and independent judgment. Labor Code § 515 (a).
- Employers trying to avoid daily timekeeping and other requirements for non-exempt employees may be tempted to treat non-exempt employees as “salaried non-exempt” by paying them a flat amount for 40 hours per week and then a set amount for overtime. However, employers who treat any workers as “salaried non-exempt”, even those who never or rarely work overtime, face risk of violating the law because:
- “Belo contracts” and the “fluctuating workweek method,” while permitted under federal law, are illegal in California. DLSE Enforcement Manual §§ 41.1.6, 41.1.7, 41.1.8, 48.1.5, 48.1.5, 184.108.40.206, 220.127.116.11, 49.2, 18.104.22.168; Labor Code § 515.
- An hourly rate is needed for paying meal and rest break premiums. Labor Code § 226.7.
- An hourly rate is needed for pay stub compliance. Labor Code § 226a.
- Time records are needed for non-exempt employees showing when they begin and end each work period, including meal breaks, split shift intervals and total daily hours worked shall also be recorded; however, meal breaks during which operations cease and authorized rest periods need not be recorded. Labor Code section 1174; California Code of Regs., tit. 8 § 11010-11170 (7).
Minimum Salary Threshold
- The most common exemptions – the “white collar” exemptions, i.e., executive, administrative, professional – require employees to earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, and the salary must be a predetermined sum. Labor Code § 515(a). There are different rules for some employees, such as hourly physicians, computer professionals and salespersons.
- To meet the minimum salary requirement for exempt employees, the applicable minimum wage must be multiple by two, and then multiplied by 40 hours per week. That gives us a weekly salary that is twice the minimum wage. These numbers are calculated by doubling the applicable minimum wage, multiplying that amount by 40 hours per week, the result of which is then multiplied by 52 weeks and divided by 12 months. This calculation gives us a monthly salary that is equal to twice the state minimum wage for full-time employment. Labor Code § 515(a).
- Effective January 1, 2021, the minimum salary threshold is $58,240 per year (or $1,120 per week) for employers of 26 or more employees, and $54,080 per year (or $1,040 per week) for employers of 25 or fewer employees.
- The employee’s pay must be predetermined, and cannot change based on the number of hours worked or the quality of the work performed. Negri v. Koning & Associates, 216 Cal.App.4th 392, 398 (2013); Kettenring v. Los Angeles Unified School Dist., 167 Cal.App.4th 507, 513–514 (2008); 29 C.F.R. § 541.602(a).
- The “salary test” required for overtime exemptions provides that an employee must be paid a full weekly salary for any week in which any work is performed. This minimum amount may not be prorated for part-time work. DLSE Enforcement Manual § 51.6.3.
- If an employee works any part of a day, they must be paid in full; no salary deduction is allowed. However, deductions can be made from any vacation, PTO or paid sick leave balance for the hours not worked. While courts have suggested that employers can deduct from an employee’s pay for full-day absences and still consider the employee to be paid on a salary basis. But the employee would no longer be considered “salaried” if the employer deducted for partial-day absences. Conley v. Pacific Gas and Elec. Co., 131 Cal.App.4th 260, 267 (2005); 29 C.F.R. § 541.602(b)(1).
- Under the most common exemptions — e.g., the executive, administrative, and professional, in order for employees to be exempt, they must generally meet strict job duties tests particular to each exemption.
- Job titles alone do not designate an employee as exempt or nonexempt. An employee with an impressive job title may not qualify as an exempt employee if his/her actual duties do not meet the exemption requirements. 29 C.F.R. § 541.2; Negri v. Koning & Associates, 216 Cal.App.4th 392, 398 (2013). An employee who performs routine bookkeeping tasks does not become an exempt employee when given the title “controller” rather than “bookkeeper.” Giving an employee the title of “store manager” does not make him/her exempt if he/she opens or closes the store alone, serves customers, maintains merchandise displays and performs the work of a retail clerk.
- Most exemptions require the employee to be “primarily engaged” in exempt duties. In general, the employee must spend more than 50 percent of his/her time performing exempt duties. To determine if the employee primarily engages in exempt work, all the work that the employee performs during the workweek is examined. The amount of time the employee spends on exempt work, as well as the employer’s realistic expectations and the realistic requirements of the job are considered. Labor Code § 515 (e); DLSE Enforcement Manual 51.2.
- To qualify as an exempt employee, they must regularly exercise discretion and independent judgment in performing their duties. Labor Code § 515 (a).
- An employee exercises discretion and independent judgment when making and implementing important choices after considering competing courses of action. 29 C.F.R. § 541.202(a).
- An employee’s judgment is independent when it is free from immediate direction or supervision, even if an employee who is higher in the management chain has the authority to override the decision. 29 C.F.R. § 541.202(c).
Executive (Manager) Exemption
- An employee is considered employed in an executive capacity when: their primary duty is the management of a business or one of its departments; they regularly direct the work of two or more other employees; and, they have the authority to hire and fire employees, or to make recommendations about hiring, firing, promotions, and wages that are given particular weight. California Code of Regs., tit. 8 § 11010-11170 (1)(A)(1).
- Management includes such activities as hiring, firing, training, supervising, and disciplining employees; making work assignments; resolving employee grievances; maintaining production or sales records; ordering materials or inventory; and planning a budget. 29 C.F.R. § 541.102.
- An employee is considered employed in an administrative capacity if their primary duty is office or non-manual work directly related to management or general business operations. California Code of Regs., tit. 8 § 11010-11170 (1)(A)(2).
- Work relates to management or general business operations when the employee assists in running the business. 29 C.F.R. § 541.201(a). Secretaries, store clerks, bookkeepers, and lead operators on production lines cannot be classified as administrative employees because they do not help run the business.
- Examples of duties that relate to management or general business operations include responsibility for marketing, research, budgeting, finance, accounting, purchasing, quality control, human resources, labor or government relations, regulatory compliance, and database administration. 29 C.F.R. § 541.201(b).
- The professional employee exemption is fact-specific and depends on the nature of the work that the employee primarily undertakes. 29 C.F.R. § 541.300; California Code of Regs., tit. 8 § 11010-11170 (1)(A)(3). Registered nurses who are employed to engage in the practice of nursing are not exempt professionals, but they might still be exempt as administrators or executives. Labor Code § 515 (f)(1). There are three types of professional employees that can qualify for exemptions:
- Licensed Professionals. Employees who are licensed or certified by the State of California and are primarily engaged in the practice of: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting. California Code of Regs., tit. 8 § 11010-11170 (3)(A).
- Learned Professionals. Employees who have advanced knowledge in a field of science or learning that is customarily acquired by prolonged and specialized study. California Code of Regs., tit. 8 § 11010-11170 (3)(B).
- Creative Professionals. Employees who focus on invention, imagination, originality, or talent in a recognized field that is artistic or creative.
Outside Salesperson Exemption
- Employees who are considered “outside salespersons” are generally considered exempt employees. California Code of Regs., tit. 8 § 11010-11170 (1)(C).
- An outside salesperson is defined as someone: at least 18 years old, spends more than half of their working time away from their employer’s place of business, and sells items, services, contracts, or the use of facilities. California Code of Regs., tit. 8 § 11010-11170 (2)(M).
Inside Salesperson Exemption
- Employees who are paid on a commission basis are sometimes exempt from California’s overtime pay laws, but not breaks.
- Commissions are wage payments that an employee is entitled to as a result of sales they make. In a commission-based arrangement, the size of the employee’s compensation depends on the amount or value of the thing that was sold. Commissions are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Labor Code § 204.1; Areso v. CarMax, , 195 Cal.App.4th 996, 1003 (2011).
- A discretionary payment that an employer can choose to pay or withhold, such as a performance bonus, is not a commission even if it is computed as a percentage of sales or profits. Labor Code § 2751 (c).
- To qualify for this exemption, the following requirements must be met:
- The employee’s earnings are more than one-and-a-half times the minimum wage.
- Commission payments constitute more than half of the employee’s total compensation.
- They work in either: the retail industry, or a professional, technical, or clerical occupation. California Code of Regs., tit. 8 § 11010-11170 (3)(D).
Computer Professionals Exemption
- Employees in the computer software field are sometimes exempt for the purposes of overtime compensation. Labor Code § 515.5.
- To qualify for this exemption, the following requirements must be met:
- The employee must be primarily engaged in work that is intellectual or creative.
- The employee’s primary duties must require the exercise of discretion and independent judgment.
- The employee must be highly skilled in a field of computer systems analysis, programming, or software engineering.
- The employee’s primary duties must involve designing or developing computer hardware or software.
- If the employee is salaried, they must earn at least $98,907.70 per year, effective January 1, 2021. Labor Code § 515.5; DLSE Guidance.
Physicians and Surgeons Exemption
- Licensed physicians and surgeons are sometimes exempt for the purposes of overtime compensation.
- The applicability of this exemption is limited. Medical interns and residents do not qualify. Nor do physicians covered by certain types of collective bargaining agreements. Labor Code § 515.6 (b).
- To fall under this exemption, the physician or surgeon must:
- Be paid at an hourly rate of at least $86.49 per hour, effective January 1, 2021.
- Perform, as their primary duties, tasks that require them to be licensed. Labor Code § 515.6; DLSE Guidance.
Truck Driver Exemption
- Some truck drivers are exempt from California’s overtime laws, but not other laws, like meals breaks or the minimum wage. California Code of Regs., tit. 8 § 11090(3)(L).
- This exemption applies to interstate truck drivers and drivers who transport hazardous materials. California Code of Regs., tit. 8 § 11090(3)(L); 49 C.F.R. §§ 395.1–395.13.
- Union employees are sometimes exempt from California’s overtime laws. To qualify as exempt, the employees must be employed under a collective bargaining agreement that expressly provides for the wages, hours of work, and working conditions of the employees. Labor Code § 514.
- The collective bargaining agreement must provide premium wage rates for all overtime hours worked and a regular hourly rate of pay of at least 30% more than the state minimum wage. Labor Code § 514.
Private School Teacher Exemption
- Many teachers are exempt under the professional exemption described above. But some teachers at private schools are exempt even if they don’t meet those requirements. Instead, they will be considered exempt if they:
- Teach students who are in kindergarten or any of grades 1 through 12,
- Earn at least twice the state’s minimum wage, and
- Hold a baccalaureate degree (or higher) from an accredited institution of higher learning, or they meet the requirements for a teaching credential from California or any other state. Labor Code § 515.8.
Specific Overtime Exemptions
- Live-in household employees. California Code Regs., tit. 8 § 11150(3).
- Personal attendants. California Code Regs., tit. 8 § 11150(3).
- Camp counselors. California Code Regs., tit. 8 § 11150(3).
- Managers of homes for the aged. California Code Regs., tit. 8 § 11150(3).
- Certain providers of 24-hour residential childcare. California Code Regs., tit. 8 § 11150(3).
- Ambulance drivers and attendants. California Code Regs., tit. 8 § 11150(3).
- Agricultural occupations. California Code Regs. tit. 8 § 11140(3).
- Spouse, children, and parents of the employer. California Code Regs., tit. 8 § 11040(1)(D).