Exempt v Non Exempt – California Overtime Wages Law Simplified

exempt non exempt overtimeUnder California law, an employee is presumed to be “non exempt” – i.e. entitled to overtime for working over 8 hours per day or 40 hours a week. The employer bears the burden of proving that an exemption applies that allows the employer to pay that employee salary without overtime.

Although there are quite a few caveats and exception to the rules described below, here are the general five exemptions from overtime under California law which should help you determine whether you, as a worker, or your employee (if you are an employer), is properly exempt from overtime pay:

1. Executive/managerial exemption
In order to meet this exemption the employee must meet all of the following requirements:

  1. Employee’s duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision of the enterprise. In other words, the employee has to perform at least some, if not all, duties that are typically performed by a manger.
  2. Employee customarily and regularly directs the work of two or more other employees. This means that the employee has to be a supervisor.
  3. Employee has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status or other employees is given particular weight.
  4. Employee customarily and regularly exercises discretion and independent judgment in performing his or her duties. This is one of the most hotly contested factors in claims involved dispute over whether an exemption applies because this factor is inherently vague. Generally, however, “exercising discretion and independent judgment” has to be something more than typical, repetitive tasks. In other words, making very simple decisions such as how to great customers or which isle to start cleaning first will of course not satisfy this element.
  5. Is “primarily engaged” in duties that meet the test of the exemption. This means that over 50% of the duties of the employee has to involve management, supervising and exercising independent judgment. If the employee spends half or less than half of his time performing exempt duties, then the exemption fails as a matter of law and that employee should be entitled to overtime pay. This is often the case with supervisors in grocery stores, who spend half or more of their time relieving cashiers and other workers, and spending way less than half of their time performing managerial or supervisory duties.
  6. Earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.

2. Administrative exemption
To meet this exemption, an employee must meet all of the following requirements:

  1. Employee spends more than one-half of their work time performing office or non-manual work directly related to management policies or general business operations for the employer or the employer’s customers;
  2. Employee “customarily and regularly” exercises discretion and independent judgment in carrying out job duties as to matters significant to the employer’s business;
  3. Performs his or her job only under general supervision and works along specialized or technical lines requiring special training, experience, or knowledge; This exemption generally applies to those employees who work independently as they are professional trained to perform certain duties and tasks that their supervisors are not or might not be in a position to supervise or direct. One typical example is many architects.
  4. Is paid a salary equivalent to no less than two times the state minimum wage.

3. Computer professional exemption
To be an exempt computer professional, the employee must meet the following requirements:

1. The employee is primarily engaged in work that is intellectual or creative and requires the exercise of discretion and independent judgment. 

“Primarily” is defined as requiring more than 50% of the employee’s work time be spent on these types of duties.

2. The employee is primarily engaged in duties that consist of one or more of the following:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
  • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to, user or system design specifications.
  • The documentation, testing, creation, or modification of computer programs is related to the design of software or hardware for computer operating systems.

3. The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

4. The employee’s hourly rate of pay, or annual salary if paid on salaried basis, meets a minimum threshold amount set by California’s Division of Labor Statistics and Research (DLSR). 

To put it in more simple words, this exemption generally applies to those computer professional who build, design and create software. It generally doesn’t apply to those who test, diagnose or maintain systems as this doesn’t involve the creativity required to meet the exemption, as noted above.

4. Commissioned inside sales exemption
To qualify as an exempt commissioned inside sales employee, an employee must meet the following requirements:

  1. Employee’s earnings must exceed one and one-half times the California minimum wage; and
  2. More than half of the employee’s compensation must be commissions.

Employers must note that this exemption is only for the overtime requirement, and other wage and hour requirements such as minimum wage, meal and rest breaks, time recording requirements still must be met.

5. Outside salesperson exemption
To qualify for this exemption the employee must:

  1. Be at least 18 years old;
  2. Must customarily and regularly work more than half of their work time away from the employer’s place of business; and
  3. Must be engaged in selling tangible items or obtaining orders or contracts for products, services, or use of facilities.