Exempt Versus Non-Exempt Employees Under California Employment Law
California employment laws require employers to provide “non-exempt” employees with overtime pay, meal breaks, and paid rest breaks. However, independent contractors and employees who are considered “exempt” under the California Labor Code are not entitled to a minimum wage or overtime pay. It is clear that some professions like doctors, CFOs and architects do not get paid overtime; and others like construction workers, retail clerks and nursing assistants must get overtime and breaks. But many other professions including salespersons, computer programmers, and loan officers fall in a grey area and may or may not be exempt from overtime depending on their exact job duties.
As the rules governing who is “exempt” are not always clear-cut and if there is any doubt whether you are owed overtime and breaks, it is best to consult a skilled employment attorney who knows all of the ins and outs of the law.
What Is an Exempt Employee?
Under the Fair Labor Standards Act (FLSA) and California Labor Code, employers must pay eligible workers a minimum wage, overtime, and provide time for meal and rest breaks. However, certain employees are considered “exempt” from these rules, and do not get overtime or breaks no matter how many hours they work.
To classify an employee as exempt, and employer must be able to prove all of the following:
- Salary: An employee can only be considered exempt if they are paid a salary. Certain commissioned employees may also be exempt. However, just because an employee receives a salary or commissions does not necessarily mean that they are exempt.
- Earnings: An exempt employee must receive a minimum monthly salary of at least twice the state’s minimum wage. However some employees who earn many times the minimum wage are still entitled to overtime, depending on their job duties.
- Job Duties: The most complex factor when determining whether an employee is exempt relates to their job duties. To be considered exempt, an employee must spend at least half their time performing exempt job duties. Under California law, any employee who spends half their time doing non-exempt duties is paid overtime, regardless of how high their salary is.
Typically, exempt employees are those with higher-level positions. There are three classifications of exempt job duties:
This exemption is limited to certain “recognized professions,” like doctors, dentists, optometrists, lawyers, engineers, architects, CPAs, and teachers, which require an advanced graduate degree or state license. However, most types of nurses are not exempt. The professional exemption also apples to creative artists in music, writing, the theater, and the plastic and graphic arts. Critically, you have exercise independent judgement in carrying out your job. If you are regularly given detailed instructions on what type of work to perform, you are likely not exempt under the professional exemption. Also, an advanced degree related to the type of work you do must be an absolute requirement for everyone in your job. If you have an advanced degree but others at your company doing the same type of work do not, you may be entitled to overtime.
This exemption is meant to capture the top managerial class. To be exempt from overtime, an exempt employee must do all of the following:
- Manage a business or one of the business’s major departments or subdivisions;
- Regularly direct the work of two or more other employees;
- Exercise the ability to hire or fire workers, or at least have a strong influence over that decision; and
- Can independently make decisions on matters that are important to the business, and regularly does so.
Merely having a title like manager, director, or vice president does not necessarily make you exempt under the executive exemption. If you spend more than half your time doing non-managerial duties such as your non-exempt employees perform, then you are likely not exempt. For example, a “store manager” who spends more than half his time stocking shelves and helping customers like a retail clerk, would likely not be exempt and should be paid overtime.
Likewise a “team lead” would not fall under the executive exemption as they typically only act under a manager, spend most of their time doing the same work as those they “lead”, and do not have real authority for an entire business unit. Even those who formally supervise two other employees may not be exempt because they rarely spend half their time engaged in supervision of such a small number. Depending on the type of work, however, they may be exempt under the administrative exemption.
This is the hardest exemption to grasp. Typically, an administrative employee is an individual contributor (i.e., non-managerial), but one who performs high-level office work of substantial importance to management or business operations, and regularly uses independent judgment. Historically the exemption was mean to differentiate exempt “administrative” from non-exempt “production” employees. In an earlier era, “production” was usually understood in a factory context. But in our modern era, “production” has been interpreted more broadly to include the new producers in a service or information economy. If you routinely mine data, you may be a modern-day production worker, owed overtime. Whereas if you spend most of you time independently performing high-level analysis of the data in support of key business goals, you may be administrative, and exempt from overtime. Other professions such as inside salespersons, TV producers, and insurance adjustors have been found by courts to be modern “production” workers who are entitled to overtime pay.
In addition, to be considered an exempt administrative employee, a position must require the employee primarily engage in:
- Work “directly related to management policies or general business operations” of either the employer or the employer’s clients; and
- Customarily and regularly exercises discretion and independent judgment”; and
- Under only general supervision, either performs specialized or technical work requiring special training, experience, or knowledge; or executes special assignments.
Other examples of employees that may be exempt under the administrative exemption include advisory specialists and consultants, credit managers, safety directors, claim agents, wage-rate analysts, tax experts, account executives of advertising agencies, and customers’ brokers in stock exchange firms. However depending on the amount of independent discretion they exercise, any of these professions may or may not be properly classified exempt.
Are You Missing Out on Overtime Pay Because Your Employer Misclassified You as Exempt?
The San Francisco employment lawyers at McCormack Law Firm, aggressively pursue claims of wage and hour violations under the Fair Labor Standards Act and the California Labor Code. Attorney Bryan McCormack, the founder of the McCormack Law Firm, has over 20 years of experience successfully representing employees who have been wronged by their employers. Attorney McCormack is familiar not only with the governing laws and regulations, but also with the common tactics that employers use to cover up their illegal employment practices.
If you believe that your employer has misclassified you as an exempt employee, you may be missing out on overtime pay and other benefits. The San Francisco employment lawyers at the McCormack Law Firm, we help employees get the compensation they deserve. As experienced employment law attorneys, we understand the laws employers must follow as well as the tactics they employ to hide their illegal employment practices. We handle all types of California employment law cases on behalf of employees, including minimum wage violations, overtime pay disputes, misclassifications of independent contractors and other FLSA violations. We also handle California employment discrimination cases, FMLA violations and wrongful termination claims. To learn more, and to schedule a free consultation to speak with an attorney about your situation, call (415) 925-5161.
It is important to keep in mind that, just because someone works in a professional, administrative or executive capacity does not necessarily mean they are exempt under state and federal employment laws. The administrative and executive exemptions in particular have a lot of gray areas. Those employees who are concerned that their employer has misclassified them as exempt should reach out to a dedicated San Francisco employment law attorney.