How to tell if you’re “exempt” from California’s wage and hour laws.

Non-exempt California employee working overtime.

In employment law, employees are classified as either “exempt” or “non-exempt” for the purposes of California’s wage and hour rules. These classifications refer to whether certain labor standards apply to the employee—like the right to: a minimum wage, overtime pay, meal periods, or rest breaks. Employees that are classified as “exempt” generally do not have a right to these benefits; while non-exempt employees do.

The benefits and drawbacks of being a non-exempt employee are clear. Determining whether someone is properly classified, however, is much less clear. Unfortunately, many California employees are wrongly classified as “exempt,” even though they are legally entitled to employment benefits like overtime wages. To be exempt from these benefits, California employers must meet a strict set of legal requirements before they can avoid paying overtime. Simply put, you might be entitled to overtime pay even if your employer has classified you as “exempt” and paid a fixed salary.

Classification and employee rights.

To be properly classified as “exempt” under California and federal law, an employer must meet stringent legal requirements. It does not matter if your employer is simply paying you a fixed salary every month. It does not matter that your employer says you are exempt. What matters is the nature of your work, your daily job duties, and the time you spend each workday on those duties.

From your employer’s perspective, there are enormous savings in classifying an employee as “exempt.” For example, an exempt employee is not entitled to overtime pay and they don’t have a right to rest or meal breaks. Unfortunately, some employers try to take advantage of this enormous cost savings and improperly classify their employees. This improper classification, if caught, can result in significant penalties for employers. For example, employees who are improperly classified as exempt or salaried workers are entitled to recover: all their unpaid overtime, penalties, fines, attorney’s fees, and litigation costs.

Why do employers misclassify employees as “exempt”?

It is very tempting for some employers to save on their payroll expenses by improperly classifying their employees as “exempt.” By doing so, they can squeeze more labor and work hours from their employees without additional cost. Even a small company that employs five to 15 employees at average wages can save $10,000 or more every month by paying their workers under the exempt status without overtime.

Unfortunately, many employers improperly classify their employees in the hopes they don’t get caught. Employees have often been misled or have been wrongly informed of their employment and labor law rights in the workplace. Please continue reading if you want to know your employment and labor law rights.

What benefits should non-exempt employees receive?

Overtime wages

Normally, non-exempt employees are entitled to overtime payments of at least time and a half (1 ½ times your hourly rate) for any work performed beyond eight (8) hours per day or 40 hours per week. ((Labor Code, § 510, subd. (a).)) If you are non-exempt but are paid a salary, your “hourly rate” for these purposes is one-fortieth (1/40th) the rate of your weekly salary.

If you work more than 12 hours per day, you are entitled to double time (pay at 2 times your hourly rate) for anything worked beyond those 12 hours. If you work seven days in a row, you are entitled to time and a half for your first eight hours and double time for any work performed beyond that.

In other words, if you are classified as non-exempt, you are entitled to overtime wages as follows:

More than 8 hours in a workday: 1.5 times your hourly rate.
More than 12 hours in a workday: 2 times your hourly rate.
8 hours or less on your 7th consecutive day of work: 1.5 times your hourly rate.
More than 8 hours on your 7th consecutive day of work: 2 times your hourly rate.

Meals and rest breaks

Meal breaks given to exempt employeesNon-exempt employees also have a right to meal and rest periods.

Meal Periods are unpaid and uninterrupted 30-minute breaks. Generally, employees that work more than five hours in a workday have a right to one meal period, and employees that work more than 10 hours in a workday have a right to two meal periods.

Rest periods are paid 10-minute breaks that employees have a right to take at certain times during their workday. Non-exempt employees are entitled to one rest break for every four hours of work (or substantial portion of four hours).

If an employer fails to give an employee a meal or rest break, employees are generally entitled to additional compensation as a penalty.

What benefits should exempt employees receive?

Exempt workers, on the other hand, are not entitled to any additional pay. It does not matter whether they work more than eight (8) hours per workday or 40 hours per work week. They are not legally entitled to overtime and are not paid anything extra. They are also not entitled to meal or rest periods. The usual exempt employees are: executive, administrative, or professional employees.

How do I know if I am properly classified as an exempt/salaried or non-salaried employee?

It is not always easy to determine if you are properly exempt from overtime. A careful analysis of your actual job duties (and not your job title or employer-determined status) determines whether you are properly classified as an “exempt” or “non-exempt” employee. ((Code of Fed. Regs, tit. 29, § 541.2.))

California and federal courts will examine your daily tasks to determine whether you have been properly compensated and classified. The burden is on your employer, not you, to justify your exemption from overtime. ((Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 794.)) Your employer has the burden to show that you are “plainly and unmistakenly” within the exemptions terms to avoid paying you overtime. ((Id.))

The legal minimum compensation for every exempt California employee cannot be less than $2,773.33 per month or $33,280 annually. ((Labor Code, § 1182.12.)) This number is calculated based on the minimum wage, which is increasing beginning on July 1, 2014, to $9.00 per hour. This means that the legal minimum compensation will for every exempt California employee will increase to $3,120 per month or $37,740 annually beginning July 1, 2014.

In addition, any exempt employee must spend more than 50% of their work time performing exempt duties. Therefore, any employee who spends more than 50% of their time performing non-exempt tasks is eligible for overtime pay and other benefits to which non-exempt employees are entitled.

The three general categories of exemptions for California workers are listed below:

Exempt Executive Employees

The following test applies in determining who is an “executive employee” and thus exempt from state overtime pay and minimum wage requirements:

Earns a monthly salary equivalent greater than $2733.33 per month or $640 per week; and
The employee’s duties and responsibilities must involve management of the enterprise, or of a customarily-recognized department or subdivision; and
The employee must customarily and regularly direct the work of at least two or more other employees; and
The employee must have the authority to hire and fire, or to command particularly serious attention to his or her recommendations regarding such actions; and
The employee must be “primarily” engaged in and spend more than 50% of their worktime performing their exempt duties. ((Labor Code, §§ 515, subds. (a), (e).))

Exempt Professional Employees

The following test applies in determining who is a “professional employee” and thus exempt from state overtime pay and minimum wage requirements:

Earns a monthly salary equivalent greater than $2733.33 per month or $640 per week; and
A person licensed or certified by the State of California who spends more than 50% of their time engaged in the practice of one of the following recognized professions: ((Labor Code, § 515, subd. (e).)) law, medicine (but not registered nurses, ((Labor Code, § 515, subd. (f)(1).)) medical interns or residents) ((Labor Code, § 515.6, subd. (b).)), dentistry, optometry, architecture, engineering, teachers (but not teaching assistants, tutors day care providers or other similar employees) ((Labor Code, § 515.8.)) or accounting.
They customarily and regularly exercise discretion and independent judgment in performing duties in their licensed or certified profession.

Exempt Administrative Employees

The following test applies in determining who is an “administrative employee” and thus exempt from state overtime pay and minimum wage requirements:

Earns a monthly salary equivalent greater than $2733.33 per month or $640 per week; and
The employee must spend more than 50% of their worktime performing administrative duties; and
Customarily and regularly exercise discretion and independent judgment; ((Discretion and independent judgment refer to the power to consider and make an independent choice free from immediate supervision for matters of significance. (Code of Fed. Regs, tit. 29, § 541.202.) )) and
Meets the requirements of the duties that permit an administrative exemption for the industry they are employed in as stated in the IWC orders located at:

To properly determine whether you properly classified as an exempt or non-exempt employee, it’s important to discuss the specific facts of your situation with a lawyer. Your lawyer will need to understand: your daily job duties, the time spent you spend on those job duties, and the skills and training your job requires.

How much past overtime can I recover and how do I prove I am owed overtime?

You can recover overtime that you have missed going back for as much as three (3) years. ((Labor Code, § 1194; Code of Civ. Proc., § 338, subd. (a).)) Understandably, some employees are worried about proving their overtime, rest period, and meal break claims without written records. California law requires employers to retain employee records for at least three (3) years. ((Labor Code, § 1174, subd. (d).)) If your employer did not keep accurate records, you only need to present your best estimates of your work schedule.

Saying “I worked at least 10 hours every day” or “I worked more than 40 hours per week many times” is a perfectly acceptable to substantiate your overtime claims. California courts are permitted to award approximate financial damages. ((Beliz v. W.H. McLeod & Son’s Packing Co. (5th Cir. 1985) 765 F.2d 1317; Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, 687–688.))

Calculating unpaid overtime if you have been misclassified as exempt.

The exact amount of unpaid overtime you might be owed will depend on the specific facts of your case. As an example, an improperly classified employee who earns a salary of $2,800 a month and works 50 hours per week is missing approximately $12,000 per year in overtime. If they were working at these rates for the past three years, they might be entitled to receive $36,000, plus attorney fees, court costs, and possible penalties from their employer. To determine your unpaid overtime, follow the process below:

“Robert Employee” is an improperly classified exempt worker who has been paid a salary of $2,800 a month or $33,600 each year for the past three years. He works 10 hours a day, five days each week for a total of 50 work hours a week. If Robert were non-exempt, he would be paid for the two (2) overtime hours he works each day at 1.5 times his hourly rate. Robert can estimate his overtime damages by following the steps below:

Step One: Determine your hourly rate. Determine Robert’s hourly rate by dividing his annual compensation by 2080 non-overtime paid hours per year.

$33,600 annual salary ÷ 2,080 hours = Robert’s hourly rate = $16.15 per hour.
$33,600 annual salary ÷ 12 months = Robert’s Monthly Salary = $2,800.
Annual work hours = 40 hour per year x 52 weeks = 2,080 hours. ((Please note that the number of hours worked for the purposes of this calculation does not relate to the actual number of hours worked. Even if you actually worked 2,300 hours last year, you still divide your annual salary by 2,080 hours per year. The number of hours worked is determined by the maximum number of non-overtime worked in a year.)) 

Step Two: Determine your overtime rate and monthly overtime average. Multiply the hourly rate calculated above by 1.5. ((2 times the hourly rate is applied for all work performed 12 hours a day, or more than eight hours on the seventh consecutive day worked. (Labor Code, § 510, subd. (a).) )) This gives you your hourly overtime rate. Multiply your hourly overtime rate by the number of overtime hours per month. Here, Robert works 40 overtime hours per month because he works 10 hours of overtime each week.

$16.15 hourly rate x 1.5 overtime wage rate x 40 overtime hours per month = $969 of unpaid overtime each month. 

Step Three: Determine the annual backpay you are owed for overtime. Multiply unpaid overtime each month by 12 months.

$969 monthly unpaid overtime x 12 months = $11,628 of unpaid overtime each year.

Robert can possibly make a legal claim of $11,628 for each year he was not paid overtime. Robert could make a total claim of $34,884 if he sues for his last three years of unpaid overtime wages. In addition to his unpaid wages, Robert could also be entitled to additional compensation from interest, other waiting time penalties, and his attorney’s fees and costs from filing his lawsuit.

Can my employer take action against me if I exercise my employment rights and ask for my unpaid wages?

Absolutely not! Employers that retaliate against employees for exercising their rights under the California Labor Code could be liable for civil penalties of $10,000 per violation in addition to potential legal claims for wrongful termination, emotional distress, and other legal causes of action. ((Labor Code, § 98.6.))

Are certain occupations automatically exempt from overtime?

Yes. The California Division of Law Standards Enforcement has a list of occupations that are exempt from overtime requirements:

Final thoughts.

Unfortunately, there is no clear bright line rule that separates an exempt from a non-exempt employee. If you are having trouble determining whether you have been improperly characterized as an exempt employee and do not know how to calculate how much money is owed to you, we can help. If you are an employer, we can help you avoid employment law violations and craft a compensation system to avoid lawsuits and minimize future legal costs. Please call Optimum Employment Lawyers at (949) 954-8181 for a confidential and complimentary consultation to determine your legal rights and options.

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