In California, wages, meal periods, and overtime pay are determined by both state and federal law. Employers are generally required to follow certain rules in how they treat and compensate their employees. These rules, however, do not apply to several important groups of people—called “exempt” employees. This blog post explains the key differences between exempt and non-exempt employees. It also provides a framework for figuring out whether your job is classified as “exempt” or “non-exempt” for employment law purposes.

Why the distinction is important.

An employee’s classification as either exempt or non-exempt will often determine their right to overtime pay, minimum wage, rest breaks, and meal periods. In California, there are two main sets of laws that govern these rights:

• The federal Fair Labor Standards Act, ((29 U.S.C. §§ 201–219.)) and
• The California Labor Code.

The exemptions vary somewhat depending on whether state or federal law is applicable and which rights are being asserted. In almost all cases, however, exempt employees will usually have fewer rights than non-exempt employees. It's therefore important that employees determine, preferably with the help of a lawyer, whether they are exempt or non-exempt before they decide whether to bring a lawsuit.

Exempt vs. Non-exempt: How can employees know?

Generally, an employee is considered "exempt" if their job and its duties meet the requirements provided by statute. Because state and federal law provide different requirements to meet those exemptions, we'll take a look at them individually.

Exemptions under California law.

In California, exemptions from labor laws and regulations are governed by a combination of statutes and regulations. The statutes can be found in various sections of California's Labor Code. The regulations come primarilyin the form of seventeen different "wage orders" set forth by California's Industrial Welfare Commission (IWC). ((Labor Code, §§ 510, 511, 512, 515, 1173, 1178, 1178.5, & 1182.)) The wage orders are available here. They help clarify the scope of wage laws and define the various exemptions. The IWC is not currently in operation, but its orders are amended and re-published by the Department of Industrial Relations (DIR).

The wage orders exempt mainly white-collar jobs from certain Labor Code provisions. To be exempt, these employees must usually meet all of the following criteria: ((Labor Code, § 515, subd. (a).))

• White-collar job. The employee must perform work that is administrative, professional, or executive in nature. For an explanation of what each of these terms mean in this context, see the below discussion.
• Salary requirement. The employee must make at least two times the state minimum wage for full-time employment. Full time employment in this context means the rate that the employee would make if they worked a full 40 hours per week. ((Labor Code, § 515, subd. (c).)) Currently, the minimum wage is set at $8.00/hour. ((Labor Code, § 1182.12.)) So, the minimum salary for an exempt employee must be about $640 per week (or around $33,280 per year).
• Primary duties are exempt duties. The employee's primary duties must involve the kind of work described in their exception. This means that more than one-half of their time must be spent performing exempt work. ((Labor Code, § 515, subd. (e).))
• Independent judgment. And the employee must regularly exercise discretion and independent judgment in performing those duties.

Normally, if any of these elements are not met, the employee is not an "exempt" employee for the purposes of California's overtime laws.

Importantly, each of these criteria look at the nature of the employee's job. The employee's job title or job description does not determine his or her status as exempt or non-exempt.

So, how can employees know if their job is white-collar within the meaning of the exemption? The IWC's wage orders and case law have shed some light on this question:

Executives.

An executive is someone whose duties involve the management of the company they work for. An executive can also be someone that manages a department or subdivision of the company if that department is normally recognized within the industry.

In addition to having managerial duties, an executive must:

• Command employees. The executive must direct the work of two or more other employees. The executive must perform this duty regularly. Also, this duty must be recognized within the industry they work in as having this duty.
• Choose who to hire or fire. The executive must usually have discretion about which employees to hire or fire. If they don't have this discretion, their opinions must be given particular weight concerning hiring, firing, promotions, or other changes of status.

Administrators.

In general, there are two categories of administrators:

• Office administrators. Office administrators perform office or non-manual work. Their work is directly related to management policies or general business operations.
• Academic administrators. Academic administrators perform their job duties within the administration of a school system or educational establishment. Their work is directly related to academic instruction or training.

Both types of administrators must meet one of three elements. They either:

• Regularly and directly assist an executive or another administrator.
• Perform specialized or technical work that requires special training, experience, or knowledge. They also perform this work under only general supervision.
• Or they execute special assignments and tasks under only general supervision.

The overall key to the administrative exemption is that it directly relates to management policies or general business operations. ((Harris v. Superior Court (2011) 53 Cal.4th 170, 180–182.))

Professionals.

Professionals are people that are engaged in a profession that requires a license or certification issued by the State of California. They include people engaged in the practices of:

• Law.
• Medicine.
• Dentistry.
• Optometry.
• Architecture.
• Engineering.
• Teaching.
• Or accounting.

The wage orders also provide for professionals that engage in an occupation that is commonly recognized as a learned or artistic profession. A person is involved in a learned profession if their job is predominantly intellectual and varied in character. ((Campbell v. PricewaterhouseCoopers, LLP (9th Cir. 2011) 642 F.3d 820.))

Miscellaneous exemptions for specific industries.

In addition to the primary categories of exemptions listed above, certain industries have specific exemptions of their own. For example, computer-related professionals are often exempt, even if they don't fall into one of the categories above. ((Labor Code, § 515.5.))

Outside salespersons are exempt if they are over 18 and they spend more than half their time away from their employer’s place of business selling items or obtaining orders.

Private school teachers, certain commissioned employees, some delivery drivers, and taxicab drivers may also be exempt.

Exemptions under the Fair Labor Standards Act.

The federal Fair Labor Standards Act (FLSA) provides for exemptions that are very similar to those provided under California law. For example, blue-collar employees are generally not exempt from FLSA labor standards. The FLSA also specifically exempts executive, administrative, and professional employees.

The wording and structure of the tests, however, is slightly different from the tests provided in California's Labor Code and wage orders. Often, California law is more generous to employees than federal law. (See, e.g., the federal salary requirement of $455 per week versus California's salary requirement of $640 per week.) So compliance with California's labor laws will often meet all of the requirements of federal labor laws as well.

Update on the salary requirement.

Importantly, California's salary requirement may be changing soon as a result of a minimum wage increase. As mentioned above, the current minimum wage is $8.00/hour, which means an exempt employee must normally earn twice that amount of minimum wage for a 40-hour work week (or $640 per week). A few days before this blog post was written, however, the California State Legislature passed an increase to the minimum wage. ((AB-10 Minimum wage: annual adjustment, (2013–2014 Regular Session), available here.)) If approved by Governor Jerry Brown (which it is expected to be), the minimum wage will be raised to $9.00/hour in July 2014 and again on January 1, 2016, to $10.00/hour. This means that the minimum salary requirement for exempt employees will be roughly $37,440 beginning on July 1, 2014, and $41,600 after January 1, 2016.

Final Thoughts.

Overall, the formula to determine whether an employee is exempt or non-exempt is somewhat complicated. The requirements can often vary depending on the industry and Nevertheless, it is an important one. The difference between being exempt and not being exempt can dictate many important employee rights, like overtime, meal breaks, or rest periods.

If you believe that you have been wrongly classified as exempt or if you have been deprived of your rights, it's important to have a lawyer examine the nature of your job to determine which exemptions may apply. You deserve competent and experienced representation on your side. Call us, Petronelli Law Group, PC, at (949) 954-8181. Our consultations are free and confidential. We are committed to protecting the rights of all hard-working employees.