Exempt & Non-Exempt Employees in California

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson, we'll examine how the State of California defines exempt and nonexempt employees, with regard to the laws about which they are entitled to overtime pay.

California Exempt and Nonexempt Employees

John is considering applying for a position opening up at the manufacturing company he works for. In addition to a significant pay raise, the job also allows him to move on from working on the assembly line to taking on a back office administrative role. A friend mentions to him that he should be careful about potentially losing his overtime pay, which has been quite plentiful and represents a good chunk of John's paycheck. In this lesson, we will look at the definitions of exempt and nonexempt employees in the context of California overtime laws.

The language of these terms refers to whether or not an employee is exempt from California overtime laws. The state defines overtime as one and half times the employee's regular rate of pay. A nonexempt employee is entitled to receive overtime pay when he works more than eight hours in a day or more than 40 hours in a week. If the employee exceeds the limits of a legally designated alternate work schedule he is also eligible for overtime pay. A nonexempt employee is often an hourly wage earner, but employees who receive a salary can also be classified as nonexempt. An exempt employee is someone who is not paid overtime under California law because he typically receives a salary that compensates for all hours worked.

Exemptions

John is clearly a nonexempt employee in his current position, but does he become an exempt employee if he takes the new job? That depends on whether or not California has identified aspects of the role as being exempt from the overtime laws. The new job would have John work as a Quality Assurance Supervisor. The duties include training QA technicians, conducting feedback, and ensuring goals set by the Production Department are meant. So although John won't be working directly on the assembly line, he is still involved in the production of the company's product. The job pays an annual salary of $55,000 a year instead of an hourly wage.

California sets a high standard of classifying employees so that a business cannot make an employee exempt simply by offering a salary instead of an hourly wage, or by giving a fancy job title. Exempt employees must earn a salary at least equal to twice the state minimum wage. Their jobs often involve using discretion and independent judgment to complete work instead of simply being told what to do. The exact guidance for classifying employees is incredibly complex and should be carefully reviewed against state laws to ensure all of the exemption requirements are met.

Exempt employees include executive and administrative staff. To qualify as an administrative employee, the job duties must be directly related to the management or business operations of the company instead of performing the primary function of the company. In a factory setting for example, this would be the employees who handle payroll or human resources work instead of working on an assembly line or driving a forklift. Certain highly paid professionals that require advanced certification and education such as doctors, lawyers, and computer professionals are exempt from overtime laws, as well as artists and outside salespeople. The California Department of Industrial Relations maintains a comprehensive list of other exemptions, which include occupations such as drivers and employees of a national service program like Americorps.

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