Chapter 15:
Guide Lists for Determining Exemptions

Last Edited by Jim Kuns, J.D., Senior Staff Consultant
May 2008

DO NEW FLSA EXEMPT REGULATIONS AFFECT CALIFORNIA EMPLOYERS?

Exempt employees are generally exempt from overtime payments, unlike non-exempt employees. Virtually all employees may be non-exempt – paid on an hourly basis; but in order to be exempt, an employee must meet specific salary and job duties tests. Federal law defers to the state law, if the state law is more beneficial to the employee or more difficult to classify the employee as exempt.

In California, the state law is more beneficial toward the employee; therefore it is more difficult to consider employees exempt in California. The new federal regulations are not as beneficial to employees as are current California regulations. Therefore, the federal regulations which became effective August 23, 2004, generally do not affect employees’ exemption status in California.

Remember, if an employee is improperly classified as exempt, an employer may be liable for back pay for failure to pay overtime, and for missed or improperly taken meal and rest periods. Many employers have been sued individually, and by large groups of current or former employees in class actions. These suits can be extremely expensive, and can force back payments for up to four previous years.

GUIDE LIST FOR DETERMINING EMPLOYEE EXEMPTIONS UNDER CALIFORNIA LAW

Executive Exemption

  1. Effective January 1, 2000, an employee must earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment is defined in California Labor Code §515(c) as forty (40) hours per week.
  2. In California an employee must be primarily engaged in duties, which meet the test of the exemption. "Primarily engaged in" means that more than one-half (½) of the employee’s work time must be spent engaged in exempt work. The activities constituting exempt work and non-exempt work shall be construed in the same manner as such terms are construed in the following regulations under the Fair Labor Standards Act effective in July, 2000 -- (29 C.F.R. §§ 541.102, 541.104-111, 541.115-116 ) and shall include, for example, all work that is directly and closely related to exempt work and work which is properly viewed as a means for carrying out exempt functions. The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement. See the applicable Industrial Welfare Commission (IWC) Wage Order for further details.

Note: Where a company is covered by both federal and state exemption requirements, and most are, the higher standard applies. Therefore, the state minimum weekly earnings would have to be met when applying these tests to California employees.

Administrative Exemption

A person employed in an administrative capacity means any employee:

  1. Whose duties and responsibilities involve either:
    • The performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers, or
    • The performance of functions in the administration of a school system, or educational establishment or institution, or of a department of subdivision thereof; in work directly related to the academic instruction or training carried on therein; and
  2. Who customarily and regularly exercises discretion and independent judgment; and
    • Who regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity (as such terms are defined for purposes of this section), or
    • who performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or
    • who executes under only general supervision special assignments and tasks, and
  3. Who is primarily engaged in duties which meet the test of the exemption.
    “Primarily engaged in" means that more than one-half (1/2) of the employee’s work time must be spent engaged in exempt work. The activities constituting exempt work and non-exempt work shall be construed in the same manner as such terms are construed in the following regulations under the Fair Labor Standards Act -- (29 C.F.R. §§ 541.201-205, 541.207-208, 541.210, 541.215 ) and shall include, for example, all work that is directly and closely related to exempt work and work which is properly viewed as a means for carrying out exempt functions. The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement.
  4. Such an employee must also earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time is defined in Labor Code § 515(c) as forty (40) hours per week.

Professional Exemption

A person employed in a professional capacity means any employee who meets all of the following requirements:

  1. Who is licensed or certified by the State of California and is primarily engaged in the practice of one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting; or
  2. Who is primarily engaged in an occupation commonly recognized as a learned or artistic profession. For the purposes of this subsection, "learned or artistic profession" means an employee who is primarily engaged in the performance of:
    • Work requiring knowledge of an advanced type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished form a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes or work that is an essential part of or necessarily incident to any of the above work; or
    • Work that is original and creative in character in a recognized field of artistic endeavor (as opposed to work which an be produced by a person endowed with general manual or intellectual ability and training), and the result of which depends primarily on the invention, imagination, or talent of the employee or work that is an essential part of or necessarily incident to any of the above work; and
    • Whose work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical, or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.
  3. Who customarily and regularly exercises discretion and independent judgment in the performance of the duties set forth in paragraph (1).
  4. Who earns a monthly salary equivalent to no less than two (2) times the state minimum wage for fulltime employment.
  5. Subsection (1) (b) is intended to be construed in accordance with the following provisions of federal law: 29 C.F.R. §§ 541.207, 541.301(a)-(d), 541.302, 541.306, 541.307, 541.308, and 541.310
  6. Notwithstanding the provisions of this subsection, pharmacists employed to engage in the practice of pharmacy, and registered nurses employed to engage in the practice of nursing, shall not be considered exempt professional employees, nor shall they be considered exempt from coverage for the purposes of this section unless they individually meet the criteria established for exemption as executive or administrative employees. Effective October 2000, certified nurse midwives, certified nurse anesthetists and certified nurse practitioners who are “primarily engaged in performing duties for which certification is required” are exempt from overtime requirement (see California Labor Code § 515 as amended).
  7. SB 88, in addition to extending exempt status to these certified, advance practice nurses, also provided for exempt status to computer professionals in the software field who are “primarily engaged” in exempt work within the meaning of § 515.5 of the California Labor Code, are highly skilled, and are paid not less than $36.00 per hour. AB 10 made significant changes to California’s ‘Computer Professional’ exemption. Effective September 1, 2008 a qualifying computer professional may be exempt if he/she is paid on a ‘salary basis’ and earns at least $75,000 per year.

    Effective January 1, 2009, the computer software employee's minimum hourly rate of pay exemption increases from $36.00 to $37.94, the minimum monthly salary exemption increases from $6,250 to $6,587.50, and the minimum annual salary exemption increases from $75,000 to $79,050. The increases reflect a 5.4% increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers. ( California Department of Industrial Relations Memoranda, October 28, 2008.)

Note: The exempt status for hourly paid computer professionals provides an exemption from overtime payment requirements, in that hours worked in excess of 8 hours per day or 40 hours per week need not be paid at a premium rate of one and one-half times the regular rate. However these hours are compensable and must be paid at the regular hourly rate.

 

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