June 28, 2024

Class Is In Session on Exempt Classifications

Brian Cole II, Nancy Lubrano, Osaama Saifi

CDF Labor Law LLP

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CDF Wage and Hour Task Force – Monthly Tips - Class Is In Session on Exempt Classifications

All California employers should know by now that non-exempt employees are entitled to overtime for all hours worked over 8 hours in a day or 40 hours in a week. Merely labeling an employee as a supervisor or manager and paying them a set salary does not automatically convert the employee from non-exempt to exempt for purposes of applicable overtime laws. Rather, for an employee to be validly classified as exempt from applicable overtime laws, the employee must fall into a specified classification and meet the test for the same, which includes a minimum salary test. The U.S. Department of Labor recently updated its Overtime Rule, which increases the federal minimum salary for exempt classification to $43,888. The updated rule takes effect on July 1, 2024. The minimum salary will increase again on January 1, 2025 to $53,656. The minimum annual salary test under California law remains higher than the federal salary test at $66,560. The list of employment classifications for overtime exemptions is limited. Here are the three most common classifications and an overview of the general requirements:

EXECUTIVE EXEMPTION FROM OVERTIME

California Overtime	Federal Overtime
Does the employee make 2x the minimum wage per month or more (equivalent of $66,560 per year)?	Does the employee make an annual salary of at least $43,888?
Does the work require the exercise of discretion and independent judgment regarding matters of consequence to the operation of the business?	Is his/her primary duty the head of a customarily recognized department or subdivision, and does it include the regular direction of the work of two or more employees?
Does the employee spend more than 50% of his or her time on exempt duties?

ADMINISTRATIVE EXEMPTION FROM OVERTIME

California Overtime	Federal Overtime
Does the employee make 2x the minimum wage per month or more (equivalent of $66,560 per year)?	Does the employee make $43,888 or more per week? AND
Does the work require the exercise of discretion and independent judgment regarding matters of consequence to the operation of the business?	Does his/her primary duty consist of the performance of office or non-manual work directly related to management policies or general business operation of the company or its customers, or functions in the administration of a school system or educational establishment in work directly related to the academic instruction or training conducted there?
Does the employee spend more than 50% of his or her time on exempt duties?

PROFESSIONAL EXEMPTION FROM OVERTIME

California Overtime	Federal Overtime
Does the employee receive 2x the minimum wage per month or more (equivalent of $66,560 per year)?	Is the employee paid the minimum annual salary of $43,888? AND
Is the work performed in one of the following professions: Law Medicine Dentistry Pharmacy Optometry Architecture Engineering Teaching Accounting	Does the primary duty consist of the performance of work either requiring knowledge of an advanced type in a field of science or learning which includes work requiring consistent exercise of discretion and judgment, or requiring invention, imagination, or talent in a recognized field of artistic endeavor?
An occupation commonly recognized as a learned or artistic profession (other than nursing)?
Does the employee spend more than 50% of his or her time on exempt duties?

The above is not an exhaustive list of exemptions or requirements for satisfying exemption tests. Employers should review their exempt classifications regularly, and especially every time there is an increase in the minimum rate of pay at the federal, state, and local level to ensure compliance. Employers should also regularly analyze the duties performed by employees classified as exempt and job descriptions. Misclassification cases are frequently filed wherein plaintiffs alleged that even though they were classified as exempt, they spent the majority of their time performing non-exempt duties and are owed unpaid overtime wages, meal and rest break premiums, as well as other damages and penalties. The employer has the burden of proving that the employee was properly classified as exempt. This type of litigation is expensive, but avoidable.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.