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Overtime Laws for Salaried Employees

overtime pay for salariesIntroduction

The short answer to this question is “sometimes”. As our employment law attorneys explained in a previous article here, employees in California are typically entitled to overtime pay for any work in excess of eight hours a day or 40 hours a week. However, employers need not pay overtime for so-called “exempt” salaried employees who work in excess of those hours.

California employers must comply with both California state and federal law requirements for determining whether an employee is “exempt,” and, therefore, need not be paid overtime. However, California and federal law differ somewhat in the tests to be applied for determining whether a salaried employee is exempt. California employers must comply with both laws.  As is typically the case, California’s tests are more stringent than the federal test for determining whether an employee’s status as exempt. Consequently, if an employee passes the California test for exempt status, in most cases he will also pass the federal test.

This article discusses California state law on the subject of exempt versus non-exempt status of employees. However, before making decisions concerning the status of an employee, and whether to pay an employee a salary, or instead by the hour, an employer should consult with an employment law attorney who handles wage and hour issues.

The Main Tests for Determining Exempt Status

The two main tests for determining whether a salaried employee is exempt are (1) the amount of salary the employee is paid, and (2) the duties of the employee. Both tests must be satisfied in order for an employee to be considered exempt.

Under the salary test, the employee’s salary must be at least twice the amount of the California minimum wage based on full-time employment. Full-time employment is considered to be 40 hours a week. Since the state minimum wage is $10 per hour as of January 1, 2016, an employee must be paid at least $800 a week ($41,600 a year), in order to pass the salary test.

The duties test is described in Labor Code section 515 (a), and regulations promulgated by the California Industrial Wage Commission (“IWC”). Labor Code section 515 (a) provides:

The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid pursuant to [Lab. C §§510 and 511] for executive, administrative and professional employees, provided that the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.

The Executive Exemption

With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for workers provide an executive exemption for an employee:

(1) Whose duties and responsibilities involve the management of the enterprise in which the employee is employed;

(2) Who customarily and regularly directs the work of two or more other employees in the enterprise;

(3) Who has the authority to hire and fire other employees, or whose suggestions and recommendations as to the hiring, firing, promotion or any other change of status of other employees will be given particular weight;

(4)  Who customarily and regularly exercises discretion and independent judgment; and

(5) Who is primarily engaged in duties that meet the test of the exemption.

It is important to note that the employee must meet all of these five requirements for the exemption to apply.

An employee does not need to spend 100% of his time actually engaged in “the management of the enterprise.” It is sufficient if the employee spends more than half of his time in true management duties. If he does, he is “primarily engaged” in such duties.  Consider this example:  If a “manager” of a retail store finds himself short-staffed because one or more of his employees is out sick, and he operates the cash register, that work is non-exempt work. However, if the manager spends more than half of his time fulfilling true management duties, and his non-exempt work takes up less than half of his time, he may be considered an exempt employee.

Moreover, work that is directly related to exempt work, and all work that is necessary for carrying out exempt work, is also considered exempt work.

The test for determining whether any employee, executive or otherwise, is exempt does not depend on the title he/she is given.  The courts and the IWC will give no credence to the title “manager,” for instance, in making the determination whether an employee is exempt.  As our employment law lawyers have seen first-hand, their only interest will be in determining whether the employee truly meets the salary and duties tests.

The Administrative Exemption

With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for other workers provide an administrative exemption for an employee whose duties and responsibilities involve either:

(1) The performance of office or non-manual work directly related to management policies or general business operations of the employer or his/her customers, or the performance of functions in the administration of a school system or educational establishment or institution;

(2) Who customarily and regularly exercise discretion and independent judgment;

(3) Who regularly and directly assist an employer or employee in a bona fide executive or administrative capacity;

(4) Who perform specialized or technical work requiring special training, experience, or knowledge, under only general supervision, or execute special assignments and tasks under only general supervision; and

(5) Who is primarily engaged in duties that meet the test of the exemption.

Note that some of these five requirements use the word “or,” signifying that the requirement may be met in the alternative. For instance, under requirement (3), the employee may assist the employer in either an executive capacity or an administrative capacity.

As is true of the executive exemption, the administrative employee need not spend 100% of his time performing truly administrative work within the definition of the Wage Orders, so long as he spends the majority of his time performing such work. As typical IWC Wage Orders also provide, exempt work includes 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 Professional Exemption

With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for other workers provide a professional exemption for an employee who:

(1) Is licensed or certified by the State of California and is primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting, or is primarily engaged in an occupation commonly recognized as a learned or artistic profession; and

(2) Customarily and regularly exercises discretion and independent judgment in the performance of his or her duties.

Again, it is important to note that one of these requirements, requirement (1), is in the alternative. Thus, if one is not a licensed lawyer, physician, dentist, optometrist, architect, engineer, teacher or accountant, he/she may nevertheless be exempt if he/she “is primarily engaged in an occupation commonly recognized as a learned or artistic profession.” On the basis of this alternative requirement, courts have, for instance, ruled that a law clerk was exempt under the professional exemption, even though he had not yet passed the California Bar and was not a licensed attorney. The court reasoned that, as a law school graduate and law clerk, he was primarily engaged in a learned profession, i.e., the law.  Zelasko-Barrett v. Brayton-Purcell, LLP (2011) 198 Cal. App. 4th 582.

As is true of the other exemptions, an employee need not spend 100% of his time performing professional exempt work, so long as the majority of his time is spent performing such work. Further, any work which is directly related to professional exempt work or reasonably necessary for performing such work is also considered exempt work.

Other Exemptions

The California Labor Code and the IWC Wage Orders also provide exemptions for other types of employees, such as computer-related individuals, outside sales persons, commissioned sales persons, certain employees regulated by the Secretary of Transportation, and taxicab drivers.  The tests for determining whether or not an employee meets the requirements for these exemptions can be complicated, and is not within the scope of this article. An employer in doubt as to whether an employee engaged in any of these occupations, or the primary exempt executive, administrative or professional occupations, should consult with an experienced employment law attorney to determine whether that employee is entitled to overtime pay.

Gehres Law Group’s employment law attorneys handle wage and hour matters, such as issues of exempt versus non-exempt status of employees, and do not charge for initial consultations.  We are here to assist clients, employers and employees, who need assistance interpreting wage and hour laws, or handling disputes and claims by employees for alleged wage and hour violations. Contact us today for your free consultation and put our experience to work for you or browse our website for more information.

 

By | 2017-09-11T06:23:55+00:00 January 15th, 2016|Labor & Employment Law, wage and hour law|Comments Off on Overtime Laws for Salaried Employees