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California's Overtime Pay Laws – Who is Exempt From Overtime?

 
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California's Overtime Pay Laws – Who is Exempt From Overtime?

Prepared By: Melissa C. Marsh, Los Angeles Employment Attorney
Written: March 2009 - Last Updated: February 2016
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California's Overtime Pay Laws

Overtime has always been a huge well of liability for California employers because determining who is and is not exempt from overtime pay has always been a difficult task. Unfortunately, misclassifying an employee as being exempt from overtime is also one of the most common and often expensive mistakes an employer can make. Since California employers tend to err on the side of not paying overtime pay, there has been an explosion in wage and overtime litigation, including a multitude of class action lawsuits covering an entire class of employees such as "managers," "assistant managers" and "salespersons." Plaintiff's lawyers love overtime pay cases because the employer is required to prove the employee is exempt and violation of the law entitled the employee not only his or her actual damages (unpaid overtime pay for up to 4 years), but also penalties, interest and attorneys fees and costs.

Under California's overtime pay laws, an employee is entitled to be paid overtime pay at a rate of time and one half for: (1) each hour worked over eight in a single workday; (2) each hour worked over forty in a single workweek, and (3) the first eight hours worked on the seventh day of work in a particular workweek. California's overtime pay laws also require employers to pay employees double time for: (1) each hour worked over twelve in a single day and (2) each hour worked over eight on the seventh consecutive day of work in any given workweek.

All California employers would be wise to start with the premise that every employee is entitled to overtime pay, even if they are salaried employees. One of the biggest myths out there is that if the employee is salaried, the employee is not entitled to overtime pay. This is simply false. Pursuant to California law, an employee can only be considered "exempt" from overtime pay if the employee meets ALL of the specific duty requirements of one of California's Seven Overtime Pay Exemptions.

1. Executive Exemption. To be exempt in California from overtime pay under the Executive Exemption, the employee must: (1) receive a salary of at least $800 per week ($41,600 per year in 2016); (2) have the authority to hire, fire, and to perform performance reviews in which the employees opinion is given great weight[ and (3) spend 50% or more of his or her time:
  • Managing the employer's business, or a recognized department or subdivision of the business; and
  • Overseeing and directing at least two subordinate employees; and
  • Regularly exercising independent business judgment and discretionary power.

A manager, supervisor, or foreman that directs the work of two or three employees will not satisfy the requirements of the Executive Exemption, unless she or he actually is in charge of the entire business or a "real" department, or unit. According to the Department of Labor Standards and Enforcement Manual, the "employee must be in charge of the unit, not simply participate in the management of the unit."

2. Administrative Exemption. To be exempt from overtime pay under the Administrative Exemption, the employee must: (1) receive a salary of at least $800 per week ($41,600 per year in 2016); and (2) spend 50% or more of his or her time:

  • Performing office work directly related to either the management of the employer's business, or the general business operations (and not work on the provision of the employer's service or in the creation of the employer's product); and
  • Regularly exercising independent business judgment and discretionary power in the performance of intellectual work related to management policies and/or the general business operations; and
  • Regularly and directly assisting the owner of the business, or another exempt administrator.

If the employer produces a product and the employee is somehow involved in the production of the product, the work being performed does not qualify under the Administrative Exemption. Similarly, if the employer supplies a service and the employee is somehow involved in supplying that service, the work being performed does not qualify. For example, if you are an advertising agency and the employee's job is to create an ad campaign for a customer, that is production work, not administrative work.

3. Outside Sales Exemption. To be exempt from overtime pay under the Outside Sales Exemption, the employee must: (1) be 18 years of age or older; (2) receive commission based compensation and (3) spend over 50% of his or her time away from the employer’s place of business (including the employee's home office if working from home) actually engaged in sales, or taking orders, for an actual product, lease, or service. It should be noted that pursuant to California law "outside sales activities" does not include:

  1. time spent making sales by mail, telephone or the Internet;
  2. time spent at a home office, or some other fixed location, as a headquarters from which to make calls; or
  3. time spent making incidental deliveries, providing maintenance or repair services, or engaging in collection activities.

Consequently, employees who are primarily engaged in sales activities by mail, telephone, or the internet (even from home) are not engaged in what California law deems "outside sales activities." Time spent on collection and deliveries is also not considered an "outside sales activity." If the sales person is engaged in these types of activities, the sales person is not exempt from overtime pay under the Outside Sales Exemption, but still may qualify under the Inside Sales Exemption.

4. Inside Sales Exemption. To be exempt from overtime pay under California's Inside Sales Exemption the salesperson:

  1. must be employed in either the "retail or mercantile industry" (covered by Wage Order 7) or in a "professional, technical, clerical, mechanical and similar occupation" (covered by Wage Order 4); AND
  2. must earn a base salary of at least one and one-half time the minimum wage ($15.01 per hour for each our worked); AND
  3. must earn more than 50% of his or her total compensation in each pay period from bona-fide commissions; AND
  4. the salesperson's primary duty must be to make “sales,” or obtain orders, or to obtain contracts for services.

Please note that this exemption applies only to overtime pay. The salesperson is still entitled to other benefits, including meal periods and rest breaks. It is also important to note that if the employer pays a guaranteed draw against commissions, the court may consider the commission a salary, which would render the overtime exemption inapplicable.

5. Learned Professional Exemption. To be exempt from overtime pay under the Learned Professional Exemption, the employee must: (1) receive a salary of at least $800 per week ($41,600 per year in 2016) and (2) spend 50% or more of his or her time performing work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and which in most cases requires a state license or certification. (Such as: lawyers, doctors, dentists, certified public accountants, civil engineers, etc.)

It should be noted that paralegals, nurses, pharmacists, drafters and machinists are typically not exempt, and employers must be cautious not to mis-classify employees as exempt from overtime pay if they have not yet received their license from the state.

Physicians and Surgeons who perform duties for which a medical license is required are exempt from overtime only if paid at least the minimum hourly rate set by the state of California on an annual basis ($75.24 for 2016, up from $75.19 for 2015).

6. Creative Professional Exemption. To be exempt from overtime pay under the Creative Professional Exemption, the employee must: (1) receive a salary of at least $800 per week ($41,600 per year in 2016) and (2) spend 50% or more of his or her time performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor; and (3) who regularly exercises discretion and independent judgment in the performance of his or her duties.

7. Computer Professional Exemption. (Labor Code Section 515.5). A large portion of California's computer professionals are not entitled to overtime pay. Pursuant to Labor Code §515.5, to be exempt from overtime pay the computer professional or programmer must earn as of January 1, 2016 at least $87,185.14 a year ($7,265.43 monthly, or $41.85 per hour) and spend at least 50% of his or her time on:

  1. systems analysis (including consulting with users) to determine hardware, software or system functional specifications; or
  2. computer hardware design, development, documentation, analysis, creation, testing or modification (including prototypes); or
  3. computer software design, documentation, testing, creation or modification.

The computer professional exemption does not apply to trainees, or computer programmers or software engineers in entry level positions.

Federal law, but not California law, provides one additional overtime exemption for Highly Compensated Employees. Under federal law, employees earning at least $100,000 per year are exempt from overtime so long as they customarily and regularly perform one of the duties if an exempt executive, administrative or professional employee. Private employers must be careful not to fall into this trap, because the exemption does NOT apply to California employees in the private sector.

Still Unsure if a California overtime pay exemption applies? Schedule a 15 Minute Telephone Consult and California Employment Law Attorney Melissa C. Marsh will answer your questions.


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California employment lawyer, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and serves individuals and businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.