What is the difference between exempt and nonexempt employees in California?

Misclassifying an employee as exempt will expose an employer to a lawsuit and over $100,000 in damages. Employers and employees should work together to classify an employee’s exemption status correctly.

By: Brad Nakase, Attorney

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What is the difference between exempt and nonexempt employees in California?

Niklaus works at a graphic design company in Malibu. He has heard that in California there are two types of employees: exempt and non-exempt. He begins to wonder what type of employee he is based on his duties. At his company, he does not have a supervisory role, but he leads a team of three people in charge of doing word graphics. He does not have the power to hire or fire people, though he submits reports to his boss on team performance. He is curious whether these factors make him exempt or non-exempt in California.

1. What is an exempt employee in California?

Under California labor law, a distinction is drawn between different types of employees based on the type of work performed and the manner in which it is performed. Exempt and non-exempt employees are different based on their work duties and pay structure. Why is this important? These differences affect whether an employee is subject to state and federal laws concerning overtime pay, meal breaks, and paid time off.

To determine whether a job is exempt or non-exempt, one must look at several factors. These may be simplified as: income, title, and duties. California sets specific limits to define what makes an employee exempt versus non-exempt.

Let’s look at some of these.

Salary Limits

In order for a job to be classified as exempt in California, a minimum salary must be met. In California, a non-exempt job typically pays less than $58,240 a year. Where does this number come from? As of January 1, 2021, this number is double the state minimum wage of $14 an hour, multiplied by 52 weeks of forty hours each. If a company consists of 25 or fewer employees, then the limit for non-exempt employees is $54,080 per year.

That being said, the salary guideline is not an absolute rule. An employee can make more than the above amount and still be a non-exempt employee, depending on other factors. The salary rule is merely one of the many methods used by employers and state labor commissioners when evaluating whether a particular job is exempt or non-exempt. It alone is not a deciding factor.

Job Titles

Under California law, certain job titles are more likely to be classified as exempt than others. Generally speaking, job titles that imply management or senior status are more likely to be exempt than lower-ranking titles.

Executive Titles

Executive workers hold the most senior positions at companies. Small companies may have a couple employees who qualify as exempt, while large corporations may have hundred who fall under this umbrella. Jobs with executive titles are nearly always exempt under California law. Executive titles may include:

    • CEO
    • CFO
    • COO
    • Vice President
    • Director
    • Board Member
    • Regional Director or Manager

Administrative Titles

While administrative jobs may vary based on the specific role, many admin jobs qualify as exempt under California law. Admin job titles that qualify as exempt include:

    • Executive secretary
    • Personal assistant
    • Senior assistant
    • Administrative assistant/manager/director

Professional Titles

Professional employees are almost always counted as exempt. Professional jobs are normally treated as similar to executive and senior management positions. Examples include:

    • Doctor
    • Lawyer
    • Consultant
    • Senior accountant
    • IT manager

That said, just the job title alone may not be enough to prove that a professional job is exempt. Much depends on the specific role and duties at the company.

Terms of Work

Certain types of jobs are almost always classified as exempt based on their nature. This group of jobs includes independent workers, such as:

    • Freelance workers
    • Independent contractors
    • IT and tech jobs
    • Sales professionals

Again, there are always exceptions to the rule, so it is a good idea to check with a labor law professional if in doubt.

2. Exempt Employee Rights in California

Exempt and non-exempt employees have different rights and responsibilities under California labor law. These rights and responsibilities, assigned according to the particular job, can help determine whether the job is exempt or non-exempt.

When it is a tough call classifying a position as exempt or non-exempt, California labor commissioners might look at the job’s benefits. Therefore, it matters what an employee’s pay structure and benefits are. How much are employees paid? How often do they get paychecks? How much supervision is the employee under? These questions matter when considering how to classify a position.

Salary Vs. Hourly Wage

Generally, hourly employees are classified as nonexempt employees, while salaried employees are considered exempt. That said, some exempt employees are paid an hourly rate, so there are exceptions to be aware of.

Sometimes, an employee who would otherwise be considered exempt might be treated as nonexempt based on their pay structure. For instance, a supervisor might be paid a weekly wage of $2500. Because the employee is a supervisor and earns a high salary, it might be tempting to think of them as exempt. But let’s say that the employee takes a day off every other week, and their pay is reduced those weeks to account for the lost time. The position would thereby be classified as nonexempt because the pay reduction is associated with hours worked and not the contributed product.

White-Collar Work

In the United States, jobs are usually thought of as either blue-collar or white-collar. While these categories don’t have a clear definition, generally blue-collar is more associated with manual, hands-on labor. White-collar, by contrast, is normally associated with office or work-at-home jobs.

The distinction isn’t always clear, however. Blue-collar generally covers jobs involving manual labor, using equipment, or running transportation. Sometimes, entry-level employees, or those who are low in the company’s hierarchy, might describe themselves as blue-collar. While it can be hard to make generalizations about blue-collar jobs, often jobs that fall under this umbrella may be classified as non-exempt positions.

White-collar jobs are even harder to define than blue-collar jobs. White-collar works might include the following: corporate CEOs, lawyers and professors, upper and middle management, and customer service specialists. That’s a wide net! It tends to be the case that exempt workers fall under the white-collar umbrella. Still, it’s not the best way to determine if an employee is exempt or non-exempt, because the white-collar category is so broad.

3. Independence vs. Supervision

In California, how much supervision an employee has at work can also help determine if he or she is exempt or non-exempt. While this factor may not be enough to make the determination on its own, it can certainly be of use.

Generally, employees who perform non-exempt work are under more supervision than exempt employees. For example, an employee at a thinktank likely has a supervisor, and less direct oversight from higher level managers. This employee would therefore be considered non-exempt. His supervisors, however, would likely be considered exempt because they have very little, or no, oversight. That said, there are exceptions to the rule. Entry-level truck drivers and remote employees enjoy little supervision but can still classified as non-exempt employees based on the nature of their work. Similarly, a middle manager may report consistently to their supervisor but can still be considered exempt due to the nature of their role.

4. Classification of California Jobs

So, how does a California labor commissioner determine whether a job is exempt or non-exempt? It’s not as simple as checking off boxes on a list. The guidelines that we have discussed above are malleable and are a complicated mixture of state and federal laws. Therefore, each commissioner is relatively free to judge on a case-by-case basis. While the definitions of exempt and non-exempt employees are often foggy, it is a good idea for employers to have a general idea of which jobs fall into which category.

Luckily, many jobs tend to fall into the exempt or non-exempt category naturally. Understanding the boundaries can help employers make safe assumptions.

Certain categories of jobs can be safely classified as exempt. These include:

Senior Management Jobs

These jobs normally come with executive titles like CEO or Director. If an employee is an executive, a member of the board of directors, or a senior official, he or she is most likely exempt. An exception may be made for executives at very small companies, where the terms of their positions might not be considered exempt if they worked at a larger company in the same role.

Example: Pietro works at a tech company in Long Beach. His title is “Director of Robotics,” and he manages twenty employees. He is paid $120,000 per year and only answers to the company CEO. A California commissioner is most likely to classify Pietro as an exempt employee.

Contractors

Contractors are another category of workers that is typically considered exempt. This is due to their pay structure and rules regarding breaks. Contractors are not members of the companies with which they work, and therefore they are normally paid according to the work they produce and not how many hours they work. For this reason, accountants, corporate lawyers, IT staff, and marketers are often classified as exempt. However, a contractor may be considered non-exempt if he or she is paid by the hour, under close supervision, or solely works for one company.

Example: Athena works as a painter. She does work for several companies, or clients, for whom she paints murals or pictures for their lobbies. She is paid for the work done and not by the hour. For instance, she charges $2000 for a mural of standard dimensions, regardless of how long it takes for her to complete it. Athena would most likely be classified as an exempt employee, because she does not work for a single company and is not paid by the hour.

It is generally easier to identify a non-exempt employee than an exempt one. Typically, entry-level jobs or other positions low in seniority are considered nonexempt due to the amount of overhead. Similarly, if a job pays by the hour or is treated as an at-will position, then it is most likely a non-exempt position under California law.

Examples of non-exempt positions include, but are certainly not limited to, the following:

  • Laundry workers
  • Cleaners
  • Factory workers
  • Grocery store stockers
  • Entry-level food service
  • Customer service
  • Entry-level nursing and paramedic jobs

7. Jobs That Can Be Classified as Either

Some jobs will naturally be hard to classify. Typically, these jobs include middle management positions, such as line supervisor or shift leader. These jobs might also include semi-independent workers, such as salespeople who work entirely based on commission and bonuses.

Assistants are another category of worker that is hard to classify as exempt or non-exempt. A standard receptionist or secretary is most likely to be classified as non-exempt, but there are some executive assistants that can be called exempt. Other similar exempt positions might include legal secretaries and law clerks.

Another on-the-border category is real estate agents. A commissioner making his or her determination will look at how the agents are paid, whether they must work a certain number of hours, and how much freedom they are given when it comes to using personal cars or dress code.

When it comes to labor law exemptions, hairdressers, barbers, and cosmeticians are also on the edge. Some of these workers may be defined as nonexempt employees if they work at a shop under supervision. But some, who rent space to work independently, are technically freelance workers. These individuals may qualify as exempt. The difference here is that the nonexempt employees are paid an hourly wage from the owners of the shop, whereas the exempt employees pay rent, have their own schedule, and use their own supplies.

8. Misclassifications

It may financially benefit an employer to misclassify an employee as exempt, so California tends to look for this manner of violation.

9. Common Questions

Do Exempt Employees Have to Take Meal Breaks?

Some exempt workers are entitled to paid meal breaks, but it depends on the position. Sales reps and truck drivers get meal breaks, for example, but executives do not.

Do Exempt Employees Have to Use PTO for Part-Day Leave?

In California, employers are not allowed to deduct partial time off from exempt employees’ wages. However, they may require the employee to use sick leave or vacation time. If an exempt employee does not have enough PTO to cover a partial absence, they must still be paid their regular salary in order to maintain their exempt status.

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