Exempt vs. Non Exempt

Exempt or Non-Exempt from Overtime

“We will just pay all employees a salary, and make them Exempt.” I’d like to have dime for every time I’ve heard that.

California is a sticky state in regards to classifying employees as Exempt or Non-Exempt, as the laws and regulations are stricter than the Federal laws. Employees must be classified correctly based on their actual job duties and must fall under one of the following exemptions to be exempt: Executive, Administrative, Professional, Artists, or Outside Salespeople. They must also make two times the minimum wage for the Exempt status to apply.

The employee’s job title and method of payment are irrelevant in classifying exempt employees.* Employees must meet all the requirements under one of the Exemptions listed.

Executive Exemption:
This is usually for management employees, but managers must meet all the requirements:
-Management of department or division
-Direct the work of two or more employees
-Has authority to hire and fire
-Exercises discretionary powers
-Is primarily engaged (more than 50%) in the above duties.
-Earns a monthly salary of no less than two times the minimum wage.

Examples of non-exempt work:
-Performing the same kind of work as subordinates
-Production work
-Making sales, stocking
-Clerical duties

Administrative Exemption:
To determine if an employee is exempt under the Administrative Exemption we need to look at the duties the employee performs and well as their salary. They must meet the following requirements:

-Has duties involving office or non-manual work directly related to management policies or operations
-Performs customary and regularly uses discretion and independent judgment in executive or administrative capacity.
-General supervision only of work for specialized or technical duties which require special training.
-Primarily engaged (more than 50%) in the above activities and monthly salary is no less than two times the state minimum wage.

Examples of non-exempt work:
Clerical, deliveries, operating equipment, inspecting, tabulating data.

Professional Exemption:
A professional employee must meet all of the following requirements to be considered exempt under the Profession Exemption:
- Is licensed by the State of California and in the practice of one of these professions: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting; or
- Is primarily engaged in an occupation that is known as a learned or artistic profession such as specialized intellectual instruction in science, original and creative artistic work, work that is predominately intellectual.
- Exercises discretion and independent judgment
- Earns a monthly salary no less than two times the state minimum wage.

Examples of non-exempt work: Nurses, paralegals, uncertified accountants, editors, artists, copy writers

Examples of exempt professions: Doctors, attorneys, CPA’s, licensed civil and mechanical engineers.

Support staff does not usually fall into the Exempt classification. Someone once said, “Well, let’s change their job duties so we can make them Exempt.” You really can’t change the job duties of a receptionist or mail clerk to make them fit into an exempt category. Plus, they probably don’t make twice the minimum wage.

As managers, we try to protect organization from labor disputes by classifying employees correctly. Some employees are well versed in California labor law, not just for their own personal use, but also for advising clients. We must classify employees correctly and not try to make them fit into one category or another. The labor board just won't buy it.


Reference: 2008 California Labor Law Digest. California Chamber of Commerce.