What is the difference between California overtime exemption requirements and federal overtime exemption requirements?

There are a number of differences between the California labor code/wage orders and the federal Fair Labor Standards Act (FLSA) when determining which employees are exempt from overtime pay requirements.

Under the FLSA, several categories of workers are generally exempt from many of the wage-and-hour laws. See Fair Labor Standards Act Advisor.

California covers the same general areas of exemption as the FLSA, but it divides the areas somewhat differently and places additional requirements on some of the exemptions. See Exceptions to the General Overtime Law and IWC Wage Order 4-2001.

"White Collar" Exemptions

In California, white-collar exemptions (executive, administrative and professional) are included in each IWC Wage Order and have both salary and duty criteria that are different from those under the FLSA. The salary component is tied to California's minimum wage, so whenever the minimum wage goes up, employers must verify that employees classified as exempt still meet the minimum salary requirement. Generally, the exempt employee must earn a monthly fixed salary equivalent to no less than two times the state minimum wage for full-time employment (See: Labor Code 515a). The duties test for white collar exemptions requires exempt employees to be "primarily engaged" in certain duties (see below for each exemption). In California, an exempt employee must spend more than one-half of his or her time engaged in exempt work (quantitative test).

Descriptions of the following California exemption can be found in the DLSE online glossary.

Executive Exemption

A California employee qualifies for the executive exemption if the employee:

• Primarily manages the business.
• Regularly exercises discretion and independent judgment.
• Regularly directs the work of two or more employees.
• Has the authority to hire/fire and advance/promote employees.
• Earns a monthly salary equal to at least two times the state minimum wage for full time-employment (i.e., 40 hours a week).

Administrative Exemption

A California employee qualifies for the administrative exemption if the employee:

• Primarily performs non-manual work directly related to the general business operations of the organization.
• Regularly exercises discretion and independent judgment.
• Has obtained special training, experience or knowledge.
• Earns a monthly salary equal to two times the California minimum wage for full-time employment.

Professional Exemption

A California employee qualifies for the professional exemption if the employee:

• Has a license or certification by the state of California.
• Works primarily 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.
• Has advanced knowledge typically acquired by a course of specialized study/apprenticeship.
• Regularly exercises discretion and independent judgment.
• Earns a monthly salary equal to at least two times the state minimum wage for full-time employment.

Computer Software Occupations Exemption

Federal law handles the overtime exemption for computer workers through regulations as a subset of the professional exemption. A California employee qualifies for the computer software occupation exemption if the employee primarily applies systems analysis or designs, develops, documents, analyzes, creates, tests or modifies computer systems or programs.

Note that this exemption leans toward computer software as opposed to computer hardware, although software can be hardwired into hardware. Note also that this exemption may not apply to project managers, and the federal exemption may actually be narrower than the California exemption in some respects.

The salary test for this exemption is different from the test for white collar exemptions. In order to qualify for the exemption, effective January 1, 2018, the employee must earn no less than $43.58; OR the employer may pay the employee on a salary basis of not less than $90,790.07 per year for full-time work, where the employee is paid at least once per month in an amount not less than $7,565.85. Guaranteed incentive compensation that is paid less frequently than once a month cannot be counted in meeting these minimums. These minimum hourly and salary rates will increase every January 1 based upon the change in the cost of living. The California Division of Labor Standards (DLSE) provides a history of wage rates for the computer software exemption. 

The California Division of Labor Statistics and Research is required to adjust both the hourly pay rate and the salary level on October 1 of each year to be effective on January 1 of the following year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers.

Outside Sales Exemption

A California employee qualifies for the outside sales exemption if the employee is:

• Primarily engaged in sales.
• Spends more than 50 percent of working time away from the employer's place of business.
• Sells tangible or intangible products.

Commissioned Salespersons Exemption

A California employee qualifies for the commissioned salesperson exemption if the employee:

• Is primarily engaged in sales.
• Has earnings exceeding 1.5 times the California minimum wage.
• Has more than 50 percent of his or her earnings representing commissions.
• Is covered by Wage Orders 4 or 7.
• Spends more than 50 percent of working time away from the employer's place of business.

The above is meant as information only and is not a substitute for legal or professional advice.  Due to the complexities of navigating California's many overtime requirements and exemptions, it is advisable for employers to work closely with legal counsel to ensure compliance within their respective workplaces.  

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