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Exemptions from Wage and Hour Rules in California

The California rules on exemptions differ in several respects from those under the federal Fair Labor Standards Act. In most respects the California rules take a narrower view of the exemptions. In one notable circumstance, the FLSA standard is more favorable to employees. Employers in  California must follow the rule that takes the narrowest view of the exemption.

White Collar Exemptions

There are exemptions for executive, administrative and professional employees under both state and federal law, but the specifics differ. Under both standards, the exempt employee generally must be salaried. The federal minimum is $455 per week. The state minimum is two times the state minimum wage (currently $8 per hour) for a 40-hour work week. That calculates to $2773 per month. Federal law requires that the exempt employee’s primary duty fall within those by which the exemption is defined. State law requires that the exempt employee devote more than half his or her time to the defined duties.

Executive Exemption. The defined duties are essentially the same. The exempt employee (1) must manage the enterprise, or a customarily recognized department or subdivision of the enterprise, (2) must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent, and (3) must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemption. The defined duties are essentially the same, but the application to specific jobs differs. The exempt employee must (1) perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers and  (2) must exercise of discretion and independent judgment with respect to matters of significance. Although insurance claims representatives are exempt under the federal standards, they are not under the state standard. See Bell v. Farmers Ins. Exchange, 87 Cal.App.4th 805, 105 Cal.Rptr.2d 59 (2001).

Professional Exemption. Again, the defined duties are essentially the same, but the application to specific jobs differs. The exempt employee (1) must perform work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment, (2) the advanced knowledge must be in a field of science or learning, and (3) the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual
instruction. Licensed professionals in the fields of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting are exempt under both standards. Pharmacists are exempt professionals under federal law, but not under state law. Registered nurses are exempt professionals under federal law, but, under state law, only licensed nurse practitioners are.

Computer Professionals

Both federal and state law exempt highly skilled computer specialists who perform high-level duties. Under federal law they must earn at least $455 per week, or $27.63 per hour. Under state law, they must earn $38.89 per hour or annual salary of not less than $81,026.25 for full-time employment, and paid not less than $6,752.19 per month.

Outside Sales Persons

Under the FLSA, a salesperson is exempt if his or her primary duty is making sales, or obtaining orders or
contracts for services or for the use of facilities for which a consideration will be paid by the client or
customer, and he or she is customarily and regularly engaged away from the employer’s place of
business. State law has a similar exemption, but expressly requires that the employee spend more than half his or her time away from the employer’s place of business.

Commissioned Employees

Under state law, an employee is exempt if more than half his or her compensation is commissions, and he or she earns at least one and a half times minimum wage. Under the FLSA, the commissioned employee exemption is limited to employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft sales-workers; or parts-clerks and mechanics servicing autos, trucks, or farm implements, who are employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers. As a result, under federal law, employees of brokerage and financial services firms cannot qualify for the commissioned employee exemption.

Highly Compensated Employees

Department of Labor regulations promulgated under the FLSA provide an exemption for highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000, if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption. There is no such exemption under state law.