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Exemptions from Wage and Hour Requirements: Executive

Both California and federal law recognize an exemption for employees in executive positions. The elements of the exemption are substantially the same. Both standards require that the employee be paid on a salary basis, as discussed in an earlier post.

The federal definition appears in the Department of Labor’s regulations at 29 CFR section 541.100. Under that definition, an executive employee is one (1) who is paid a salary of at least $455 per week, (2) whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof, (3) who customarily and regularly directs the work of two or more other employees, and (4) who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

Under the state definition (which appears in section 1(A)(1) of each wage order), an executive employee is one (1) whose duties and responsibilities involve the management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof, (2) who customarily and regularly directs the work of two or more other employees, (3) who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight, (4) who customarily and regularly exercises discretion and independent judgment, (5) who is primarily engaged in duties which meet the test of the exemption, and (6) who earns a monthly salary equivalent to no less than two times the minimum wage which equates to $640 per week.

The principal difference (other than the minimum salary required) is the use of the “primary duty” standard under federal law, and the use of the “primarily engaged” standard under state law. The state wage orders define “primarily” in section 2(N) as “more than one-half the employee’s work time.” The “primary duty” standard is more flexible. Section 541.106(b) of the regulations gives the following example: “For example, an assistant manager in a retail establishment may perform work such as serving customers, cooking food, stocking shelves and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption if the assistant manager’s primary duty is management. An assistant manager can supervise employees and serve customers at the same time without losing the exemption.” Under the state standard, the assistant manager would not be exempt unless he or she spent more than half his or her time on exempt duties.