Exempt Employee

What Is an Exempt Employee?

An exempt employee is a worker who is legally excluded from California's wage and hour protections, including overtime pay, meal breaks, and rest breaks. Exempt status is determined by a combination of salary requirements and job duties tests—not by job title or payment method alone.

The term "exempt" refers to exemption from the protections of California's Industrial Welfare Commission (IWC) Wage Orders and the federal Fair Labor Standards Act (FLSA). Employers must carefully analyze each position to determine proper classification, as misclassification carries significant legal and financial consequences.

California Exempt Employee Requirements

To qualify as exempt in California, an employee must meet ALL of the following criteria:

1. Salary Basis Test

The employee must be paid a fixed salary that:

• Equals at least twice the state minimum wage for full-time employment
• Is paid regardless of hours worked or quality of work
• Remains guaranteed each pay period

2024-2025 California Exempt Salary Thresholds

Effective Date	State Minimum Wage	Minimum Exempt Annual Salary
January 1, 2024	$16.00/hour	$66,560/year
January 1, 2025	$16.50/hour	$68,640/year

Important: Many California cities have higher local minimum wages, which may increase the exempt salary threshold for businesses in those jurisdictions.

2. Duties Test

The employee must primarily (more than 50% of time) perform exempt duties. California requires actual analysis of daily work activities, not just job descriptions.

3. Independent Judgment

The employee must regularly exercise discretion and independent judgment in significant matters.

Categories of Exempt Employees

Executive Exemption

Requirement	California Standard
Salary	Minimum 2× state minimum wage
Primary duty	Management of enterprise or department
Supervision	Customarily directs work of 2+ employees
Authority	Has hiring/firing authority or significant input
Discretion	Regularly exercises independent judgment

Example: A restaurant general manager who oversees all operations, hires and fires staff, creates schedules, manages inventory, and spends most of their time on management duties.

Administrative Exemption

Requirement	California Standard
Salary	Minimum 2× state minimum wage
Primary duty	Office or non-manual work related to management or business operations
Discretion	Exercises discretion and independent judgment on significant matters

Example: An HR manager who develops company policies, handles employee relations issues, and makes decisions about hiring processes.

Professional Exemption

Type	Requirements
Learned Professional	Work requiring advanced knowledge in science or learning, obtained through prolonged specialized study
Creative Professional	Work requiring invention, imagination, or originality in a recognized artistic field

Examples:

• Learned: Licensed attorneys, physicians, architects, engineers, CPAs
• Creative: Writers, composers, graphic designers (with true creative input)

Computer Professional Exemption

California has a specific exemption for computer professionals:

Requirement	2024 Standard
Minimum hourly rate	$55.58/hour
Minimum monthly salary	$9,646.96
Minimum annual salary	$115,763.35
Duties	Systems analysis, programming, software engineering

Note: The computer professional exemption applies to those who apply systems analysis techniques, design or develop computer programs, or apply similar highly skilled, technical work. It does not apply to help desk staff, hardware technicians, or IT support personnel.

Outside Sales Exemption

Requirement	Standard
Primary duty	Making sales or obtaining orders
Work location	Customarily away from employer's place of business
Salary	No minimum salary requirement

Key distinction: Inside sales employees are NOT exempt, even if paid on commission.

What Exempt Employees Are Exempt From

Exempt employees are not entitled to:

Protection	Applies to Exempt?
Daily overtime (after 8 hours)	No
Weekly overtime (after 40 hours)	No
Double time	No
Meal breaks	No
Rest breaks	No
Reporting time pay	No
Split shift premium	No

What Exempt Employees ARE Entitled To

Exempt employees still receive these protections:

Protection	Applies to Exempt?
Minimum wage (via salary threshold)	Yes
Anti-discrimination protections	Yes
Workers' compensation	Yes
Unemployment insurance	Yes
Family and medical leave	Yes
Paid sick leave	Yes
Workplace safety protections	Yes
Final pay timing requirements	Yes

Salary Deduction Rules for Exempt Employees

Improper salary deductions can destroy the exempt status. Permitted and prohibited deductions:

Permitted Deductions

• Full-day absences for personal reasons (other than sickness/disability)
• Full-day absences for sickness if covered by a bona fide plan
• Unpaid disciplinary suspensions (full-day increments for serious safety violations)
• First or last week of employment (partial week)
• Unpaid FMLA leave

Prohibited Deductions

• Partial-day absences (must pay full salary)
• Deductions for quality or quantity of work
• Deductions when work is available but not assigned
• Jury duty, witness fees, or military leave deductions (partial days)

Warning: Making improper deductions—even once—can jeopardize the exempt classification for all employees in that job category.

Common Exempt Misclassification Mistakes

Mistake 1: Relying on Job Titles

Wrong approach: "She's a manager, so she's exempt."

Right approach: Analyze what she actually does more than 50% of her time. A "manager" who spends most time on non-managerial tasks is likely non-exempt.

Mistake 2: Assuming Salary = Exempt

Wrong approach: "We pay him salary, so no overtime."

Right approach: Salary payment alone doesn't create exemption. Duties tests must also be met.

Mistake 3: Ignoring the 50% Rule

Wrong approach: "She manages sometimes, so she's exempt."

Right approach: California requires exempt duties comprise MORE than half of actual working time.

Mistake 4: Using the Wrong Salary Threshold

Wrong approach: Using federal FLSA minimums ($35,568/year)

Right approach: California requires twice the state minimum wage—currently much higher than federal thresholds.

How to Analyze Exempt Status

Step 1: Calculate the Salary Threshold

Current state minimum wage × 2 × 2,080 hours = Minimum exempt salary

Example for 2025:
$16.50 × 2 × 2,080 = $68,640/year minimum

Step 2: Document Actual Job Duties

Track and document what the employee actually does:

• Time spent on various tasks
• Decisions made independently
• Supervision responsibilities
• Manual vs. non-manual work

Step 3: Apply the Appropriate Duties Test

Compare documented duties against the specific exemption criteria.

Step 4: Verify Salary Payment Method

Confirm salary is guaranteed and not subject to improper deductions.

Step 5: Document and Review Regularly

• Maintain written job descriptions
• Review classifications annually
• Update when job duties change significantly

California vs. Federal Exemption Standards

Factor	California	Federal (FLSA)
Minimum salary (2024)	$66,560/year	$35,568/year
Duties test	"Primarily" means >50% of time	"Primary duty" (less strict)
Salary threshold basis	2× state minimum wage	Fixed amount
Computer exemption	Higher salary + specific hourly rates	Lower threshold

California standards are stricter—employees who might be exempt under federal law may still be non-exempt under California law.

Consequences of Exempt Misclassification

If an employee is incorrectly classified as exempt, employers face liability for:

Liability Type	Potential Exposure
Unpaid overtime	All hours over 8/day and 40/week
Meal break premiums	1 hour pay per violation
Rest break premiums	1 hour pay per violation
Waiting time penalties	Up to 30 days' wages
Wage statement penalties	$50-$100 per violation
Interest	10% per year
Liquidated damages	Equal to unpaid wages
PAGA penalties	$100-$200 per pay period
Attorney's fees	If employee prevails

The statute of limitations is 3 years for overtime claims (4 years for unfair competition claims), meaning exposure can accumulate significantly.

Best Practices for Managing Exempt Employees

Classification Review Process

1. Conduct initial classification analysis for all positions
2. Review annually and when duties change
3. Document the analysis and reasoning
4. Train managers on proper oversight

Salary Administration

1. Set salaries above minimum thresholds with buffer
2. Review salary levels when minimum wage increases
3. Avoid improper deductions
4. Maintain clear PTO and leave policies

Ongoing Compliance

1. Monitor actual job duties vs. job descriptions
2. Address "duty creep" where exempt employees take on non-exempt work
3. Maintain time records for newly-exempt positions (optional but protective)
4. Consult legal counsel for borderline classifications