The executive exemption refers to the California employment law that certain wage and hour rules do not apply to certain executive employees. These include the entitlement to a minimum wage, overtime pay, and rest and meal breaks.
For example, an “executive” is not afforded extra pay if he or she works over 40 hours in a single workweek (which would normally qualify for overtime compensation). An employee is an “executive” if he/she makes a monthly salary of $4,160.00 or greater, and he/she performs certain work duties as set forth in California’s employment laws (e.g., manage the company). Note that the law gives an exempt status to a few additional employees, like administrative employees, outside salespeople, computer employees, and professional employees.
Sometimes employers misclassify workers, either intentionally or accidentally. If this occurs, then:
- the employee can file a wage and hour lawsuit against the California employer, and
- try to recover any lost compensation for minimum wages or overtime pay.
Note that the Federal Labor Standards Act (FLSA) is the statute that sets forth the federal laws on executive employees. These laws are consistent with those of California and also state that executive employees are exempt from:
- minimum wages, and
- overtime compensation.
Our California labor and employment lawyers will highlight the following in this article:
- 1. What does an executive employee exemption mean?
- 2. What is an “exempt executive” under California law?
- 3. What if California employers make a mistake in determining the exempt status of a worker?
- 4. Are there federal laws on the executive exemption?
1. What does an executive employee exemption mean?
An executive employee exemption means that:
- some California employees are, by law, considered to be “executives,” and
- these workers are not entitled to some basic employee rights under state law.
These rights include a right to:
- a minimum wage (which helps provide for a minimum salary among state employees),
- extra compensation according to state overtime laws, and
- rest breaks and meal breaks.1
Note that a few other professionals in the state are considered to be exempt employees, and therefore do not receive the benefits of these laws and rights. These professionals include:
- outside salesmen under the outside sales exemption,
- computer professionals under the computer professional exemption,
- administrative employees under the administrative exemption, and
- so-called “professional employees” under the professional exemption.
The opposite of exempt employees are non-exempt employees. These workers are entitled to the above listed rights. Perhaps the most important being the right to a minimum hourly rate that provides for a guaranteed minimum monthly salary.
2. What is an “exempt executive” under California law?
California law says that an employee is an exempt executive if he or she:
- earns a specific salary, or meets a particular salary basis, and
- performs specific job duties.
The law refers to these two requirements as:
- the salary test, and
- the job duties test.2
2.1. Salary test
State law says that a worker must earn a salary, as opposed to an hourly rate, to be considered an executive.3
Note that a salary will not pass the salary test for exempt work if:
- it is based upon the number of hours worked, or a set amount of work time, and
- has no minimum level or particular guarantee.4
A salary must be for a predetermined amount.5
Further, an employee only passes the salary test if he/she is paid a monthly salary that is at least twice the state minimum wage for full-time employment.6
“Full-time employment” is defined as 40 hours per week.7
According to current minimum wage rates in California, an employee must make a monthly salary equivalent of $4,160.00 or greater to be considered an executive.
2.2. Job duties test
The job duties test focuses on the employee’s primary duty at work and the actual work performed. This means job titles and job descriptions are largely irrelevant under the test.8
The test says a worker is an executive if he/she is “primarily engaged” in all of the following duties:
- managing the business, business operations, or one of the company’s departments,
- regularly directing the work of two or more employees,
- exercising the authority to hire and fire employees, or, to make recommendations on hiring, firing, and promotion that are given particular weight, and
- regularly exercise discretion and independent judgment in performing the job.9
“Primarily engaged,” for purposes of these laws, means that the employee spends more than one-half of his/her work engaged in the above duties.10
A few factors that suggest a worker is in charge of the management of the enterprise are that he/she:
- helps train employees,
- determines any change of status of other employees,
- assigns job duties,
- drafts management policies,
- disciplines employees, and
- assures compliance with applicable laws and regulations.11
3. What if California employers make a mistake in determining the exempt status of a worker?
Sometimes employers misclassify employees, either intentionally or accidentally.
If this occurs, then:
- the employee can file a wage and hour lawsuit against the employer, and
- try to recover any money for lost minimum wages or overtime pay.
Workers that are misclassified might also be able to recover for any lost meal and rest breaks. California law says that employers will owe one hour’s pay for each meal or rest break an employee should have received.12
4. Are there federal laws on the executive exemption?
The Federal Labor Standards Act (FLSA) is the statute that sets forth the federal laws on executive employees. These laws are enforced by the Division of Labor Standards Enforcement (DLSE).
According to the FLSA, executive employees are exempt from minimum wages and overtime standards.13
An employee will qualify as an executive under this statute if he/she:
- earns $455 or greater per week,
- is compensated on a salary basis,
- has the primary duty of managing the employer’s company or one of its divisions, and
- has the authority to hire or fire employees.14
An employee may also qualify for exempt status if he/she owns at least 20 percent equity interest in the company. If so, he/she does not have to meet the salary requirements under this law.15
Note that sometimes California’s labor laws will set forth different rules than federal employment laws. When this happens, California employers are supposed to apply the set of laws that provide workers with the most protection.16
For additional help…
For additional guidance or to discuss your case with a labor and employment lawyer, we invite you to contact our law firm at Shouse Law Group.
- 8 CCR 11010.
- 8 CCR 11040 and California Labor Code 515 LC.
- 8 CCR 11040.
- Negri v. Koning & Associates (2013) 216 Cal.App.4th 392.
- See same.
- California Labor Code 515a LC.
- California Labor Code 515c LC.
- See, for example, Mies v. Sephora U.S.A., Inc. (2015) 234 Cal.App.4th 967; and, Taylor v. United Parcel Service, Inc. (2010) 190 Cal.App.4th 1001.
- 8 CCR 11010–11150. See also Taylor v. United Parcel Service, Inc. (2010) 190 Cal.App.4th 1001.
- California Labor Code 515e LC.
- Taylor v. United Parcel Service, Inc. (2010) 190 Cal.App.4th 1001.
- 8 CCR 11040(11)(B) — Administrative exemption regulations.
- 29 CFR 541.100-106.
- 29 CFR 541.100.
- 29 CFR 541.101.
- 29 U.S.C. § 218. See also Aguilar v. Association for Retarded Citizens (1991) 234 Cal.App.3d 21.