The “Executive Exemption” in California Labor Law

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 entitled to extra pay for working over 40 hours in a single workweek (which would normally qualify for overtime compensation).

An employee is an “executive” if they

1. make a yearly salary of $70,304 or greater and
2. perform specific work duties as outlined in California’s employment laws (such as managing the company).

Note that the law also gives an exempt status to other types of employees, such as

• administrative employees,
• outside salespeople,
• computer employees, and
• professional employees.

Sometimes, employers misclassify workers, either intentionally or accidentally. If this occurs, then:

1. the employee can file a wage and hour lawsuit against the California employer, and
2. 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. Executive Exemption
• 2. Criteria
• 3. Misclassification
• Frequently Asked Questions
• Additional Reading

1. Executive Exemption

An executive employee exemption means that:

• some California employees are, by law, considered to be “executives,” and
• these workers are not entitled to some fundamental employee rights under state law.

These rights include the right to:

1. a minimum wage (which helps provide for a minimum salary among state employees),
2. extra compensation according to state overtime laws, and
3. 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 is non-exempt employees. These workers are entitled to the rights listed above. Perhaps the most important is the right to a minimum hourly rate that guarantees a minimum monthly salary.

2. Criteria

California law says that an employee is an exempt executive if they:

1. earn a specific salary, or meet a particular salary basis, and
2. perform specific job duties.

The law refers to these two requirements as:

1. the salary test, and
2. the job duties test.²

Salary test

State law requires a worker to earn a salary, rather than 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 passes the salary test only if they are paid a monthly salary 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 earn a yearly salary of $70,304 or more to be considered an executive.

Job duties test

The job duties test focuses on the employee’s primary job duties 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 they are “primarily engaged” in all of the following duties:

1. managing the business, business operations, or one of the company’s departments,
2. regularly directing the work of two or more employees,
3. exercising the authority to hire and fire employees, or, to make recommendations on hiring, firing, and promotion that are given particular weight, and
4. 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 their 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 they:

1. help train employees,
2. determine any change of status of other employees,
3. assign job duties,
4. draft management policies,
5. discipline employees, and
6. assure compliance with applicable laws and regulations.¹¹

3. Misclassification

Sometimes, employers misclassify employees, either intentionally or accidentally.

If this occurs, then:

1. the employee can file a wage and hour lawsuit against the employer, and
2. try to recover any money for lost minimum wages or overtime pay.

Workers who are misclassified might also be able to recover for any lost meal and rest breaks. California law says employers must pay one hour’s wages for each meal or rest break an employee should have received. ¹²

Frequently Asked Questions

How do I know if I qualify for the executive exemption in California?

To qualify for the executive exemption, you must meet two requirements: 1) Earn at least $70,304 per year as a salary (not hourly pay), and 2) spend more than half your time managing the business or a department, directing two or more employees, and having authority to hire, fire, or make hiring recommendations that carry significant weight.

What employee rights do I lose if I am classified as an exempt executive?

If you are classified as an exempt executive, you lose the right to minimum wage protections, overtime pay for working more than 40 hours per week, and mandatory rest and meal breaks. This means you will not receive extra compensation for long work hours that would normally qualify for overtime.

What happens if my employer wrongly classifies me as an exempt executive?

If you are misclassified as an exempt executive, you can file a wage and hour lawsuit against your employer to recover lost minimum wages and overtime pay. You may also be able to recover compensation for missed meal and rest breaks, which equals one hour’s wages for each break you should have received.

Does my job title determine if I am an exempt executive?

No, your job title does not determine your exempt status. California law focuses on your actual job duties and what work you perform daily, not your job title or job description. You must actually spend more than half your time on executive duties like managing employees and making business decisions.

Additional Resources

For more information, refer to the following:

• Exemptions from the overtime laws – Official website of the California Department of Industrial Relations (DIR).
• What is an Exempt Employee in California? – Simple explanation by a popular hiring firm.
• How to file a wage claim – Instructions provided by the California Labor Commissioner.
• An overview of overtime laws by state – A comparison provided by an employment software company.
• What California Employers Need to Know About Overtime for Employees – Information provided by the Poster Compliance Center.

Legal References: