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Executive Exemption

In order to be exempt from overtime pay under the Executive Exemption, you must be a bona-fide “executive.”  In order be considered an “executive” under California law you must be paid a salary of at least two times California's minimum wage for full-time work and:

(1) Manage the entire enterprise in which you work or a customarily recognized department or subdivision.
(2) Direct the work of at least 2 subordinates in your department. 
(3) Have authority to hire or fire -- directly or indirectly.
(4) Exercise independent business judgment.
(5) Spend more than 50% of your time doing the above.

The salary level is tied to the state minimum wage level. As the state minimum wage level goes up, the salary required for this exemption also increases. Check your minimum wage order to verify that correct minimum salary is being paid you. Also, local minimum wage laws do not affect the status of the exemption. That is, if you work in a jurisdiction that has a higher minimum wage than the rest of California, you can still be exempt if you are paid a salary equal to two times the state minimum wage.

The above is a description of the California exemption. However, California employees are protected by both California and federal law. Currently, the federal minimum is $913/week -- effective December 1, 2016. However, please see this article on the issues if the December FLSA Regulations.

The executive exemption is sometimes incorrectly called the “supervisors” exemption.  It is important to know that there is no “supervisors” exemption.  You can supervise people and still be entitled to overtime.

Many people see requirement #2 and think that if you supervise 2 people, you are exempt.  This is simply not the case.  First of all, if you only supervised 2 people, it is extremely unlikely that you would spend 50% of your time supervising them. More than likely, you will be considered a “working foreman” and would be entitled to overtime.

The most important item above is that you must be an executive in charge of a real department or subdivision of the enterprise.  Jobs such as “Team Lead”, “Development Manager”, and “Project Manager” are likely not in charge of a fixed department.  The DLSE enforcement manually aptly puts the challenge of this exemption in that an “employee must be in charge of the unit, not simply participate in the management of the unit.” This is why most low and mid level managers are improperly classified under this exemption. If you were told you were not entitled to overtime because you are a "manager," you can email me with a brief description of your job duties and I can tell you whether or not this exemption might apply to you.

To meet requirement #3, you must be able to do the following: hire or fire, AND review performance. You do not need to be the one that actually performs the hiring or firing, but your opinion must be given strong preference. If a voting system is used, and you only get one vote like everyone else, then your opinion is not being given strong preference and you don't meet the exemption. You do not need to both hire and fire, participating in either one will be sufficient. You must also take part in performance reviews or other activities which relate to the advancement of employees. From a practical point of view, the employer will always say that your opinion is given significant weight. If you are interviewing potential candidates and providing a recommendation, this is likely sufficient for this exemption. Casually and periodically being asked to sit in on an interview or provide feedback on a co-worker is not the type of work covered by this exemption.

Remember that job titles are not used in determining exemption from overtime.  Just because you company prints “Director of XXX” or “Vice President of YYY” on you business card does not make you exempt.  If you spend 50% of your time doing the same type of work as your subordinates, it doesn't matter what your title is, you are probably entitled to overtime.

Performing the same type of work as your subordinates

Typical problems come up when a manager is in charge or other employees and can hire and fire but spends the vast majority of his or her time doing the same type of work as the other nonexempt employees.

In this case, the reason why the manager is performing the work needs to be looked at to determine whether it is exempt work or nonexempt work. For instance, if you are training an employee and doing her job with her while training, this would be considered exempt work because it is directly related to managing the employee. If you assist employees with customer complaints or deal with transactions that require approvals, these are considered exempt tasks because they directly relate to supervising the employee.

Typical examples of exempt work are hiring and training staff, maintaining employee files, disciplining employees, preparing reports on productivity, scheduling employees, monitoring sales, and ordering supplies for employees.

On the other hand, when a manager fills in because there are too few regular workers to cover the floor or handle the amount of incoming orders, this is considered nonexempt work. If you are spending more than 50% of your time on it then you are entitled to overtime. This is true even if you are "managing" while you are performing this work. That is, you can still be able to direct other employees, answer employee questions, and generally observe the operations and still be performing nonexempt work. The essential test is whether the "primary purpose" of the work was exempt or nonexempt in nature. In these examples, the primary purpose of the work as to fill in for missing workers. The secondary purpose was to provide supervision of the other employees.

Typical examples of nonexempt work are working a cash register, bagging groceries, assisting customers with routine matters, basic bookkeeping, janitorial work, setting up merchandise displays, stocking shelves, unloading merchandise, and putting up product displays or decorations.