Who’s Exempt From Overtime

California Overtime Rules:

Please take note that you cannot exempt any of your employees from the above new law by paying them on salary, on commission, on the flag-rate system, or by having the employee sign a “overtime waiver”. And no, you may not exempt your employee by making them “independent contractors”.

Who’s Exempt From Overtime

Based on information from the California labor law Digest, published by the California Chamber of Commerce, an exempt employee normally is "an executive, administrative or professional employee". Learned or artistic professionals and outside salespeople are also considered exempt. All other are non-exempt and are subject to the wage and hour laws of California and the federal government.

An "exempt employee" is exempt from certain employee wage and hour laws. To avoid paying overtime, the exempt employee must be exempt from the overtime requirements of both California and federal laws. The Fair Labor Standards Act (FLSA), enacted in 1938, set minimum wage for the USA, and regulates overtime and child labor employment. Most workers are covered by this law.

In California, employees are governed by 15 Industrial Welfare Commission (IWC) Wage Orders, Wages and overtime are enforced by the Division of Labor Standards Enforcement throughout the Labor commissioner's office. Under California law, employees may be exempt from overtime provisions of the 15 wage orders if they are employed in administrative, executive or professional capacities.

The federal law does not preempt any California law regarding overtime and exempt/non-exempt status. The law that is best for the employee is the law that prevails.

About exempt employees

1. Titles are irrelevant to the determination of whether an employee is exempt or non-exempt
2. Exemption requires that the employee be engaged in work that is primarily intellectual, managerial or creative. The work should require discretion and independent judgment and remuneration that is not less than $900 or $1,150 per month.
3. Employees are exempt if they are licensed or certified by California and are engaged in professional practice.
4. An exempt executive must be in charge of a unit with permanent status and function who ordinarily supervises the activities of others. Their primary duty must be management of department or subdivision. In most cases they must direct the work of at least two or more employees. Must have authority to hire and fire, or to command attention to recommendations affecting employees. Must regularly exercise discretionary power.
5. An exempt administrative employee exercises discretion and independent judgment in performance of "intellectual" work which is non-manual related to management policies or general business operations. Assists an exempt administrator or performs under general supervision with specialized or technical training, experience or knowledge. Managerial duties constitute more than half of the work time and he/she receives little or no supervision in day-to-day operations.
6. Licensed or certified occupations are exempt under California law. Education requirements for the job are very advances meaning employee must have a degree or certification requiring at least one ear of specialized study in addition to four-year college study. Work cannot be standardized with respect to time and employee has freedom to choose when and how to do work. Work is creative or intellectual more than 50% of time. Employee is licensed or certified by California.
7. Exempt employees must receive each pay period on weekly or less, a predetermined amount constituting all or part of his/her compensation. Amount cannot be reduced because of variation in quality or quantity or work performed. Policy is also subject to general rule that exempt employee may not be paid for week in which she/he performs no work, takes personal leave or has exhausted leave allowance.

Administrator. Defined in terms of doing office work directly related to management policies or general business, exercises discretion, regularly assists an owner or executive, does work requiring special training or knowledge, and doesn't spend more than 20% of his or her time on non-administrative work.

The specific requirements for each of these exemptions are discussed in several publications available from the State of California at www.ca.gov.

Federal Overtime Rules:

Employers Who Must Pay Overtime

Although the vast majority of employers in this country must pay overtime, not all of them have to. To figure out whether you must pay overtime, first determine whether you are covered by the federal Fair Labor Standards Act (FLSA), which is the federal wage and hour law that sets out the overtime rules. Generally, your business is covered by the FLSA if you have $500,000 or more in annual sales. Even if your business is smaller, however, you must pay overtime if your employees work in what Congress calls "interstate commerce." This includes more than you might think, including making a phone call to or from another state, sending mail out of state or handling goods that have come from, or will go to, another state.

Even if your business is so small or so local that it isn’t covered by the FLSA (and this will be a pretty rare occurrence), you might be covered by your state’s overtime law. Contact your state labor department for details.

Determining If Employees Are Entitled to Overtime

If your business is covered by either the FLSA or your state's overtime law, then all of your employees are entitled to overtime unless they fit into an exception. The following workers are "exempt" from overtime laws --meaning they fit into an exception to the overtime laws and are therefore not entitled to overtime:

• executive, administrative and professional employees who are paid on a salary basis (see below)
• independent contractors
• volunteer workers
• outside salespeople (that is, employees who customarily and regularly work away from the employer’s business, selling or taking orders to sell goods and services)
• certain computer specialists (such as systems analysts, programmers and software engineers) who earn at least $27.63 per hour
• employees of seasonal amusement or recreational businesses, such as ski resorts or county fairs
• employees of organized camps or religious or nonprofit educational conference centers that operate for fewer than seven months a year
• employees of certain small newspapers
• newspaper deliverers
• workers engaged in fishing operations
• seamen
• employees who work on small farms
• certain switchboard operators
• criminal investigators, and 
• casual domestic baby sitters and persons who provide companionship to those who are unable to care for themselves (this exception does not apply to those who provide nursing care or to personal and home care aides who perform a variety of domestic services).

Administrative, Executive and Professional Employees

Probably the most common -- and confusing -- exceptions to the overtime laws are for so-called "white collar" workers. Employees whom the law defines as "administrative, executive or professional" need not be paid overtime. Generally, these are employees who are paid a minimum weekly salary specified by law and who spend most of the workday performing duties that require the use of discretion and independent judgment. Additionally, each category has particular requirements:

• To qualify as an executive, an employee must supervise two or more employees and have the right to hire, fire or promote workers.
• A professional employee must generally perform original and creative work or work requiring advanced knowledge ordinarily acquired through advanced study.
• An administrator's duties must generally include the performance of specialized or technical work related to management or general business operations.

The specific requirements for each of these exemptions are discussed in several publications available from the U.S. Department of Labor at www.dol.gov.