Employee Classification: California

Employee Classification requirements for other states

Federal law and guidance on this subject should be reviewed together with this section.

Author: Anthony J. Oncidi, Proskauer Rose LLP

Updating Author: Michael Cardman, XpertHR Legal Editor

Summary

  • California's overtime exemptions are similar to those of the federal Fair Labor Standards Act (FLSA) in some respects. However, there are several important differences that require special attention. See Overview.
  • In addition to the full overtime exemptions, there are many exceptions to the general overtime rule under which the threshold for overtime payments is lower than for fully nonexempt employees. See Exceptions to the General Overtime Rules.
  • Most employees exempt from California's overtime requirements also are exempt from meal and rest break, recordkeeping and reporting time pay requirements. See Meal and Rest Break, Recordkeeping and Reporting Time Pay Exemptions.

Overview

California's employee classifications are governed by the state's Industrial Welfare Commission (IWC) Wage Orders, which mirror federal law in some respects, but differ in others. Employers should take note that the state's wage and hour laws are frequently more favorable to employees than their federal counterparts. As such, many employees who would qualify for an exemption under federal law may nevertheless be deemed nonexempt, overtime-eligible under California state law. The content that follows details the tests that employees must pass in order to be exempted from California's overtime laws.

The Salary Basis Test

Under California law, overtime-exempt executive, administrative and professional employees must earn a monthly salary equivalent to at least two times the state minimum wage for full-time employment. California's Division of Labor Standards Enforcement (DLSE) follows the general federal interpretations under the FLSA salary basis test with respect to allowable deductions for absences to the extent they are consistent with specific provisions in the Labor Code or Wage Orders.

Deductions From Leave Banks

A DLSE opinion letter (In re Deductions for Partial & Full Day Absences of Exempt Emples., +2009 Cal. DLSE LEXIS 9 (Cal. Div. of Labor Standards Enforcement Nov. 23, 2009)) addresses how deductions from salary and/or leave banks affect employees' exempt status.

  • Full-Day Absences and Sufficient Leave Balance: If an employee performs no work for an entire day and there is sufficient applicable leave balance to apply for the type of absence, an employer may make payment through a deduction from available leave sufficient to cover the full day.
  • Full-Day Absences for Personal Reasons and Insufficient Leave Balance: If an employee is absent from work for one or more full days for personal reasons (other than sickness or disability) and there is not sufficient applicable leave balance to apply for the type of absence, an employer may make a full-day deduction from the employee's salary.
  • Full-Day Absences for Sickness or Disability and Insufficient Leave Balance: If an employee is absent from work for one or more full days for sickness or disability and there is not sufficient applicable leave balance to apply for the type of absence, an employer may make a deduction from pay if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness.
  • Partial-Day Absences for Personal Reasons: If an employee is absent from work for less than a full day for personal reasons (other than sickness or disability), an employer may not deduct partial-day absences from the employee's salary. However, an employer may require the employee to use accrued vacation/PTO for partial-day absences in any increment, including increments of less than four hours (see Rhea v. General Atomics, +227 Cal. App. 4th 1560 (Cal. App. 4th Dist. 2014)).
  • Partial-Day Absences for Sickness or Disability: If an employee works some part of the day but is absent for the balance of the full day due to sickness or disability, an employer may reduce the sick leave balance (and if there is insufficient sick leave balance, then the vacation leave balance in such order in accordance with the plan or policy) but still must ensure payment of an amount equal to the guaranteed salary for the balance of the full day even if an employee has no accrued benefits in the leave plan and the account has a negative balance.

Executive Employees

In order to be exempt from overtime pay under California's executive exemption, an employee must be paid on a salary basis at a rate of at least twice the state minimum wage (currently $880 per week for employers with 26 or more employees and $840 per week for employers with 25 or fewer employees, and adjusted annually for inflation) and meet all of the following requirements:

  • Have duties and responsibilities involving the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision thereof;
  • Customarily and regularly direct the work of two or more other employees;
  • Have the authority to hire or fire other employees, or have his or her suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change or status of other employees be given particular weight;
  • Customarily and regularly exercise discretion and independent judgment; and
  • Be primarily engaged in duties that meet the tests of this exemption.

Unlike the FLSA, California utilizes a quantitative test to determine whether an employee is "primarily engaged" in exempt activities. To be primarily engaged means that more than 50 percent of the employee's time is spent engaging in exempt work. Moreover, the exercise of discretion and independent judgment has special meaning under California law. This phrase refers to the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. Such choice must be free from immediate supervision.

Administrative Employees

To qualify for the California administrative exemption, an employee must earn twice the state minimum wage (currently $880 per week for employers with 26 or more employees and $840 per week for employers with 25 or fewer employees, and adjusted annually for inflation) and meet all of the following requirements:

  • Have duties and responsibilities involving either:
    • Office or non-manual work directly related to management policies or general business operations of his or her employer or his or her employer's customers; or
    • Administrative functions of a school system or educational establishment or one of its departments or subdivisions engaging in work directly related to its academic instruction or training;
  • Customarily and regularly exercise discretion and independent judgment (as defined above);
  • Regularly and directly assist a proprietor or an employee employed in an executive or administrative capacity, under only general supervision performs work along specialized or technical lines requiring special training, experience or knowledge, or execute special assignments and tasks; and
  • Be primarily engaged in duties that meet the tests of this exemption (meaning at least 50 percent of the time).

Professional Employees

The California professional exemption applies to five types of professionals: licensed professionals; learned professionals; creative professionals; computer professionals; and physicians and surgeons paid an hourly rate.

Licensed Professionals

To qualify for the licensed professional exemption, an employee must:

  • Earn at least twice the state minimum wage (currently $880 per week for employers with 26 or more employees and $840 per week for employers with 25 or fewer employees, and adjusted annually for inflation);
  • Be licensed or certified by California and primarily engaged in the practice of one of the following recognized professions:
    • Law;
    • Medicine;
    • Dentistry;
    • Optometry;
    • Architecture;
    • Engineering;
    • Teaching; or
    • Accounting; and
  • Exercise discretion and independent judgment (as described above) in the performance of the duties previously described.

Learned Professionals

To qualify for the learned professional exemption, an employee must:

  • Earn at least twice the state minimum wage (currently $880 per week for employers with 26 or more employees and $840 per week for employers with 25 or fewer employees, and adjusted annually for inflation);
  • Be primarily engaged in work that requires advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as opposed to a general academic education or an apprenticeship, and from training in the performance of routine mental, manual or physical processes or work that is an essential part of any of the above work; and
  • Exercise discretion and independent judgment (as described above) in the performance of the duties previously described.

Creative Professionals

To qualify for the creative professional exemption, an employee must:

  • Earn at least twice the state minimum wage (currently $880 per week for employers with 26 or more employees and $840 per week for employers with 25 or fewer employees, and adjusted annually for inflation);
  • Be primarily engaged in work that is original and creative in character in a recognized field of artistic endeavor, as opposed to work that can be produced by a person endowed with general manual or intellectual ability and training, and the result of which depends primarily on the employee's invention, imagination or talent, or work that is an essential part of any of the above work;
  • Be primarily engaged in work that is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time; and
  • Exercise discretion and independent judgment (as described above) in the performance of the duties previously described.

Computer Professionals

To qualify for the computer professional exemption, an employee must:

  • Earn at least $43.58 per hour, $7,565.85 per month or $90,790.07 per year (these rates are adjusted annually and are scheduled to increase again on January 1, 2019);
  • Be primarily engaged in work that is intellectual or creative;
  • Be primarily engaged in work that requires the exercise of discretion and independent judgment;
  • Be primarily engaged in duties that consist of one or more of the following:
    • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
    • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or
    • The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems; and
  • Be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming and software engineering.

Physicians and Surgeons Paid an Hourly Rate

To qualify for the exemption for physicians and surgeons paid an hourly rate, an employee must:

  • Earn at least $79.39 per hour (this rate is adjusted annually and is scheduled to increase again on January 1, 2019);
  • Be a licensed physician or surgeon;
  • Be primarily engaged in duties that require licensure pursuant to Chapter 5 of Division 2 of the Business and Professions Code (commencing with +Cal Bus & Prof Code § 2000); and
  • Not be an employee employed in a medical internship or resident program or a physician employee covered by a valid collective bargaining agreement under +Cal Lab Code § 514.

+Cal Lab Code § 515.6.

Outside Salespersons

Outside salespersons are exempt under California law if they:

  • Are 18 years of age or older; and
  • Customarily and regularly work more than 50 percent of their working time away from their place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.

There is no salary basis test for outside salespersons.

It also should be noted that, unlike federal law, California law does not consider as exempt work that is incidental to and in conjunction with the employee's outside sales. For example, when an employee engages in outside sales in conjunction with tasks such as delivery, repair, and maintenance, only the time spent selling is deemed exempt.

Inside Salespersons

California employees who are engaged in the professional, technical, clerical, mechanical, or similar occupations, or who work in the mercantile industry, are exempt from overtime requirements where they qualify for the inside or "commissioned" sales exemption. Such employees are overtime-exempt if:

  • They earn more than one and one-half times the minimum wage; and
  • More than half of their compensation represents commissions.

The inside sales exemption is applied on a weekly basis. Therefore, the employee must earn more than one and one-half times the minimum wage and have at least half of his or her sales represent commissions for each workweek during which the employee is to be exempted from overtime.

The minimum earnings requirement is satisfied only in those pay periods in which an employer actually pays the required minimum earnings. An employer may not satisfy the minimum earnings requirement by reassigning wages from a different pay period. For example, an employer may not pay commission wages on a monthly basis and then retroactively attribute them to the weeks of the monthly period in which they were earned. Peabody v. Time Warner Cable, Inc., +2014 Cal. LEXIS 4755, 7-8 (Cal. July 14, 2014).

Private Elementary and Secondary School Teachers

Teachers at a private elementary or secondary school are exempt from California's overtime requirements if they:

  • Are primarily engaged in the duty of imparting knowledge to pupils by teaching, instructing or lecturing;
  • Customarily and regularly exercise discretion and independent judgment in performing the duties of a teacher;
  • Have attained either:
    • A baccalaureate degree or higher degree from an accredited institution of higher education; or
    • Compliance with the requirements established by the California Commission on Teacher Credentialing, or the equivalent certification authority in another state, for obtaining a preliminary or alternative teaching credential; and
  • Earn the greater of the following:
    • For a full-time employee,
      • At least 100 percent of the lowest salary offered by any school district to a person who is in a position that requires the person to have a valid California teaching credential and is not employed in that position under an emergency permit, intern permit or waiver; or
      • The equivalent of at least 70 percent of the lowest schedule salary offered by the school district or county office of education in which the private elementary or secondary academic institution is located to a person who is in a position that requires the person to have a valid California teaching credential and is not employed in that position under an emergency permit, intern permit or waiver;
    • For a part-time employee,
      • The proportional amount of the salary identified above that is equal to the proportion of the full-time instructional schedule for which the part-time employee is employed.

Private elementary or secondary schools budgeting for a future school year may determine the salary requirements by referring to school salary schedules in effect for up to 12 months prior to the start of the school year.

+Cal Lab Code § 515.8, as amended by +2017 Bill Text CA S.B. 621.

Practical Example

The lowest salary offered to credentialed teachers in the public school district or county in which a private school is located is $50,000, and the lowest salary offered to credentialed teachers in the entire state of California is $40,000. To be exempt from California's overtime requirements, a teacher in this private school would need to earn a salary of at least $40,000.

$40,000 x 100% = $40,000

$50,000 x 70% = $35,000

$40,000 is greater than $35,000

Other Exempt Employees

The following employees also are exempt from California's overtime requirements:

  • Employees directly employed by the state or any political subdivision thereof, including any city, county or special district (see, e.g., +8 CCR 11010(1)(B));
  • Parents, spouses, children or legally adopted children of the employer (see, e.g., +8 CCR 11010(1)(D));
  • Individuals participating in a national service program such as AmeriCorps (see, e.g., +8 CCR 11010(1)(E));
  • Drivers whose hours are regulated by federal regulations (+49 CFR 395.1 to +49 CFR 395.13) or by California regulations (+13 CCR 1200 to +13 CCR 1293) (see, e.g., +8 CCR 11010(3)(A)(2));
  • Employees covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work and working conditions, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of at least 30 percent more than the state minimum wage (see, e.g., +8 CCR 11040(3)(H);
  • Student nurses in a school accredited by the California Board of Registered Nursing or by the Board of Vocational Nurse and Psychiatric Technician Examiners (+8 CCR 11050(1)(A));
  • Employees who have entered into a collective bargaining agreement under the Railway Labor Act (+8 CCR 11090(1)(E));
  • Taxicab drivers (+8 CCR 11090(3)(M));
  • Airline employees who work over 40 but not more than 60 hours during the workweek due to a temporary modification in their normal work schedule not required by the employer and arranged at the request of the employee (+8 CCR 11090(3)(N));
  • Full-time carnival ride operators employed by a traveling carnival (+8 CCR 11100(1)(F));
  • Crew members employed on a commercial fishing boat licensed under California's fish and game code (+Cal Fish & G Code § 7920 to +Cal Fish & G Code § 7925) (+8 CCR 11100(1)(H));
  • Professional actors (see, e.g., +8 CCR 11100(1)(I));
  • Motion picture projectionists (+8 CCR 11100(3)(G));
  • Announcers, news editors or chief engineers employed by a radio or television station in a city or town with a population of 25,000 or less (+8 CCR 11110(3)(K));
  • Sheepherders (+8 CCR 11140(1)(F));
  • Irrigators (during any week in which more than half of their time is spent performing irrigator duties) (+8 CCR 11140(3)(C)); and
  • Minors employed as a babysitter for a minor child of the employer in the employer's home (+8 CCR 11150(1)(B)).

Exceptions to the General Overtime Rules

In addition to the full overtime exemptions detailed above, there are many exceptions to the general overtime rule under which the threshold for overtime payments is lower than for fully nonexempt employees. Most are narrow in scope, applicable only to highly specific types of employees such as camp counselors, employees of ski establishments and ambulance drivers. However, the exceptions for agricultural employees and personal attendants are broader in scope and merit further discussion:

Agricultural Employees

A lower overtime threshold applies to agricultural employees who work in any of the following occupations:

  • The preparation, care, and treatment of farm land, pipeline, or ditches, including leveling for agricultural purposes, plowing, discing, and fertilizing the soil;
  • The sowing and planting of any agricultural or horticultural commodity;
  • The care - which includes, but is not limited to, cultivation, irrigation, weed control, thinning, heating, pruning, tying, fumigating, spraying and dusting - of any agricultural or horticultural commodity;
  • The harvesting of any agricultural or horticultural commodity, including but not limited to, picking, cutting, threshing, mowing, knocking off, field chopping, bunching, baling, balling, field packing, and placing in field containers or in the vehicle in which the commodity will be hauled, and transportation on the farm or to a place of first processing or distribution;
  • The assembly and storage of any agricultural or horticultural commodity, including but not limited to, loading, road siding, banking, stacking, binding and piling;
  • The raising, feeding and management of livestock, fur bearing animals, poultry, fish, mollusks, and insects, including but not limited to herding, housing, hatching, milking, shearing, handling eggs and extracting honey;
  • The harvesting of fish, as defined by +Cal Fish & G Code § 45, for commercial sale;
  • The conservation, improvement or maintenance of such farm and its tools and equipment.

These overtime requirements do not apply to agricultural employees covered by a collective bargaining agreement if the agreement provides premium wage rates for overtime work and a cash wage rate of at least $1.00 per hour more than the state minimum wage.

Personal Attendants

A lower overtime threshold also applies to personal attendants, whether working in the public housekeeping industry or as a domestic occupation.

Personal attendant includes babysitters and means any person employed by a nonprofit public housekeeping organization, by a private householder or by any third-party employer recognized in the health care industry to work in a private household, to supervise, feed or dress a child or person who by reason of advanced age, physical disability or mental deficiency needs supervision.

The health care industry includes hospitals, skilled nursing facilities, intermediate care and residential care facilities, convalescent care institutions, home health agencies, clinics operating 24 hours per day and clinics performing surgery, urgent care, radiology, anesthesiology, pathology, neurology or dialysis.

Personal attendants will not qualify for the exemption if they spend more than 20 percent of their time performing any work other than supervising, feeding or dressing - such as cooking, cleaning, laundering or shopping.

Personal attendants who are not licensed nurses or trained health care providers may perform incidental health care functions, such as taking temperatures or assisting with over-the-counter blood sugar tests, without forfeiting the exemption.

The exception for domestic personal attendants had been scheduled to expire on January 1, 2017, but was extended indefinitely under +2015 Bill Text CA S.B. 1015.

+Cal Lab Code § 1454; +8 CCR 11150; +8 CCR 11050; +Cal DLSE Manual § 55; Cash v. Winn, +205 Cal. App. 4th 1285 (Cal. App. 4th Dist. 2012), review denied, Cash v. Winn, +2012 Cal. LEXIS 8015 (Cal. Aug. 15, 2012).

Meal and Rest Break, Recordkeeping and Reporting Time Pay Exemptions

The above-listed employees who are exempt from California's overtime requirements are also exempt from California's meal and rest break requirements, recordkeeping requirements and show-up time / reporting time requirements, except for the following:

  • Inside salespersons;
  • Drivers whose hours are regulated by federal regulations or by California regulations;
  • Employees covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work and working conditions, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of at least 30 percent more than the state minimum wage;
  • Employees who have entered into a collective bargaining agreement under the Railway Labor Act (exempt from meal and rest break requirements but notexempt from recordkeeping and show-up time / reporting time requirements);
  • Taxicab drivers;
  • Airline employees who work over 40 but not more than 60 hours during the workweek due to a temporary modification in their normal work schedule not required by the employer and arranged at the request of the employee;
  • Crew members employed on a commercial fishing boat (except that for an overnight trip a crew member shall receive no less than eight hours off-duty time for each 24-hour period), as described in Other Exempt Employees;
  • Motion picture projectionists;
  • Announcers, news editors or chief engineers employed by a radio or television station in a city or town with a population of 25,000 or less;
  • Sheepherders;
  • Irrigators (during any week in which more than half of their time is spent performing irrigator duties); and
  • Minors employed as a babysitter for a minor child of the employer in the employer's home.

Although enforcement guidance from the DLSE states that it "would appear that exempt employees are also entitled to meal periods," this guidance is easily trumped by California's Wage Orders. See Tidewater Marine Western, Inc. v. Bradshaw, +14 Cal. 4th 557 (Cal. 1996) (holding that "the DLSE's interpretation of the IWC wage orders is void and not entitled to any deference"). The Wage Orders are quasi-legislative, which means they "have the dignity of statutes." Ramirez v. Yosemite Water Co., +62 Cal. App. 4th 912 (Cal. App. 2d Dist. 1998).

Trainees and Interns

There is no California statute or regulation that expressly exempts persons participating in a training program or internship from the state's minimum wage and overtime requirements. However, in a 2010 opinion letter, In re Educ. Internship Program, +2010 Cal. DLSE LEXIS 1, 3-4 (Cal. Div. of Labor Standards Enforcement Apr. 7, 2010), the DLSE stated it follows federal interpretations that recognize the special status of trainees and interns who perform some work as part of an educational or vocational program. Specifically, the DLSE applied the "six-factor test" once used by the US Department of Labor, under which trainees and interns will be considered employees under the federal Fair Labor Standards Act (FLSA) unless all of the following criteria are met:

  • The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
  • The training is for the benefit of the trainees or students;
  • The trainees or students do not displace regular employees, but work under close supervision;
  • The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, its operations may even be impeded;
  • The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  • The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

However, the DOL rescinded its six-factor test in 2018 and instead adopted the primary beneficiary test used by many federal appellate courts (including the 9th Circuit Court of Appeals, which covers California).

It remains to be seen whether the DLSE will update its enforcement policies as a result of this development.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.