California requires employers to pay non-exempt employees overtime pay for hours over 8 hours in a day and 40 hours in a week. The federal Fair Labor Standards Act also requires overtime pay for work weeks exceeding 40 hours. Overtime pay for these hours is 1.5 times the employee’s “regular” hourly rate. California requires employers to pay 2 times the hourly rate after 12 hours in a day or 60 hours in a week. Employers may violate these laws by, among other things, misclassifying employees as exempt or failing to include all forms of compensation when determining the “regular” rate of pay used for calculating overtime. Attorneys at Kaufmann & Gropman have recovered overtime back pay for thousands of workers who have been misclassified as exempt or otherwise denied their proper overtime pay. 

Certain employees may be properly “exempt” from overtime requirements, depending on their job duties, compensation, and industry. For example, there are exemptions for some executive, administrative, and professional employees, and certain salespeople. There are also exemptions specific to certain industries, such as interstate trucking and agriculture. Each exemption has its own set of legal criteria, as discussed below.  

To be an “exempt” executive, administrative, and professional employee, the employer must prove that the employee meets a “duties test”—by spending at least half of their work time on truly exempt managerial, administrative, or profession work—and a “salary basis test”—which, in California, means paying a true salary that exceeds two times minimum wage. Overtime must be paid unless both the “duties” and “salary basis” tests are met.   

Employers often misclassify lower-level managers and other supervisors as “exempt executives.” Merely giving the title of “manager” and paying a salary does not make an employee a true executive. Also having some supervisorial duties—such as instructing and scheduling other employees, purchasing supplies and equipment, and handling personnel matters—may not suffice, unless those duties occupy most of the manager’s time. Often lower-level managers have some management duties but are still entitled to overtime because they spend most of their time performing the same tasks as those they supervise. Managers may also not meet the “executive” exemption criteria because they do not have sufficient discretion and independent judgment or hiring and firing authority.     

The “administrative” exemption is intended to cover employees who spend most of their work formulating or administering general policies and practices applicable to the overall operations of the employer or of the employer’s customers. Ordinarily employees who carry out the day-to-day business of the company, such as making, providing, or selling the company’s product or service, do not meet the administrative exemption criteria. True administrative employees are often part of the “nerve center” of the company—such as high-level accountants, financial analysts, marketing specialists, and human resource professionals—and participate in major decision-making as to how a company operates overall. They often have specialized skills or work with little supervision. However, for the exemption to apply, those skills must be advanced and used at a high level: for instance, designing an IT system or formulating marketing strategies may be exempt administrative work, but routine IT maintenance or sales work is not.    

A bona fide exempt professional has an advanced degree—such as a masters or doctorate —in a particular field. Some licensed occupations meet this requirement, such as lawyers, doctors, engineers, accountants, and teachers. Certain high-level computer professionals can also be exempt. However, the exemption may not apply to jobs that require only an undergraduate degree or do not require that the degree be in a particular field. For instance, some social workers, lower-level computer software or hardware engineers, technical writers, and non-licensed medical personnel may fall outside the exemption and thus are entitled to overtime. 

The salary requirement for these exemptions is only met if the employee receives a set amount of pay on a regular basis, and the amount does not depend on the amount or quality of work. Employees who are paid a commission, a piece rate, or a percentage of the profits may not meet the salary requirement. Employers may also fail the salary basis test if they reduce the employee’s pay to cover business losses (such as “shrinkage” or cash shortages).   

Certain salespeople may be exempt as well. Those who spend most of their time on sales activities outside their employer’s facility or their home may fall into the “outside sales” exemption. Also, depending on the industry, commission salespeople may be exempt if they earn at least half of their income from commissions and spend more than half their time selling.   

There are many industry-specific exemptions as well. For instance, drivers moving freight in “interstate commerce” may fall within the Motor Carrier Act exemption if they use a vehicle with a gross vehicle weight rating of at least 10,000 pounds. Goods that cross state lines or international borders may be part of “interstate commerce.” However, “intrastate commerce”—moving freight within a state—does not qualify. Also, the exemption does not apply where the stream of interstate commerce is broken, for instance, where the goods lay to rest at a warehouse for a significant time before being delivered to the customer or if the goods are transformed into a different product before delivered to the customer (such as turning flour into bread). 

Finally, even where employers do pay overtime, they sometimes fail to pay at the lawful rate. The “regular” rate used for calculating overtime must include all forms of compensation, not just the hourly rate or the per hour rate that results from dividing a salary by hours worked.  For instance, employers sometimes fail to include extra compensation, like commission pay, shift differentials, non-discretionary bonuses (earned based on work production or quality), and payments for cash in-lieu of health benefits.