There are many pros and cons to both salaried and hourly employees and a consensus of the people I have known growing up and in my professional life does not seem to weigh in either direction. Salaried employees of course enjoy the security of a guaranteed check, at an amount that can be expected regardless of their output or hours worked in a week. This sense of security must have value in itself. The attorneys at Miller Wilmers APC have experience working at big law firms where it became apparent that perhaps a salaried position is not always the best way to go. Getting paid the same amount each week regardless seems nice until you are working 30 days straight for 80 hours a week. Now that salary doesn't seem worth it and the calculation may weigh in favor of hourly work. On the other hand, hourly employees do not have that same guarantee and there must always be a trade of your time for compensation. However, overtime laws can make hourly work extremely profitable for some people and it provides an incentive that allows you to appreciate longer weeks knowing they are being compensated differently than a week where you chose or were not required to work as much. 

Now in California, there are certain requirements you must meet within your position to truly be a salaried exempt employee. 

What is an Exempt Employee?

An Exempt Employee is somebody who is compensated on a salary basis and does not qualify for overtime, meal and rest periods the same way that hourly employees are. In order to qualify as an exempt employee, you must fit into very specific exemptions provided by Federal and State law. In California, the most common of these exemptions are the "Professional Exemption", 

What is the Professional Exemption?

In California, there are eight recognized professions that qualify in their duties as professionally exempt, although other professions could be included if they meet certain tests. In California, lawyers, doctors, optometrists, architects, engineers, accountants, and teachers qualify and expressly exclude registered nurses and pharmacists (thank the unions). 

The Professional Exemption though does include a sub-category called "learned" or "artistic" professions and "computer professionals" as their own exemptions. However, there are other professionals that could qualify such as chemists, biologists, and developers of many kinds so long as they meet these tests:

     1.     The educational requirements for the position are extremely advanced and require that the employee have a degree or certificate that necessitates a minimum of one year of specialized study in addition to completion of a four-year college course;

     2.     The employee's work is such of a nature that its product cannot be standardized with respect to time, and the employee has considerable control over how to carry out a task as well as his hours of work;

     3.     Over 50 percent of the employee's time is devoted to work that is creative or intellectual. Such work must depend on imagination or invention or involve analysis and the drawing of conclusions. The type of work that qualifies is distinguishable from work that merely involves the application of ordinary mental skills and knowledge; and

     4.     The Salary/Renumeration test is met. 

To break these down further the IWC has developed two tests:

The Quantitative and Qualitative Test

The IWC has established exemptions for executive, administrative, and professional employees primarily engaged in exempt duties. The Labor Code defines the terms "primarily" to mean "more than one-half of the employee's work time." The California Supreme Court has identified the subtle difference between California's "primarily engaged in" standard which focuses on the employee's "primary duty" which is the second, qualitative test. 

For the quantitative test, the employee "must spend more than 50% of his or her own work time engaged in exempt activity in order to be exempt" from overtime and state law. This means that over 50% of your duties must require your independent discretion and judgment which brings light to why those eight professions mentioned above are typically considered exempt. They are all professions which require independent discretion and judgment. It is generally clear that the following types of work are exempt when performed in the management of an employee's department or the supervision of other employees:

(i) interviewing, selecting, and training employees;

(ii) setting and adjusting their rates of pay and hours of work;

(iii) directing the work of employees;

(iv) maintaining production or sales records for use in supervision or control;

(v) appraising their productivity and efficiency for the purpose of recommending promotions or other changes in their status;

(vi) handling their complaints and grievances;

(vii) disciplining them when necessary;

(viii) planning the work;

(ix) determining the techniques to be used;

(x) apportioning the work among the workers;

(xi) determining the type of materials, supplies, machinery or tools to be used;

(xii) determining the type of materials, supplies, machinery or tools to be used;

(xiii) controlling the flow and distribution of materials or merchandise;

(xiv) providing for the safety of employees and the property.

The Courts have determined that two duties are clearly exempt duties and that is (1) the planning and controlling the budget and (2) monitoring or implementing legal compliance measures. Exempt Status is controlled by the realistic requirements of a job, and not how well they are performed. A job description alone does not control the outcome of your exempt status as it matters the duties you are actually performing. Take a look at (i) how the employee actually spends their time; (ii) whether the employee's practice diverges from the employer's realistic expectations; (iii) whether there was any concrete expression of employer displeasure over the employee's substandard performance; and (iv) whether these expressions were themselves realistic given the actual overall requirements of the job. 

The Salary Test

The salary threshold in California is two times the state minimum wage.  For 2022, this is $15 per hour X 2080 hours/year X 2 = $62,400.  This means that any California employee earning less than $62,400 per year cannot be considered an exempt employee.  In 2022, for an employer with 25 or fewer employees, the California minimum wage is $14 per hour, so the salary threshold is now $58,240, increasing to $62,400 as of 2023.  The salary threshold is based on the state's minimum wage, and is not affected by any local or regional minimum wage ordinance.

Miller Wilmers APC, a California Employment Law Firm

The employment attorneys at Miller Wilmers APC have conducted full scale liability audits of companies across the country and have found that many "exempt" employees have in fact been misclassified and are really non-exempt employees that should be entitled to overtime, meal and rest periods. If you are an exempt employee and you believe you are entitled to overtime and meal and rest periods you may contact our office for a FREE consultation.