Overtime laws were established under both California law and federal law to reward employees for working long hours.[note] Walling v. Youngerman-Reynolds Hardwood Co. (1945) 325 US 419, 423-424; Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 CA3d 557, 564.[/note] They were also put in place to prevent employees from overworking their employees by putting financial pressure on the employer.
Is Overtime Owed After 8 Hours or 40 Hours in California?
Under both California and federal law, employees must be paid overtime (time and a half) for all hours worked over 40 hours per week.[note] 29 USC § 207(a)(1); Labor Code § 510(a). [/note] Additionally, under California law, employees must be paid overtime for all hours worked over 8 hours per day, and must be paid double time for all hours worked over 12 hours per day. [note] Labor Code 510(a). [/note]
So, in California, an employee who works 10 hours a day, 4 days a week is owed 2 hours of overtime per day (or 8 hours per week). That same employee, under the less protective federal law, is NOT owed any overtime because they did not work more than 40 hours per week.
What Are California’s Overtime Exemptions?
Generally, all employees are entitled to overtime pay unless they fall under a specific legal exemption from overtime. In California, those exemptions are:
“Executive” Employee Exemption: The following test applies in determining who is an executive employee:
The employee must spend more than 50% of his or her work time: (1) performing duties and responsibilities that involve management of the enterprise as a whole, or of a customarily-recognized department or subdivision; (2) The employee must direct the work of at least two employees; (3) The employee must have the authority to hire and fire, or to command particularly serious attention to his or her recommendations regarding hiring and firing.[note] Lab.C. § 515(a). [/note]
In other words, executive employees are true managers. They spend most of their time managing the business and directing the work of others as opposed to performing the work themselves, and they have the authority to hire and fire those employees they oversee.
“Administrative” Employee Exemption: To be considered an “administrative employee” and thus exempt from state overtime pay and minimum wage requirements, the employee must satisfy each of the following:[note] Eicher v. Advanced Business Integrators, Inc. (2007) 151 CA4th 1363, 1372, 61 CR3d 114, 118. [/note]
The employee must spend more than 50% of his or her time: (1) performing office or non-manual work that is directly related to the management or general business operations of the employer or of the employer’s customers; and (2) exercising discretion and independent judgment with respect to matters of significance.[note] Lab. C. § 515(a).[/note] An administrative employee must also earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week.[note] Lab. C. § 515(c).[/note]
The term “discretion and independent judgment” means the power to evaluate several possible course of action and to decide without immediate supervision which course of action to follow.[note] 29 CFR § 541.202. [/note]
According to the California Labor Commissioner, the following are examples of employees who might qualify under the “administrative” exemption:
• Employees who regularly and directly assist a proprietor or exempt executive or administrator. Included in this category are those executive assistants and administrative assistants to whom executives or high-level administrators have delegated part of their discretionary powers. Generally, such assistants are found in large establishments where the official assisted has duties of such scope and which require so much attention that the work of personal scrutiny, correspondence and interviews must be delegated.
• Employees who perform, only under general supervision, work along specialized or technical lines requiring special training, experience or knowledge. Such employees are often described as “staff employees,” or functional, rather than department heads. They include employees who act as advisory specialists to management, or to the employer’s customers. Typical examples are tax experts, insurance experts, sales research experts, wage rate analysts, foreign exchange consultants, and statisticians. Such experts may or may not be exempt, depending on the extent to which they exercise discretionary powers. Also included in this category would be persons in charge of a functional department, which may even be a one-person department, such as credit managers, purchasing agents, buyers, personnel directors, safety directors, and labor relations directors.
• Employees who perform special assignments under only general supervision. Often, such employees perform their work away from the employer’s place of business. Typical titles of such persons are buyers, field representatives, and location managers for motion picture companies. This category also includes employees whose special assignments are performed entirely or mostly on the employer’s premises, such as customers’ brokers in stock exchange firms and so-called “account executives” in advertising firms.
“Professional” Employee Exemption: There are general two types of “Professionals” under the professional employee exemption – (1) License/Certified Professionals and (2) Learned/Artistic Professionals.
- Licensed or Certified Professionals: This type of professional is licensed or certified by the State of California and spends more than 50% of his or her time practicing of the following: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting.[note] 8 Cal.C.Regs. § 11010 et seq.[/note] As with the other exemptions, the employee must earn a monthly salary equivalent to at least twice the state minimum wage.[note] Labor Code Section 515(c).[/note]
- Registered Nurses: In general, registered nurses DO NOT qualify under the licensed/certified professional exemption. Accordingly, registered nurses, like all other non-exempt employees, are entitled to overtime pay for all overtime hours worked. However, nurses who have obtained an advanced certification or license may qualified under the professional exemption. For example, certified nurse anesthetists and certified nurse practitioners may be exempt under the professional exemption depending on the work they perform.[note] Lab.C. § 515(f)(2).[/note]
- Learned or Artistic Professionals: The term “learned profession” means work requiring advanced knowledge in a field of science or learning that is typically acquired by a prolonged course of intellectual study, e.g., college course work in a specialized profession. The best evidence that an employee meets this requirement is possession of the appropriate academic degree.
The learned professional exemption is not available for occupations that may be performed with only the general knowledge acquired by an academic degree in any field; knowledge acquired through an apprenticeship; or training in the performance of routine mental, manual, mechanical or physical processes. The exemption also does not apply to occupations in which most employees acquire skill by experience.
The term “artistic profession” means work that is original and creative in character in a recognized artistic field. This type of work is artistic in nature and the result of the work depends on the employee’s individual invention, imagination, or talent[note] 8 Cal.C.Regs. § 11010 et seq.; 29 CFR §§ 541.301(a)-(d), 541.302-541.308; 29 USC §207.[/note] and includes music, writing, acting and the graphic arts. Thus, exempt creative professionals include groups like musicians, composers, conductors, novelists, screen writers, actors, painters and photographers.
As with licensed or certified professionals, learned or artistic professionals must be paid a monthly salary equivalent to at least twice the state minimum wage.[note] 8 Cal.C.Regs. § 11010 et seq.[/note]
“Outline Salesperson” Exemption:[note] Lab.C. 1171; 8 Cal.C.Regs. § 11010; Duran v. U.S. Bank Nat’l Ass’n (2014) 59 C4th 1, 25-26.[/note]
An “outside salesperson” is someone who regularly works more than half of his or her working time in sales activities outside the workplace.[note] 8 Cal.C.Regs. § 11010 et seq.; Ramirez v. Yosemite Water Co., Inc. (1999) 20 C4th 785, 796, 85 CR2d 844, 851.[/note] In deciding whether an employee is an “outside salesperson”, courts will not rely on the employer’s job description. Rather, the focus should be on “the realistic requirements of the job.” Specifically, “the court should consider … how the employee actually spends his or her time” and “whether the employee’s practice diverges from the employer’s realistic expectations.”[note]Ramirez v. Yosemite Water Co., Inc., supra, 20 C4th at 802, 85 CR2d at 855; Sav-on Drug Stores, Inc. v. Sup.Ct. (Rocher) (2004) 34 C4th 319, 336, 17 CR3d 906, 920.[/note]
“Inside Salesperson” aka “Commissioned Salesperson” Exemption:
Overtime pay requirements do not apply to any employee whose earnings exceed one and one-half times the minimum wage if more than half of that employee’s compensation comes from commissions.[note] See 8 Cal.C.Regs. §§ 11040, 11070, ¶3(B); Ramirez v. Yosemite Water Co., Inc. (1999) 20 C4th 785, 803, 85 CR2d 844, 856.[/note]
Whether the “minimum earnings” requirement is satisfied depends on wages actually paid in each pay period. Therefore, an commissioned sales employee may be expect in some pay periods, and not exempt in others (when they earn less than half of their compensation in the form of commissions). This is because “(a)n employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”[note] Peabody v. Time Warner Cable, Inc. (2014) 59 C4th 662, 669, 174 CR3d 287, 292. [/note] “Commission” wages may consist of a fixed amount per item or service sold by the employee.
To constitute “commission” wages, the employee must be involved principally in sales activities (not manufacturing or rendering service); and his or her compensation must be a percentage of the price of the product or service.[note] Ramirez v. Yosemite Water Co., Inc., supra, 20 C4th at 804, 85 CR2d at 856; Harris v. Investor’s Business Daily, Inc. (2006) 138 CA4th 28, 38, 41 CR3d 108, 116—commission exemption not applicable where telemarketers’ pay based on number of subscriptions sold rather than price.[/note] For example, automobile mechanics are not exempt under the commissioned sales exemption even if their compensation is based on a percentage of amounts charged to customers because they were not selling property or services as defined in Lab.C. § 204.1.[note] Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 CA3d 557, 562-564, 242 CR 873, 875-876.[/note]
Overtime pay and exemption issues in California are extremely complicated and fact-specific. If you have questions about unpaid overtime or California exemptions from overtime, call us today to speak with one of our experienced employment law attorneys.
