California’s Key Differences Between Exempt and Non-Exempt Employees

Employees are classified into two main categories: exempt or non-exempt, as defined by the Fair Labor Standards Act (FLSA). Each classification has its own eligibility requirements and different workplace benefits. Employers must know the differences to ensure they pay the correct wages and benefits and assign the correct work hours.

Work Hours and Overtime Eligibility

According to the FLSA, non-exempt employees are entitled to the minimum wage, overtime pay, and other rights. Non-exempt workers must be paid at least the federal minimum wage of $7.25 per hour (since July 2009) for regular hours and at least time and a half for overtime hours, i.e., more than 40 hours in a work week.

Exempt employees do not receive the benefits regulated by the FLSA, such as overtime pay and a guaranteed minimum wage. Federal rules state that exempt workers should be paid at least $684 per workweek as of Jan. 1, 2025. For exempt workers, employers can stipulate that up to 10% of an employee’s standard salary level will consist of nondiscretionary bonuses and incentive payments, including commissions, which are paid at least annually. Both exempt and non-exempt employees may be eligible for other rights, according to the U.S. Department of Labor and state and local labor laws.

Meal and Rest Break Entitlements

Overall, employers are not required by federal law to pay exempt employees for meals or rest breaks that last 30 minutes or more, and these breaks are set by the company. The employee should be relieved from work responsibilities for the break to qualify as unpaid. If an employee chooses to take a working lunch or the employer requests that they return to work early, they should be paid for that time.

Regarding non-exempt workers, the Department of Labor (DOL) considers short breaks (lasting 20 minutes or fewer) to be paid work hours. As a result, employers must add these breaks to an employee’s total weekly hours. Employees should track short breaks because it is part of employees’ total hours and could be overtime.

Non-exempt employees are eligible for an unpaid 30-minute meal break every five hours of work and a paid 10-minute break after each four hours worked.

Criteria for Determining Exempt Status

Salary Basis Requirement

The minimum salary required for exempt workers, or the exemptions from overtime under federal law, was supposed to climb from $844 per week to $1,128 on Jan. 1, 2025. However, in November 2024, a federal judge blocked the proposed increase and eliminated a salary increase that went into effect in July 2024. As a result, the federal minimum salary increase returned to $684 per week.

Rules about whether an employee is exempt vary from state to state, with different salaries and duties tests. The overall rule of thumb is if state law is more protective (i.e., calls for a higher salary amount or has duties tests with a higher bar), then employers should adhere to the state law.

With the federal minimum salary level returning to $684 per week, six states have enacted minimum salary requirements for overtime exemption that will surpass the federal level. 

Job Duty Tests

Generally, exempt workers work in administrative, professional, and executive jobs. 

The DOJ states that an exempt employee’s job duties should meet specific criteria:

• The employee’s primary duty must be managing the enterprise or supervising a customarily recognized department or subdivision of the company.
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent and
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations about the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

Role of Discretion and Independent Judgment

For an employee to be classified as exempt under the FLSA, their primary duty must include exercising discretion and independent judgment about matters of significance, i.e., they have the authority to make independent choices free from immediate direction or supervision. 

The DOL writes that, in general, the exercise of discretion and independent judgment includes comparing and evaluating possible courses of conduct and acting or making a decision after the various possibilities have been considered. The exercise of discretion and independent judgment must be more than using skill in applying well-established techniques, procedures, or specific standards described in manuals or other sources.

The exercise of discretion and independent judgment implies that a worker can make an independent choice, free from immediate direction or supervision. However, discretion and independent judgment can be exercised even if a more senior employee reviews it. Thus, the term "discretion and independent judgment" does not require the decisions to be final or free from review. Even if an employee’s decisions may be subject to review and, upon occasion, the decisions are revised or reversed after review, it does not mean that one is not exercising discretion and independent judgment.

Common Exemptions in California

Administrative Exemption

The administrative exemption stipulates that employees must devote more than 50% of their day to office or nonmanual work related to management procedures or general business functions for their employer or the employer’s customers.

The employee must also “customarily and regularly” exercise prudence and independent judgment when performing tasks that are vital to the company.

Other employees usually supervise the administrative worker, and the worker’s duties require special training, experience, or knowledge.

An administrative employee's salary must be at least two times the state minimum wage. The minimum annual salary to meet the exemption rose to $68,640 for 2025, or $5,373.34 per month.

Professional Exemption

According to California law, a job is professionally exempt if it meets the salary and duties tests. To satisfy the salary test, an employee must earn a salary regardless of the weekly hours worked. An hourly worker is not professionally exempt.

In addition, an employee's salary must be at least $5,729 per month ($68,640 annually) to be professionally exempt in 2025. The $5,729 salary is determined by doubling California’s minimum wage ($16.50 an hour) based on a full-time (40-hour) workweek.

If an employer does dock partial rather than full days from an employee's salary because of absences, that may mean the employee is non-exempt, per California regulations.

Executive Exemption

This exemption has several conditions. The employee must manage the enterprise where they are employed or a department or subdivision within the company. The employee must oversee the work of at least two other workers. They also have the authority to fire or hire, along with the ability to promote people in his or her team. Also, the rules state that the employee is “primarily engaged in duties that meet the criteria of exemption, i.e., more than 50% of the employee’s time is devoted to exempt duties. 

Computer Professional Exemption

To classify as an exempt computer professional employee, the employee must spend most (more than 50%) of their time working on intellectual or creative tasks involving discretion and judgment. The worker must also devote time to developing, documenting, analyzing, creating, testing, or modifying computer systems or programs. 

As of Jan. 1, 2025, California’s Division of Labor Statistics and Research (DLSR) established a computer software employee’s minimum hourly rate at $56.97, the monthly rate rose to $9,888.13, and the minimum annual salary became $118,657.43.

Sales and Artist Exemptions

To qualify as exempt, a salesperson’s earnings must be more than one and one-half times the California minimum wage. Commissions must equal more than 50% of their earnings.

Artistic professionals include workers who perform imaginative and original work requiring specialized skills or training. Examples include:

• Musicians
• Actors
• Visual artists
• Writers

The California Chamber of Commerce explains that “few individuals qualify for exemption as members of artistic professions in California, since most of those who have sufficient control over the nature of their own work and over their work hours are self-employed.”

Risks and Consequences of Misclassification

Legal Implications

According to law firm Venable LLP, the DOL “collected $234 million in back wages” for 200,000 employees after the DOL ruled that they were not paid incorrectly under FLSA.

Financial Penalties and Back Pay Liabilities

If a company incorrectly designates an employee as exempt under the FLSA and state laws, it can lead to various significant and expensive legal actions. Employees can sue to recover unpaid wages, including overtime, according to FLSA rules. Also, a "liquidated damages" provision enables employees in some situations to recover two times their actual back wages or even treble damages in some states, along with the worker's legal fees. Financial damages for these lawsuits can be costly, especially in class actions with many workers. In addition, the DOL or state agency may examine how a company classifies workers or independent contractors.

Ensuring Compliance with Labor Laws

Importance of Accurate Job Titles

Written job descriptions become essential evidence in wage and hour cases when employees sue because they were misclassified as exempt and didn't receive overtime. Employers can not defend their job descriptions without providing a list of tasks and responsibilities demonstrating that the employee is exempt. The job must meet the salary test, and the job description must show that it is exempt under the administrative exemption.

The job description must demonstrate that the position meets these two criteria:

• The worker's duties are office or non-manual work directly connected to the management or general business processes of the employer or the employer’s customers.
• The employee exercises discretion and independent judgment about vital business issues and procedures.

Role Evaluations and Adjustments

• Regular Review: Companies must review the job descriptions and responsibilities of exempt employees regularly to maintain compliance with FLSA requirements.
• Salary Review: Employers must pay exempt employees at least the minimum salary.
• Duties Assessment: Employees must evaluate if their job duties still match exemption rules.
• Documentation: Good paperwork is essential for salaries, job responsibilities, and changes made to employees' roles.
• Training: Managers must be trained in FLSA compliance and how to correctly classify exempt employees. 

Practical Steps for Employers

Regular Audits and Reviews

FLSA rules provide guidance on minimum wage, overtime, and record-keeping requirements. Non-exempt workers' salaries must be higher than the federal, state, or local minimum wage rate for all hours worked. Supervisors are responsible for checking time cards for hourly employees to ensure work hours were correctly recorded. 

Payroll and the human resource information systems must collect and maintain all required information, including properly storing records. The company must have a policy that mandates that non-exempt employees record all their work time, and the policy must be enforced.

Non-exempt workers must be paid overtime at the rate of one and one-half times the regular rate of pay. Overtime pay must comply with FLSA, state requirements, company policy, or the Collective Bargaining Agreement.

The company should provide workers with legally required breaks. 

Training and Resources for HR Professionals

One of the best resources for training HR executives about the rules governing exempt and non-exempt workers is the Society for Human Resource Management (SHRM). There are also several online courses designed to train managers about FSLA rules, such as Coursera. The FLSA also has online resources with information on workplace rules and regulations.

The Role of Employment Lawyers

When to Seek Legal Guidance

Consulting an employment lawyer may be prudent if a company is drafting a new employee handbook. The handbook must comply with state and federal law, and employees must be able to understand the language. If the handbook has errors, it can lead to lawsuits and disagreements between management and employees. An employment lawyer can ascertain that corporate policies and regulations comply with federal and state laws. There are several situations where an attorney is necessary, such as when an employee sues because of claims of misclassification as exempt, discrimination, or harassment, or when management needs assistance with new contracts. 

Experienced counsel can help prevent these cases from becoming more complicated and costly. The cost of the attorney may well be worth it if there is a chance the case will spiral into a lengthy proceeding. A small company may worry about the cost of hiring an attorney, but it can be worth it to prevent a case from going to court. Conducting due diligence and research before hiring an attorney may be worthwhile because they are generally paid in different ways: hourly rates, flat fees, and contingency fees.

Exempt and Non-exempt Employees: Questions and Answers

Conclusion: Balancing Employee Rights and Employer

Proper employee classification and compliance with labor laws are essential for businesses to maintain legal and ethical employment practices. Employers must navigate complex federal and state regulations to ensure fair wages, benefits, and working conditions. Misclassifying non-exempt workers can lead to significant legal and financial consequences, making it crucial for businesses to conduct regular audits, maintain accurate records, and seek legal guidance when necessary.

Employers can build trust with employees, minimize risk, and create a more stable and productive work environment by fostering a workplace culture that adheres to FLSA and state rules and treats workers respectfully and fairly.