Are Your Exempt Employees Really Exempt?

Many employers mistakenly assume they can simply pay someone a salary and classify them as “exempt,” but this is not the case. In fact, the default in California is that an employee is assumed to be an hourly (non-exempt) worker, unless the employer can demonstrate they meet the exemption standards. Not all positions are even eligible for exempt status. However, there are many advantages to classifying someone as exempt, as they are not subject to most wage and hour requirements, including timekeeping, overtime, meal and rest breaks, etc.

So what does it take to be an exempt employee? The employee must satisfy both a duties test and a salary minimum. CEA members can access our Exempt Analysis Worksheets for assistance on the duties tests. Note that exempt employees must engage in qualifying exempt duties more than 50% of the time.

• The minimum exempt salary for 2024 is $66,560/year (calculated as two times the State’s minimum wage multiplied by 2080 hours per year).

FAQs for Exempt Employees

If an exempt employee works part time or variable hours can we pro-rate or reduce their salary?

No. The hallmark of an exempt employee is that they are paid for the skills they bring to the job—not the number of hours they work. To maintain exempt status under the white-collar exemptions (i.e., executive, administrative, and professional), the employee must be paid their full salary for a workweek in which they perform any work. This is known as the “salary basis” rule. Therefore, when one of your exempt employees is absent for part of the workweek or works less hours, you should start with the assumption that they will still receive their full salary.

There are a few narrow exceptions when an employer may be permitted to make deductions from an exempt employee’s salary for qualifying full-day absences. We cover this issue in more detail in our previous blog article.

Can we require exempt employees to work specific hours?

Yes! Many employers assume that because an exempt employee is not paid by hours worked, that you cannot require a specific schedule. That is untrue. Employers are free to assign designated work shifts and/or required hours of availability to exempt employees. For example, if your business operations are Monday-Friday, 9am-5pm, you can require your exempt employees to be present and working during these hours. You can also call them to work outside of these hours, and you do not have to worry about overtime as long as they are properly classified.

Do we have to pay expense reimbursements to exempt employees?

Yes. Although exempt employees are exempt from most wage-and-hour requirements, they are still subject to a few. Business expense reimbursement is one of them. Labor Code section 2802 requires employers to reimburse all employees for all reasonable and necessary business expenses required to perform their job (e.g., office supplies, cellphone, internet, etc.). Also, don’t forget about reimbursing exempt workers for mileage when they use their personal vehicle for business travel as well!

Can we classify someone as a “salaried non-exempt” worker?

Not really. While the Labor Commissioner permits employers to pay non-exempt employees on a salaried basis, they are still hourly employees subject to all wage-and-hour requirements, to all wage-and-hour requirements, including at least earning the minimum wage for all hours worked, overtime, meal and rest breaks, etc. The number of hours they work must still be included on their paystub. This means that salaried, non-exempt employees need to track the time they work to ensure they are paid properly and that documentation is compliant. This arrangement can often complicate the regular rate of pay for calculating overtime. Due to the administrative burdens and additional confusion, it is typically not recommended to pay non-exempt employees on a salaried basis.

Additional questions? Members can contact our wage-and-hour experts at 800.399.5331.