Federal and state laws--not employers--dictate who is entitled to overtime pay, and various legal tests must be examined to determine whether your employer has properly classified you. Moreover, job titles mean nothing; you have to examine the duties to be sure. There are numerous overtime exemptions and, since they are so complicated, many employers get them wrong and then misclassify their workers, denying them years of wages. When that happens, it is usually because a worker failed to qualify as exempt under one of the following non-exhaustive categories of positions:
- Computer Professionals
- Outside Salespersons
- Commisioned Salespersons
The sections below detail each of these exemptions. You may also wish to review the U.S. Department of Labor’s discussion of these commonly-misunderstood exemptions under federal law, although California law is much more protective or workers.
Keep in mind, as you review these tests, that some of the language within them may vary, depending on whether the California version or federal version is at issue. Remember as well that more than one exemption may apply to any particular position.
For the sake of illustration, we have elected to provide the factors as they appear under federal law. Where appropriate, we have also included a reference to the more worker-friendly California law version. Whether the state or federal (or both) tests apply to your job position should be examined by competent legal counsel with eye toward the nature of your work, the industry within which you work, the manner in which you are paid, and (if litigation has begun) what claims are alleged in the particular lawsuit.
Before your employer can deny you overtime pay under the (federal) executive exemption, the employer must demonstrate that you:
- have the primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise, AND
- “customarily and regularly” direct the work of at least two other full-time employees or the equivalent, AND
- possess the authority to hire and fire other employees, or have a significant influence in such decisions, AND
- be compensated on a salary basis (as defined in the regulations) at a minimum rate of pay.
If the employer cannot meet each and every one of these factors (and no other exemption applies), you deserve overtime pay. Moreover, if that wasn’t difficult enough, for an employer to prove an exemption applies, it has to prove it for each pay period you worked. That is a tough requirement, but note that the California test imposes even tougher requirements on the employer.
What constitutes “management” work is less than clear and can vary from context to context, requiring further examination of the particular company and its practices. Federal law does provide some guidance through examples, but presumes that these duties call for the requisite discretion and independent judgment on the part of the worker (which may be far from reality). These examples include activities such as interviewing, selecting, and training of employees, setting and adjusting rates of pay and hours of work, directing the work of subordinates, maintaining production or sales records for use in supervision or control, appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status, handling employee complaints and grievances, disciplining employees, planning, determining the techniques to be used, apportioning work among employees, determining the type of materials, supplies, machinery, equipment or tools to be used, or merchandise to be bought, stocked and sold, controlling the flow and distribution of materials or merchandise and supplies, providing for the safety and security of employees or property, planning and controlling budgets, and monitoring or implementing legal compliance measures. While this list is clearly far from exhaustive, one should also not assume that each of these duties will be considered “exempt” in all instances.
While the information above reflects the federal test to qualify for the executive exemption under 29 USC § 213(a)(1), a discussion of at least one of California’s state law executive exemption tests can be found here. Notably, the California counterpart to the federal test includes a much more liberal set of factors, such as a definition of “primarily duty” that means more than one half of the employee’s work time. As such, if you spend less than one half your work time on tasks that do not count as exempt, then the California state law version would not apply to you (and you may be entitled to years of overtime pay).
For the federal administrative exemption to apply:
By this definition, you can see that so-called “production” work (work for the benefit of the clients of the business, sales work, etc.) does not satisfy the first factor, above, which would prevent the employer from relying on this exemption altogether. What constitutes “production” work will, in part, depend on the nature of the business itself. For example, making photocopies for internal use may well be considered “administrative,” but making copies for the customers of a photocopying service would be “production.”
Again, although this test for exemption may be confusion, it is the employer’s burden to understand it and to prove it, not yours. Moreover, if you work in California, remember that the test the employer must meet is far more worker-friendly than under federal law (including the more liberal definition of “primary duty”). Job titles are irrelevant, and for determining overtime pay eligibility, the occupation, wage and job duties are examined instead. Click here for more information regarding the standard under one of California’s Wage Orders.
- the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, AND
- the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance, AND
- the employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week (note: the rate may be higher in certain states).
For the federal (Fair Labor Standards Act) version of the professional exemption to apply, all of the following must be satisfied:
And, yes, as you now know, you employer (not you) must prove all this. Again, California law, a version of which is discussed here is more protective of workers than is federal law and applies much different language, but be sure to check with an attorney before determining if an exemption under either standard applies to you.
- The employee’s primary duty is the performance of work: (a) requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, or (b) requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor, AND
- The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week (note: the rate may be higher in certain states).
This exemption is derived from Section 13(a) of the federal Fair Labor Standards Act, the same place where you would find the federal versions of the Executive, Administrative and Professional exemptions (discussed above) and the federal Outside Salesperson exemption (discussed below). This exemption, like each of the exemptions discussed above, also contains a “salary basis” test which, for the computer professional exemption, means compensation on a salary and/or fee basis at a rate of at least $455 per week, or on an hourly basis at a rate of at least $27.63 per hour. Additionally, a computer professional must:
- work as a computer systems analyst, computer programmer, software engineer, or other similarly-skilled worker in the computer field, AND
- have, as his/her primary duty, either (1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications, (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications, (3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems, or (4) a combination of the aforementioned duties, the performance of which requires the same level of skills.
What this all means is that workers engaged in training customers’ employees in specialized computer software, manipulating and modifying software settings and specifications (e.g., toolbars and set-up) to meet customer needs, installing, debugging, troubleshooting, and converting data and testing customers’ equipment, are generally not exempt (since their duties did not involve determining hardware, software, or systems functional specifications or designing, developing, analyzing, testing, or modifying computer systems or programs). Like all exemptions, job titles do little, if anything, to support the applicability of this exemption.
The information above can be found at 29 USC § 213(a)(17). For information about California’s more worker-friendly version of this exemption, click here and scroll down to read Section 515.5 on the linked page.
The final exemption under Section 13(a) of the Fair Labor Standards Act is known as the Outside Salesperson Exemption. This exemption permits an employer to deny overtime pay (and minimum wages) only if a particular worker:
- has the primary duty of (a) making “sales” or (b) obtaining orders or contracts for services or facilities usage, AND
- is customarily and regularly engaged away from the employer’s place of business in performing such primary duty.
The information above can be found at 29 USC § 213(a)(1) and 29 C.F.R. § 541.500. In order to qualify for this exemption under California law, however, the employee must spend more than 50% of his/her working time performing truly-exempt sales functions away from the employer’s business establishment (or away from the employee’s home, if that is where the employee is normally based). For the text of the law in California (at least as it applies to professional/technical/clerical/etc. workers), click here and scroll down to Section 1(C). Most of the remaining California Wage Orders contain similar language.
The last of the most commonly-applied of the federal exemptions applies to primarily commission-based salespeople. Section 7(i) of the Fair Labor Standards Act (29 USC § 207[i]) will exempt a particular employee if:
Note that the “regular rate of pay” language, referenced in the above federal test, applies on a workweek basis, meaning that averages of compensation for two or more weeks do not satisfy this requirement.
- the employee is employed in a “retail or service establishment,” AND
- the employee’s regular rate of pay exceeds one and one-half times the applicable federal minimum wage, AND
Also note that (while the “retail or service establishment” language is exclusively a creature of federal law) the two California tests for this exemption also require that the employee’s earnings exceed one and one-half times the minimum wage, but that the higher California state minimum wage would apply. Click here to read the California test under Wage Order No. 4 (governing professional, technical, clerical, mechanical and similar occupations), and scroll down to Section 3(D). Finally, bear in mind that only two of California’s Wage Orders (Nos. 4 and 7) provide for this exemption, which means that the majority of industrial fields do not provide an exemption for commissioned salespeople working within them.
Yes. For example, financial services industry workers, such as registered representatives (a.k.a. “stockbrokers” or “securities brokers”), mortgage loan officers, insurance sales representatives and bank employees are often surprised to learn that they are generally entitled to overtime pay, since they are not subject to the commissioned salesperson or other exemption. This comes as a surprise to some people only because the financial services industry has, for so long, misclassified these financial workers as salaried or straight-commissioned employees and, until recently, no one even thought to ask why. It also turns out that the earth is not flat.
Generally speaking, under federal law, a company must be engaged in “retail” operations before it can even attempt to prove one of the exemptions applies to its employees. This is known as a company possessing a “retail concept.” For greater detail about this concept, click here. Conversely, companies that are not engaged in retail transactions (i.e., transactions for the sale of goods or services to the end-user, versus transactions over products and services for eventual re-sale, such as is the case with securities) do not satisfy the federal commissioned salesperson exemption.
A partial list of company types that lack this “retail concept” includes companies/organizations engaged in advertising, banking, bottling, credit, duplicating (including addressing, mailing, mail listings, and letter stuffing establishments), education, employment services, engineering, finance, insurance, mutual, stock and fraternal benefit (including insurance brokers, agents, and claims adjustment offices), income tax return preparation, investment counseling, labor unionization, law, real estate, security (e.g., security guards) telephone service, title and abstracts, transportation, travel (e.g., travel agencies) and trust services.
If you work[ed] in one of these industries (or any one of the myriad other industries identified under federal law), you may well be entitled to overtime pay.
These questions and answers are for educational purposes only and cover just a few topics that are commonly of interest to workers. This material should not be construed as legal advice, the establishment of an attorney-client relationship, or as indicative of a particular outcome regarding any legal issue you might have.