In California, most employees are entitled to overtime pay if they work more than eight hours in a day or 40 hours in a week. That is a matter of law. But what if an employee is paid a salary—does that mean they're exempt from overtime?
Overtime Exemptions Are Limited and Specific
Exemptions do exist, but the nature of these exemptions is commonly misunderstood.
Some employees—and employers—mistakenly believe that overtime eligibility is a choice. However, an employee cannot agree to waive overtime. Such agreements are invalid and unenforceable. (See Cal. Labor Code § 1194: "Notwithstanding any agreement to work for a lesser wage...")
For the same reason, employees cannot simply "agree" that they are exempt from overtime.
What Determines an Overtime Exemption?
Exemptions are defined by law, not by job title, agreement, or compensation alone (Cal. Labor Code § 515; DLSE Overtime Exemptions). Each exemption has its own rules and should be specifically consulted.
However, speaking broadly, most exemptions include two distinct components:
- The method of pay (i.e., commissions or salary), and
- The employee's duties (particularly, the discretion they exercise in that role).
Both components must be satisfied for an exemption to apply. In other words, simply paying someone a salary above the minimum threshold is not enough to be exempt if their duties don't meet the definition of the specific exemption.
The Risk of Misclassification: Salaried But Not Exempt
Many employees are classified as salaried, but do NOT meet the exemption criteria. These individuals are considered 'salaried, non-exempt.'
This misclassification can result in significant legal and financial consequences. An employee who is salaried, but not exempt, is deemed to have only been paid for 40 hours in a week. (Cal. Labor Code § 515(c)(2).) That means:
- All time worked over 40 hours/week is deemed unpaid, no matter how much the employee was paid.
- The employee is owed 1.5x their regular hourly rate for all overtime hours.
- The employee may also be entitled to minimum wage penalties for being paid $0/hour for hours above 40 hours/week.
This can lead to large monetary recoveries for employees and substantial employer liabilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
