The Executive Exemption and Overtime: California Labor Code Section 515(a)

Introduction

In California, most employees are entitled to overtime compensation. However, some workers—those classified as “exempt executives”—are not. Employers bear the burden of proving this exemption applies, and misclassification can trigger significant liability.

Legal Requirements

To qualify for the executive exemption under the wage orders and Labor Code section 515(a), an employer must prove all of the following:

1. The employee’s duties and responsibilities involve managing the business or a recognized department or subdivision.

2. The employee customarily and regularly directs the work of at least two or more other employees.

3. The employee has the authority to hire or fire, or their recommendations on hiring, firing, advancement, or promotion are given particular weight.

4. The employee customarily and regularly exercises discretion and independent judgment.

5. The employee performs executive duties more than half of the time (“primarily engaged” standard).

6. The employee is paid a salary that is at least twice the state minimum wage for full-time employment.

Lab. Code § 515(a); United Parcel Serv. Wage & Hour Cases, 190 Cal. App. 4th 1001, 1014 (Ct. App. 2010); Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 794–95 (Cal. 1999); Heyen v. Safeway, Inc., 216 Cal. App. 4th 795, 808–09, 817 (Ct. App. 2013); Batze v. Safeway, Inc., 10 Cal. App. 5th 440, 473 (Ct. App. 2017); Negri v. Koning & Assocs., 216 Cal. App. 4th 392, 397–98 (Ct. App. 2013); Kao v. Holiday, 12 Cal. App. 5th 947, 958 (Ct. App. 2017).

Analysis of Duties

Actual job duties—rather than job titles, descriptions, or employer expectations—are determinative. The trier of fact evaluates how the employee actually spends time but may also consider realistic job requirements and employer expectations if there is a divergence. Each task must be classified as either exempt or nonexempt according to its primary purpose at the time performed.

United Parcel Serv. Wage & Hour Cases, 190 Cal. App. 4th at 1014–15; Ramirez, 20 Cal. 4th at 801–02, 809; Heyen, 216 Cal. App. 4th at 817.

Common Executive Duties

• Managing staff and operations in a business department or division

• Assigning work and duties

• Making hiring or firing decisions and recommendations

• Training, disciplining, or promoting staff

• Creating or enforcing policies and regulatory compliance

• Exercising significant independent judgment and discretion

Heyen, 216 Cal. App. 4th at 808–09; Batze, 10 Cal. App. 5th at 473–74.

Compensation Requirements

“Salary” is defined as a fixed monthly amount, not subject to reduction based on hours worked. The current standard requires at least twice the state minimum wage for full-time employment.

Negri, 216 Cal. App. 4th at 397–98; Kao, 12 Cal. App. 5th at 958.

Best Practices for California Employers

• Maintain detailed records of daily duties performed by employees claimed as exempt.

• Regularly review job descriptions and actual duties to ensure consistency with exemption requirements.

• Ensure salary structure is fixed, guaranteed, and meets minimum standards.

• Provide periodic training for managers and HR personnel about California exemption standards.

• Reassess classification upon promotions, changes in role, or compensation adjustments.

Bottom Line

The executive exemption is narrowly construed and fact-dependent. Employers who believe they qualify must prove all elements or risk costly wage claims.

Citations

Lab. Code § 515(a); United Parcel Serv. Wage & Hour Cases, 190 Cal. App. 4th 1001 (Ct. App. 2010); Ramirez v. Yosemite Water Co., 20 Cal. 4th 785 (Cal. 1999); Heyen v. Safeway, Inc., 216 Cal. App. 4th 795 (Ct. App. 2013); Batze v. Safeway, Inc., 10 Cal. App. 5th 440 (Ct. App. 2017); Negri v. Koning & Assocs., 216 Cal. App. 4th 392 (Ct. App. 2013); Kao v. Holiday, 12 Cal. App. 5th 947 (Ct. App. 2017).