Understanding "Exempt" Employees in California

Lesson Last Updated: October 14, 2025

Lesson Highlights

At first glance, employee classification seems simple. In our work, the most common misconception we see is that if an employee is paid a salary, they must be an exempt employee automatically. Not so! Exempt employees must meet certain narrow requirements in order to be properly classified. Therefore, it is wise to always assume employees are non-exempt unless a lawyer has cleared otherwise with you.

In this lesson, we will address:

What exemption really means for an employer (and the employee);
The three most common ways to classify an employee as exempt;
The less common ways to classify an employee as exempt (this will be brief); and
Why it's important to think critically before classifying an employee as exempt.

What Does Exemption Mean Anyway?

When an employee is properly classified as "exempt," it means that their job is not subject to one or more sets of wage and hour laws. These employees are, quite literally, "exempted" from such laws. In California specifically, exempt employees are not subject to the same time tracking, break and meal time, and overtime requirements as non-exempt employees.

The idea of exemption can be appealing to both employees and employers alike. Most employees enjoy the flexibility of not being required to clock in and clock out (either literally or metaphorically) and track everything they do in a workday. Similarly, employers usually like that they don't have to be "the bad guy" that's always shouting about rules, rules, rules to their employees.

But perhaps more importantly, employers love the idea of avoiding overtime. Avoiding overtime = potentially higher profit margins for the business!

The Three Big Ways to Classify An Employee as Exempt

In general, exempt employees fall into one of three exemptions: (a) executive, (b) professional, or (c) administrative. However, other specific industry exemptions also exist such as the salesperson and computer software professional exemptions, which we'll cover later in this lesson.

The Executive Exemption

For the most part, the executive exemption applies to most managers. Specifically, a person employed in an executive capacity means any employee who meets ALL of the following criteria:

Whose duties and responsibilities involve the management of their employer's business, or of a customarily recognized department or subdivision of the business;
Who customarily and regularly directs the work of two or more other employees therein; and
Who has the authority to hire or fire other employees (or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees will be given "particular weight");
Who customarily and regularly exercises discretion and independent judgment;
Who is primarily engaged in duties, which meet the test of this exemption (meaning if it's a hybrid role, then more than one-half of the employee's work time must be spent engaged in exempt work); AND
Who earns a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment means forty (40) hours per week. [1]

The Professional Exemption

The professional exemption applies to either certain licensed professionals, or professionals determined to be in a "learned or artistic" profession. Specifically, a person employed in a professional capacity means any employee who meets the following criteria:

Who is licensed or certified by the State of California and is primarily engaged in the practice of one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting; OR
Who is primarily engaged in an occupation commonly recognized as a learned or artistic profession. "Learned or artistic profession" is fairly broad, and there are two (2) ways that this criteria can be satisfied. The employee would need to be primarily engaged in the performance of either:
- Work requiring knowledge of an advance type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study. An advanced academic degree (above the bachelor level) is a standard prerequisite for this to apply. Similarly, apprenticeship or training in the performance of routine mental, manual, or physical processes will not be enough here.
- Work that is original and creative in character in a recognized field of artistic endeavor (as opposed to work which can be produced by a person endowed with general manual or intellectual ability and training), and the result of which depends primarily on the invention, imagination, or talent of the employee or work that is an essential part of or necessarily incident to any of the above work. Work in a "recognized field of artistic endeavor" includes such fields as music, writing, the theater, and the plastic and graphic arts. This work must be predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical, or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time. In other words, if an artisan is employed to create ceramics through an assembly line process, then this would not be enough here.

If the employee is indeed a licensed professional or a professional engaged in a learned or creative profession, then ALL of the following criteria must also be satisfied:

Customarily and regularly exercises discretion and independent judgment in the performance of duties set forth above.
Earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means forty (40) hours per week as defined in Labor Code Section 515(c).[2]

The Administrative Exemption

As the name would suggest, the administrative exemption applies to employees doing administrative work. This can be in either a "business" like setting or in a school setting. Specifically, a person employed in an administrative capacity means any employee who meets the following criteria:

The performance of office or non-manual work directly related to management policies or general business operations of their employer or their employer's customers, or
The performance of functions in the administration of a school system, or educational establishment or institution, or of a department or subdivision thereof, directly related to the academic instruction or training carried on therein.

Once either of those criteria are met, then at least one (1) of the following criteria must also be satisfied:

Regularly and directly assists a proprietor, an executive employee, or another administrative employee; OR
Performs (under only general supervision) work along specialized or technical lines requiring special training, experience, or knowledge; OR
Executes (under only general supervision) special assignments and tasks.

Finally, ALL of the following criteria must also be satisfied in order to use this exemption:

Customarily and regularly exercises discretion and independent judgment in the performance of duties set forth above.;
Primarily engaged in duties which meet the test for the exemption; and
Earns a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment means forty (40) hours per week as defined in Labor Code Section 515(c).[3]

PAUSE: As you can see, there are a lot of details in deciding if an employee may properly be classified as an exempt employee. Always confirm with an employee before classifying an employee as exempt, as there can (and usually are) very real legal and financial consequences from employee misclassification!

"Customarily and Regularly" Exercising Discretion and Independent Judgment

We're often asked, what does it mean for an employee to "customarily and regularly" exercise discretion and independent judgment? In true lawyer fashion, we will almost always say that any example we can give depends on the situation. But in a general sense, this means that "an employee must have the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance." [4]

Discretion and independent judgment should not be confused with the use of skill in applying techniques, procedures, or specific standards; these are not the same things. For clarity, these types of activities do not involve exercising discretion and independent judgment:

Applying knowledge to follow prescribed procedures;
Determining which procedures to follow;
Determining if specified standards are met;
Determining if an object falls into one or another grade or class; and/or
Training for a position.

Instead, this standard boils down to evaluating control. "Discretion" is commonly understood to mean, "individual choice or judgment" or "power of free decision or latitude of choice within certain legal bounds"[5] and well, you know what the words "independent" and "judgment" mean. Here's the take away: you need to let employees do their thing if you want to satisfy this standard. The more control you as an employer exercise over an employee's actions, the less likely it is that the employee has the ability to customarily and regularly exercise discretion or independent judgment in their role.

The Compensation Prong

Last but certainly not least, let's talk about the money. To be able to use any of these exemptions with an employee, the employee must be paid on a salary basis. If the employee is paid on an hourly basis (or any other basis) and does not receive a salary, then the employee should automatically be considered non-exempt.

However (and this is where there's a lot of confusion for employers) simply being paid on a salary basis is not enough. The salary amount also matters. Specifically, the salary amount must be "no less than two (2) times the state minimum wage for full-time employment. Full-time employment means forty (40) hours per week as defined in Labor Code Section 515(c)." A few things to note:

California's minimum wage for 2026 for all employers is $16.90, regardless of employee pool size; we point this out because in past years, there was a differentiation in minimum wage based on employee pool size, but that is no longer the case.
This means that two (2) times the state minimum wage would be $33.80. Keep this number in mind for our equation, which is to follow!
We know there are fifty-two (52) weeks in a year, so we'll also need to plug this number into our equation!

So here's how that equation breaks down for 2026: $33.80 x 40 hours per week x 52 weeks per year= $70,304. Note that the minimum wage in California typically increases every year, so this salary amount will also change every year! That means that if you don't revisit salaries from year to year and any of your exempt employees are on the line, you could lose exemption accidentally (and quite easily).

An extremely common question we get is, how do local minimum wage ordinances factor into this equation? In other words, if the employee in question is working from a location with a local minimum wage ordinance that requires a higher minimum hourly wage, does this salary amount increase because of the local ordinance? That's a fantastic question, and it's simple to answer:

Exempt employees working from a location with a local minimum wage ordinance that requires a higher minimum hourly wage are paid based on the state's equation above, using the state minimum wage, and the local minimum wage can be ignored entirely for this purpose.
Non-exempt employees working from a location with a local minimum wage ordinance that requires a higher minimum hourly wage are paid based on that local minimum wage's requirements, and the equation above is not relevant.

Note: it's very important that you get classification right on the first try, which we'll touch on below. If you're ever even slightly confused about this topic, always reach out to an attorney so that you can receive individualized support.

Less Common Paths to Exemption

Of course, not every exempt employee will fit the mold we've described above. Here are some of the less common paths to exemption in California:

Employees in the computer software field who are paid on an hourly basis and meet all of the other requirements set forth in the applicable wage orders;
Employees directly employed by the State or any political subdivision thereof, including any city, county or special district;
Outside salespersons;
Any individual who is the parent, spouse, child, or legally adopted child of the employer;
Any individual participating in a national service program, such as AmeriCorps;
Drivers whose hours are regulated by particular US or California code sections;
Employees covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30% more than the state minimum wage;
Employees (except minors) whose earnings exceed 1.5x the minimum wage and more than half their compensation represents commissions;
Student nurses in a school accredited by the California Board of Registered Nursing or by the Board of Vocational Nurse and Psychiatric Technician Examiners;
Employees who have entered into a collective bargaining agreement under the Railway Labor Act;
Taxicab drivers;
Airline employees who work over forty (40) but not more than sixty (60) hours during the workweek due to a temporary modification in their normal work schedule not required by the employer and arranged at the request of the employee;
Full-time carnival ride operators employed by a traveling carnival;
Crew members employed on a commercial fishing boat;
Professional actors;
Employees whose duties are exclusively those of a motion picture projectionist (this one is our personal favorite, not that it matters);
An announcer, news editor, or chief engineer employed by a radio or television station in a city or town with a population of 25,000 or less;
Personal attendants not covered under the Domestic Worker Bill of Rights; and
Any person under the age of 18 who is employed as a babysitter for a minor child of the employer in the employer's home.

So if your employees do not meet any of the exemptions we've described, your employees are NOT exempt employees.

Why It's Important to Think Critically and Get it Right the First Time

We won't belabor this point: it's really important that you think critically any time you're trying to classify an employee as exempt and be honest with yourself. You don't want to let your desire to avoid the tedium of time tracking cloud your judgment, because if an employee is improperly classified as exempt and they really should have been tracking their time, receiving meals and breaks, and being paid for overtime, it's very difficult to right that wrong.

For one, it's hard to document time retroactively. That might very well be a lost opportunity for you, and it opens the door for your employees to very easily claim that they were overworked or denied meals/breaks and that they should be compensated to account for that. And that connects us to our second point, the literal cost of getting classification wrong.

If an employee should have been receiving breaks and they can show that they did not receive them, the employer will have to pay for those missed breaks. Specifically, for each workday that an employer fails to provide an employee a rest period as required, the employer will owe the employee one (1) additional hour of pay at the employee's regular rate of pay! [6] The same is true for missed meal periods [7] and this is referred to as "premium pay" in either scenario. Keep in mind that typically, meal periods are unpaid and rest periods are only ten (10) minutes at a time, so paying for a full hour per type of break is a huge jump and can be financially devastating to an employer. Premium pay is considered "wages," and employees in California have up to three (3) years to file a claim for unpaid wages. [id.]

Similarly, unpaid overtime can add up. If overtime is due to an employee and is not paid on the next regular payday after the overtime is earned, those wages become late. In such cases, the penalty for any initial violation the penalty is $100 for each failure to pay each employee. For each subsequent violation (or any willful or intentional violation) the penalty is $200 for each failure to pay each employee, plus 25% of the amount of wages unlawfully withheld. [8] Again, the cost of paying unpaid and late overtime can have devastating financial consequences, just like unpaid breaks.

We hate ending on a scary note, but we have to temper all the GIFs with a little bit of reality. Go talk to your attorney before attempting to classify an employee as exempt!

This Lesson's Sources:

[1] State of California, Department of Industrial Relations: Executive Exemption

[2] State of California, Department of Industrial Relations: Professional Exemption

[3] State of California, Department of Industrial Relations: Administrative Exemption

[4] Merriam-Webster Dictionary: Discretion

[5] State of California, Department of Industrial Relations: Rest Periods

[6 State of California, Department of Industrial Relations: Meal Periods

[7] State of California, Department of Industrial Relations: Late Payment of Wages