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Executive Employee Exemption

Executive employees are usually synonymous with management. According to the state of California, an exempt executive is someone who earns at least two times the state’s minimum wage, manages at least two other employees and has a significant impact in the hiring and firing of others-- among other job duties.

Per the California Department of Industrial Relations, when referencing the executive exemption of overtime laws, an “executive employee” is defined as follows:

A person employed in an executive capacity means any employee:

  • Whose duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision thereof; and
  • 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 or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight; and
  • Who customarily and regularly exercises discretion and independent judgment; and
  • Who is primarily engaged in duties, which meet the test of the exemption.
  • An executive employee must also earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week as defined in Labor Code Section 515(c).

With respect to the requirement that management duties must be exercised over the entire enterprise or a customarily recognized department or subdivision thereof, it is important to note that the phrase "customarily recognized department or subdivision thereof" has a particular meaning. The phrase is intended to distinguish between " a mere collection of employees assigned from time to time to a specific job or series of jobs" and " a unit with permanent status and function." Thus, in order to meet the criteria of a managerial employee, one must be more than merely a supervisor of two or more employees. The managerial exempt employee must be in charge of the unit, not simply participate in the management of the unit.

The IWC Orders require as a basic condition for the executive exemption that the manager must supervise two or more employees. This may be one full-time and two half-time employees. It has been the experience of the DLSE that a managerial employee supervising as few as two employees rarely spends as much as 50% of his or her time primarily engaged in managerial duties.

Regarding the requirement for the exemption to apply that the employee "customarily and regularly exercises discretion and independent judgment," this phrase means the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The 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. With respect to the executive exemption, the most frequent cause of misapplication of the phrase "discretion and independent judgment" is the failure to distinguish discretion and independent judgment from the use of independent managerial skills. An employee who merely applies his or her memory in following prescribed procedures or determining which required procedure out of the company manual to follow, is not exercising discretion and independent judgment.

Are You a Misclassified California Employee? You May Be Owed Back Overtime Pay

Our California employment law experts at Fernandez & Lauby LLP may be able to help you claim back overtime wages that you are owed. Our attorneys are offering a free review of your compensation schedule to determine if you are currently classified and being paid properly under California law.

Contact Fernandez & Lauby LLP for a no-cost consultation and our lawyers will fight for your legal rights as an employee. You can reach us online or call our toll free phone number at 888-959-8508.

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