Exempt Employee vs. Nonexempt Employee

Federal and state laws exempt certain employees from wage and hour requirements, including overtime pay and meal and rest break requirements. If you have a problem distinguishing between exempt and nonexempt employees in your company, you are not alone. Some of the largest multimillion-dollar awards of back pay by the courts stem from employers’ misclassification of non-exempt employees as exempt from overtime.

The subject is particularly difficult for California employers, because the state’s exemption requirements create more restrictions than federal law. As defined in the Industrial Welfare Commission (IWC) Wage Orders, California’s requirements usually exceed the federal standards adopted by the U.S. Department of Labor (DOL), making those federal standards generally irrelevant to California employees.

Determining Exempt or Nonexempt Employee StatusDetermining Exempt or Nonexempt Employee Status
Because it is highly litigated, understanding the distinction between exempt and nonexempt employees is critical.
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Executive ExemptionExecutive Exemption
The executive exemption usually covers managerial employees. However, supervisors often do not meet the executive exemption and must be classified as nonexempt.

Administrative ExemptionAdministrative Exemption
The administrative exemption applies to a wide variety of employees. However, many employees whose jobs involve administrative work do not meet the administrative exemption test and must be classified as nonexempt.

Professional ExemptionProfessional Exemption
Though an employee commonly may be considered a “professional,” specific legal requirements must be met to qualify for the professional exemption.
Read about a minimum hourly pay rate increase for 2024.

Computer Professional ExemptionComputer Professional Exemption
An employee is an exempt computer professional if they meet all of the following requirements:
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Outside Salesperson ExemptionOutside Salesperson Exemption
Outside salespeople are exempt from overtime pay, minimum wage, and meal and rest breaks if they meet both of the following criteria.

National Service Program Participant ExemptionNational Service Program Participant Exemption
Participants in national service programs, such as AmeriCorps, are exempted from state employment laws relating to wages, hours and working conditions.

Deductions From an Exempt Employee’s SalaryDeductions From an Exempt Employee’s Salary
The “salary test” required for overtime exemptions provides that an employee must be paid a full weekly salary for any week in which any work is performed. However, there are certain limited deductions allowed. If an employee works any part of a day, they must also be paid in full; no salary deduction is allowed. However, deductions can be made from any vacation, PTO or sick leave balance for the hours not worked, as explained in the examples below.

Exempt Employee vs. Nonexempt Employee

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