Exempt Employees: IWC Approves Changes To Rules For Overtime Exemptions

Following a contentious debate, the Industrial Welfare Commission has approved new wage orders that modify the definitions of managerial, administrative and professional employees who are exempt from overtime. The new standards bring California in line with the federal rules defining employees who are exempt from overtime. And supporters of the changes say this will make it less complicated for you to determine who’s entitled to overtime.

However, gray areas remain. We’ll sort out what the rules require—and how they may impact the classification of your white-collar workers.

Controversial Changes

Federal and state law have frequently conflicted in how they define exempt employees. The new wage orders attempt to simplify the process by essentially adopting the federal rules for who is exempt, while retaining the more stringent California requirement that exempt employees be “primarily engaged” in exempt work—meaning they spend at least 50% of their time performing exempt duties.

Over the objection of labor organizations, however, the IWC has added new qualifications to the term “primarily engaged,” which may make it somewhat easier for employers to classify some workers as exempt from overtime.

The new rule provides that when determining whether someone is primarily engaged in exempt work, you can include nonexempt tasks that are “directly and closely related” to the employee’s exempt duties. Although it’s unclear exactly how this will be interpreted, under the federal rules the employee’s nonexempt work must be performed only occasionally and not already be assigned to subordinates.

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Employer’s Reasonable Expectations

In another change, the new wage orders provide that your “reasonable expectations and the realistic requirements of the job” should be taken into account when determining how much time the employee spends performing exempt duties. The idea is that workers should not be able to make themselves nonexempt simply by failing to spend enough time on the exempt tasks that are part of their job.

To take advantage of this provision, it’s important to have written, up-to-date job descriptions and to carefully monitor employees to be sure they meet your expectations.

The following is an overview of the new rules.

Executive Or Managerial Employees

To qualify as exempt executives or managers, employees must now do each of the following:

1. Have duties and responsibilities that involve managing your business as a whole or an ongoing department of the business;

    

2. Customarily and regularly direct the work of two or more employees;

    

3. Have the authority to hire or fire other employees, or to make recommendations about hiring or firing or promotion decisions that carry weight;

    

4. Customarily and regularly exercise “discretionary powers.” (This is a change from existing law, which required the exercise of “discretion and independent judgment.” It’s not clear what the term “discretionary powers” may ultimately be defined to mean, either by the IWC or the courts.);

    

5. Spend at least 50% of work time engaged in exempt duties, including work that is “directly and closely related” to exempt work;

    

6. Earn a monthly salary at least two times the state minimum wage for full-time employment—which currently amounts to $1,993.33 per month.

Administrative Employees

To qualify as exempt administrators, employees must now do each of the following:

1. Perform office or non-manual work directly related to management policies or general business operations of your organization or customers, or perform functions in the administration of a school system or educational institution in work directly related to academic instruction or training;

    

2. Customarily and regularly exercise discretion and independent judgment;

    

3. Regularly and directly assist a proprietor or an exempt executive or administrative employee; or perform under only general supervision work along specialized or technical lines requiring special training, experience or knowledge; or execute special assignments and tasks under only general supervision;

    

4. Spend at least 50% of their time engaged in exempt duties, including work that is “directly and closely related” to exempt work;

    

5. Earn a monthly salary at least two times the state minimum wage for full-time employment, currently $1,993.33.

Professional Exemption

To qualify as exempt professionals, employees must now do each of the following:

1. Be licensed or certified by the state of California and be primarily engaged in one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting; or be primarily engaged in a “learned or artistic profession.” (The new wage orders contain a lengthy definition of “learned or artistic profession” describing the type of work or education that is required.);

    

2. Customarily and regularly exercise discretion and independent judgment;

    

3. Earn a monthly salary at least two times the state minimum wage for full-time employment, currently $1,993.33.

Effective Date

The new standards become effective on October 1, 2000. In the meantime, the state Legislature is continuing to consider a bill (S.B. 88) that would exempt certain computer industry professionals from overtime.