Updated December 12, 2025
What is ‘Executive Exemption’ California?
Executive exemption in California refers to a classification under state labor laws that exempts certain managerial employees from overtime pay requirements, meal and rest period provisions, and other protections normally afforded to non-exempt workers [1]. This exemption falls under the provisions of the Industrial Welfare Commission (IWC) Wage Orders, which establish specific criteria that must be met before an employee can be legally classified as an exempt executive [1][2].
To qualify for executive exemption in California, an employee must satisfy both a salary test and a duties test. The salary test requires the employee to receive a predetermined amount that is at least twice the state minimum wage for full-time employment [2]. For instance, with a minimum wage of $15.50 per hour, the equivalent monthly salary requirement would be $5,373.34 [2]. This salary must be paid regardless of the quantity or quality of work performed [1].
The duties test contains multiple elements that must all be satisfied. First, the employee must be primarily engaged (more than 50% of work time) in duties that qualify as executive in nature [1][2]. Second, the employee must manage the enterprise or a customarily recognized department or subdivision with permanent status and function [2]. Third, the executive must customarily and regularly direct the work of at least two or more employees [2][2].
Additionally, the exempt executive must possess authority to hire or fire other employees, or their suggestions regarding employment decisions must be given particular weight [2][2]. Furthermore, the position requires regular exercise of discretion and independent judgment in matters of significance [1][2]. This means the executive must have the authority to make independent choices free from immediate supervision after evaluating possible courses of action [2].
California strictly enforces the requirement that executives spend more than 51% of their time on managerial duties [1]. "Working foremen" who primarily perform the same tasks as their subordinates are not exempt [1]. The exemption focuses on actual duties performed rather than job title or written job descriptions [2]. Consequently, merely calling an employee an "executive" does not qualify them for the exemption [2].
Retail store managers and assistant managers are among the positions commonly misclassified as exempt executives [3]. When an exemption is improperly applied, the employee may be entitled to unpaid overtime wages and other remedies under California wage and hour laws.
How California law defines executive exemption
California law defines executive exemption through the provisions of the Industrial Welfare Commission (IWC) Wage Orders. These orders establish that Sections 3 through 12 (3 through 11 for Order 16-2001) do not apply to persons employed in an executive capacity [2]. The legal definition is specific and multifaceted, requiring employees to meet both salary and duties requirements simultaneously.
Under California wage and hour laws, an executive employee must satisfy six distinct criteria. First, their duties and responsibilities must involve managing the enterprise or a customarily recognized department or subdivision [2]. Importantly, this must be a unit with permanent status and function, not merely a collection of employees assigned temporarily to specific tasks [2].
Second, the employee must customarily and regularly direct the work of two or more other employees [2]. This supervision requirement can be met with one full-time and two half-time employees, although the Department of Labor Standards Enforcement (DLSE) notes that managers supervising as few as two employees rarely spend enough time on managerial duties to qualify [2].
Third, the employee must possess authority to hire or fire other employees, or their suggestions regarding employment decisions must be given particular weight [2]. Fourth, they must customarily and regularly exercise discretion and independent judgment [2]. This involves comparing and evaluating possible courses of action and making decisions after considering various possibilities, with authority to make independent choices free from immediate supervision on matters of significance [2].
Fifth, the employee must be primarily engaged in duties that meet the test of the exemption [2]. In California, "primarily engaged" means spending more than 50% of work time on exempt duties [3]. Consequently, "working foremen" who primarily perform the same tasks as subordinates are not exempt [4].
Sixth, the executive employee must earn a monthly salary equivalent to no less than twice the state minimum wage for full-time employment (40 hours per week) [2]. As of 2023, this threshold was approximately $64,480 annually [5].
A critical distinction in the executive exemption definition is between management and supervision. Being more than merely a supervisor is essential—the employee must be in charge of the unit, not simply participate in its management [2]. Likewise, the law distinguishes between exercising discretion and independent judgment versus merely applying managerial skills or following prescribed procedures [2]. An employee who simply follows company procedures or determines which required procedure to follow from a manual is not exercising the discretion necessary for exemption [2].
The salary test for executive exemption
For an executive to qualify for exempt status under california wage and hour laws, meeting the salary test is just as essential as satisfying the duties test. This financial requirement ensures that only genuinely managerial employees receive exempt classification.
Minimum salary requirement
The salary threshold for executive exemption in California is tied directly to the state minimum wage. Specifically, an exempt executive must earn a monthly salary equivalent to at least twice the state minimum wage for full-time employment (defined as 40 hours per week) [6]. As of 2025, this minimum salary requirement is $68,640 annually [6]. Moreover, this threshold will increase to $70,304 annually beginning January 1, 2026, reflecting California's rising minimum wage [7]. The salary requirement changes automatically whenever the state minimum wage increases, creating a moving target that employers must vigilantly monitor [6].
What counts as a salary?
To qualify as an appropriate salary for exemption purposes, compensation must meet specific criteria:
- It must be a predetermined amount constituting all or part of the employee's compensation [8]
- The amount cannot be subject to reduction based on variations in the quality or quantity of work performed [8]
- It must be paid regardless of hours worked [2]
- It cannot be based upon the number of hours worked or a set amount of work time [9]
Primarily, a salary differs fundamentally from hourly wages. Executive employees paid on an hourly basis cannot qualify for the exemption, regardless of their duties [2]. The predetermined salary represents a fixed minimum payment that remains constant irrespective of work quality or quantity.
When deductions affect exemption status
Improper salary deductions can invalidate an employee's exempt status. Generally, if an exempt employee works any time during a workweek, they must receive their full salary [5]. Employers cannot make deductions for:
- Variations in hours worked or quality of work [5]
- Disciplinary reasons [5]
- Partial-week business closures or shutdowns [5]
- Partial-week absences due to jury, witness, or military duty [5]
Nonetheless, full-day deductions from salary are permissible in limited circumstances: during an employee's first and last weeks of employment; for full-day absences for personal reasons when the employee lacks available vacation time; and for full-day absences due to illness if the employer has a bona fide sick leave plan and the employee has no time available [5]. Importantly, if an employee performs any work during a day—even just joining a conference call or responding to emails—the employer cannot deduct from their salary for that day [5].
The only exception to the partial-day rule occurs when an employee is using intermittent leave under the Family and Medical Leave Act (FMLA) or California Family Rights Act (CFRA) [5].
The duties test for executive exemption
Beyond salary requirements, the duties test forms a critical component of executive exemption eligibility under california wage and hour laws. Unlike the straightforward salary threshold, this multifaceted test examines the actual work performed by employees rather than job titles or descriptions.
Managing a department or business unit
To qualify for executive exemption, an employee must manage the enterprise or a customarily recognized department or subdivision thereof [4]. This requires overseeing a unit with permanent status and function, not merely supervising a temporary collection of employees assigned to specific tasks [4]. Management duties typically include training employees, setting work schedules, assigning duties, controlling inventory, budgeting, handling employee complaints, maintaining records, and ensuring compliance with applicable laws [2]. Significantly, the employee must spend more than 50% of their work time engaged in these management activities [9].
Supervising at least two employees
The executive must customarily and regularly direct the work of at least two or more employees [4]. This requirement may be satisfied by supervising one full-time and two half-time employees [4]. However, as noted by the Department of Labor Standards Enforcement, "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" [4]. Supervision must be a consistent, regular aspect of the executive's role—not an occasional responsibility [2].
Hiring/firing authority or influence
Executives must possess authority to hire or fire other employees, or their suggestions and recommendations regarding employment decisions must be given "particular weight" [4]. Factors determining whether recommendations have "particular weight" include whether making such recommendations is part of the job duties, how frequently they are made or requested, and how often they are relied upon [10]. Notably, recommendations may still carry "particular weight" even if a higher-level manager makes the final decision [10].
Using discretion and independent judgment
The executive must customarily and regularly exercise discretion and independent judgment [4]. This involves comparing and evaluating possible courses of action, then making decisions after considering various possibilities [4]. The executive must have authority to make independent choices free from immediate supervision regarding matters of significance [4]. Simply applying managerial skills or following prescribed procedures from a company manual does not constitute discretion and independent judgment [4].
How courts apply the exemption tests
California courts typically apply a stringent approach toward executive exemption cases under california wage and hour laws. Judicial interpretation focuses primarily on quantitative analysis, requiring employers to establish that exempt tasks comprise more than 50% of the employee's total work time [11]. This contrasts with federal law, which employs a more qualitative "primary duty" test [12].
When evaluating exemption claims, courts examine both the work actually performed and the employer's realistic expectations for the position [3]. The burden of proof rests entirely with the employer to demonstrate that an employee fits within the specific exemption criteria, as California law presumes workers are non-exempt [11].
Courts carefully scrutinize situations involving "multi-tasking" where employees perform concurrent exempt and non-exempt duties. In Heyen v. Safeway, the court rejected the employer's argument that a manager simultaneously performing cashier work while supervising should be considered exempt [13]. Instead, the court determined that mixed activities must be classified based on the "primary purpose for which the employee undertook the activity at that time" [13].
Regarding discretion and independent judgment, courts distinguish between genuine decision-making authority and merely following prescribed procedures [4]. Ultimately, courts interpret exemptions narrowly, with cases like Ramirez v. Yosemite Water Co. establishing that even employees with managerial titles who spend most time on non-exempt tasks cannot qualify for executive exemption [11].
What happens if an employee is misclassified?
Misclassification of employees under california wage and hour laws represents one of the most costly errors an employer can make. The financial repercussions are substantial, often leading to significant liability for unpaid wages and penalties.
Improperly classified employees may pursue claims for all denied benefits, including unpaid overtime, missed meal and rest breaks, and expense reimbursements. For each day a meal break violation occurs, the employer owes one hour of pay as a premium [11]. Similarly, missed rest breaks entitle employees to another hour of premium pay [14]. These premiums accumulate rapidly—a small business with just 10 employees could face liability exceeding $312,000 over a three-year period [15].
Beyond wage recovery, employers face substantial penalties. The Labor Commissioner may assess civil penalties between $5,000 and $15,000 per misclassification [6]. If a pattern of willful misclassification is established, these penalties escalate to $10,000-$25,000 per violation [16]. Additionally, employers may incur:
- "Waiting time" penalties of up to 30 days of the employee's pay [11]
- Wage statement penalties of up to $4,000 per employee [17]
- Liability under the Private Attorneys General Act [11]
- Tax penalties for failure to withhold appropriate payroll taxes [18]
Misclassification frequently leads to class action lawsuits, especially in retail sectors where managers are commonly misclassified [19]. Courts generally interpret exemption standards narrowly, placing the burden entirely on employers to prove exempt status through diligent review of actual job duties [11].
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