Question: I’m going to hire a new employee soon. I want this person to be exempt from the normal overtime and meal and rest period rules. Can I make this person exempt by paying them a higher salary?
Answer: Not necessarily. A high salary alone does not automatically make an employee “exempt” for purposes of overtime, minimum wage, and meal and rest periods. In California, an employee needs to satisfy both a salary test and a duties test to be classified as an “exempt” employee. If an employee cannot satisfy either test, the employee should be classified as a “non-exempt” employee instead.
It is important for an employer to first understand the difference between an “exempt” employee and a “non-exempt” employee. An “Exempt” employee is generally paid a salary and is not entitled to overtime pay or meal or rest periods. This employee generally has decision-making authority, and, given the exemption, does not need to complete a timesheet. On the other hand, a “non-exempt” employee generally must track all time worked and is entitled to overtime pay, meal and rest periods, and other wage-and-hour protections. For most employees to properly be classified as “exempt,” they must satisfy both “salary test” and the “duties test.”
The “salary test” in California requires that an employee earn at least twice the state’s minimum wage for full-time work (i.e. 40 hours per week). For 2025, the salary test is a minimum annual salary of $68,640. Because the test is connected to the state’s minimum wage, it changes each time the state minimum wage changes.
The “duties test” is equally important and sometimes overlooked. To satisfy the “duties test,” an employee generally needs to meet the requirements of an administrative, executive, or professional exemption as outlined by the California Labor Code and applicable Industrial Welfare Commission (IWC) Wage Order. The administrative exemption focuses on employees who perform non-manual work related to management or general business operations. The executive exemption focuses on employees who manage part of the business, including supervision of other employees and authority to hire and fire employees. The professional exemption focuses on employees who perform work that requires advanced knowledge in a recognized field. Each exemption generally requires the employee to customarily and regularly exercise discretion and independent judgment. Employers should keep in mind that the law focuses on the employee’s actual job duties—not only the employee’s job description.
In addition to the administrative, executive, and professional exemptions, there are a few other specific exemptions. These include outside salespersons, computer software professionals, and physicians. Different tests that apply to these exemptions. Also, employers in certain fields, such as healthcare or fast food, must keep in mind that those industries have specific minimum wage rules that could impact that salary test.
Misclassifying an employee as exempt when they should be non-exempt can have costly consequences for employers. Employers may be held liable for unpaid overtime wages, missed meal and rest break premiums, penalties, interest, and attorneys’ fees. California also imposes additional penalties for willful misclassification.
Before classifying any employee as exempt, employers should carefully analyze the actual duties and responsibilities of the positions. Written job descriptions should accurately reflect day-to-day work. Employers should regularly review employee classifications, especially when roles change. When in doubt, an employer may consult with their legal counsel.