Administrative Exemption Under FLSA And California Law

The administrative exemption is one of the most nuanced exemptions from overtime. Many employers and employees struggle to analyze its various requirements and make a classification decision as to whether an employee is exempt. Employers and employees often disagree about whether recruiters, sales development representatives, customer service employees, claims adjusters and other positions should be classified as exempt under the administrative exemption. I created the chart below to serve as a helpful reference, it compares the different requirements that a position must satisfy under federal and California law before it will be exempt under the administrative exemption.

California Labor Code FLSA
Source of Exemption Labor Code § 515(a) 29 U.S.C. § 213(a)(1)
Minimum Salary $3,120/month(§ 1(A)(2)(g) of applicable wage order) $455/week(29 C.F.R. § 541.200(a)(1) (2004))
How much of the employee’s time must be spent on “exempt” work? Employee must be “primarily engaged” in exempt work.(§ 1(A)(2)(f) of applicable wage order)Labor Code Section 515(e) defines “primarily engaged” as 50% of working time, but wage order states that “employer’s realistic expectations and the realistic requirements of the job” shall also be considered. Exempt work must be the employee’s “primary duty.” Employees who spend more than 50% of time performing exempt work will generally be exempt.(29 C.F.R. § 541.200(a)(2), 700(a) (2004))
What constitutes “exempt” work under the Administrative Exemption? Office work “directly related” to management policies or general business operations of employer or employer’s customers qualifies as exempt work.(§ 1(A)(2)(a) of applicable wage order) Work “directly related” to assisting with the running or servicing of the business qualifies as exempt work.(29 C.F.R. § 541.200-201(a) (2004))
What does it mean for work to be “directly related” to management policies? “Directly related” means the work is both:“qualitatively administrative” (i.e. work that involves advising management, planning, negotiating, representing the company, business research and control—sales work is generally excluded)and“quantitatively administrative” (i.e. work that is of “substantial importance” to management policy or general business operations such that employee may “affect policy” or “carry out major assignments”)

(29 C.F.R. § 541.201-202, 205 (2000); Harris v. Superior Court, 53 Cal.4th 170, 181-82 (2011))

No list is provided, but the following tasks are generally considered to “directly related”:“work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.”The term excludes “working on a manufacturing production line or selling a product in a retail or service establishment.”(29 C.F.R. § 541.201(a)-(b) (2004))
Is there a threshold on performing non-exempt work that, once reached, disqualifies employee from the exemption? Employee is excluded if more than 20% of time is spent on “routine work” that is not “directly and closely related” to work set forth above (i.e. remotely related or completely unrelated to administrative work).(29 C.F.R. § 541.202(d) (2000)) No threshold, however, activities that are not “directly and closely related” to exempt work are not counted toward the employee’s “primary duty” which has a presumptive 50% threshold.(29 C.F.R. § 541.702-703 (2004))
Must employee exercise discretion and independent judgment and, if so, how often? Yes, employee must “customarily and regularly” exercise discretion and independent judgment, which means “greater than occasional but less than constant” and includes work “normally and recurrently performed every workweek.” Note that merely applying “skills” and “knowledge” does not constitute an exercise of independent judgment or discretion.(§ 1(A)(2)(b) of applicable wage order)(29 C.F.R. § 541.207(b), (c) and (g) (2000)) Yes, employee must “customarily and regularly” exercise discretion and independent judgment, which means “greater than occasional but less than constant” and includes work “normally and recurrently performed every workweek.”(29 C.F.R. § 541.701 (2004))
Concerning what issues must discretion and judgment be exercised? Must be exercised with respect to “matters of significance” which “relates to the level of importance” and excludes matters that are not “real and substantial.”(29 C.F.R. § 541.207(a), (d) (2000)) Must be exercised with respect to “matters of significance” which refers to “the level of importance or consequence of the work performed.”(29 C.F.R. § 541.202 (2004))
How closely may employee be supervised? Only under “general supervision.”(§ 1(A)(2)(d)-(e) of applicable wage order) No requirement
Are there any particular tasks the employee must perform to be exempt? Generally must perform “work along specialized or technical lines requiring special training, experience, or knowledge” or “special assignments and tasks.”(§ 1(A)(2)(d)-(e) of applicable wage order) No requirement

Disclaimer: All materials have been prepared for general information purposes only to permit you to learn more about Sebastian Miller Law, P.C, its services and experience.  The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

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