The “Administrative Exemption” in California Labor Law

The administrative exemption is the rule under state and federal law that California overtime laws do not apply to certain administrative employees. The administrative exemption also means that these employees also are not entitled to meal and rest breaks.

An exempt administrative employee must:

• Primarily perform administrative duties,
• Regularly exercise discretion and independent judgment, and
• Earn a monthly salary of at least twice the minimum wage for full-time work. ^{1 2 3}

California Labor Code 515 LC deals with the administrative exemption. This law reads that:

“(a) The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid pursuant to Sections 510 and 511 for executive, administrative, and professional employees, if the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. The commission shall conduct a review of the duties that meet the test of the exemption.”

The California Labor Commissioner has created a test for when the administrative exemption applies.⁴ Federal and state law both determine who is an exempt employee.⁵

If an employer misclassifies an employee as exempt, s/he may owe back overtime pay. An employee can file a wage/hour lawsuit to collect this pay.

Below, our California labor and employment lawyers answer the following questions about the California administrative exemption:

• 1. What is the “administrative exemption” in California labor law?
• 2. What is the test for whether the California administrative exemption applies?
  • 2.1. Work related to management or business operations
  • 2.2. Discretion and independent judgment
  • 2.3. Level of supervision
  • 2.4. Primarily engaged in exempt work
• 3. What is the required salary for the California administrative exemption?
• 4. What if an employer misclassifies an employee under the administrative exemption?
• 5. Does California or federal law determine the administrative exemption?

The “administrative exemption” is the rule under California and federal law that CA overtime laws do not apply to administrative employees.

1. What is the “administrative exemption” in California labor law?

The “administrative exemption” is an exception to California’s overtime laws. It applies to exempt employees whose work is considered administrative.⁶

Labor Code 515 LC deals with the administrative exemption. (There are also an “executive exemption” and a “professional exemption” from overtime laws.)⁷

Overtime is not the only employment law area where the administrative exemption applies. Exempt employees also do not have to get meal or rest breaks.⁸

2. What is the test for whether the California administrative exemption applies?

There are two requirements for the administrative exemption to apply in California. They are set out in Labor Code 515.

1. First, the employee must earn a minimum salary (see Section 3 below).
2. Second, his/her job duties must satisfy certain requirements.⁹

These are:

2.1. Work related to management or business operations

An “administrative employee” must perform office or non-manual work. That work needs to be directly related to

1. management policies or
2. general business operations.

(This can pertain to either the employer or its customers.)¹⁰

For educational employees, exempt work involves the administration of the school or a department. This work must be directly related to academic instruction.¹¹

Management and business operations mean areas of work such as:

• Tax, finance, and/or accounting;
• Budgeting;
• Auditing;
• Insurance;
• Quality control;
• Purchasing or procurement;
• Advertising and marketing;
• Human resources, employee benefits, labor relations, etc.;
• Public or government relations;
• Legal and regulatory work; and
• Computer network, internet and database administration.¹²

Working on a manufacturing production line is NOT exempt work. Neither is selling products in a retail setting.¹³

Not all highly-skilled workers are administrative employees. They have to engage in the type of management/business work listed above.¹⁴

Example: Rex works for a company that sells robotic equipment. He helps the company and its customers identify and fix equipment problems.

Rex’s work involves specialized technical skills. But his work is not related to the management or business operations of the company. So it does not fall under the California administrative exemption.¹⁵

2.2. Discretion and independent judgment

Labor Code 515 requires that administrative employees exercise discretion and independent judgment. They must do this “customarily and regularly” in the job.¹⁶

Many employees have procedures and guidelines to follow at their jobs. This by itself doesn’t mean that they don’t exercise discretion. They may still be exempt administrative employees.¹⁷

Most employees also have superiors review their decisions. This also doesn’t mean that they don’t exercise independent judgment.¹⁸

But an employee who has to consult a superior for most decisions probably does not qualify. S/he would not exercise the independent judgment required for the exemption.¹⁹

Example: Gina works as a dispatcher for a delivery company. She schedules delivery appointments with customers. She also dispatches drivers based on computer-generated assignments.

When there is a problem with driver schedules, Gina has to check with a manager before making an adjustment. She also has to consult a manager before disciplining a driver. She is not allowed to handle customer complaints.

Gina does not use discretion or independent judgment in her job. So she is not an exempt administrative employee.²⁰

2.3. Level of supervision

For the administrative exemption to apply, an employee must EITHER

1. Regularly and directly assist an owner or an executive/administrative employee,
2. Perform specialized or technical work requiring special training, with only general supervision, OR
3. Perform special assignments under only general supervision.²¹

Here are some examples of employees who meet this requirement:

• An executive assistant who works closely with a top executive of a major company.²²
• An insurance claim adjuster who conducts interviews, inspects property damage, and evaluates claims. (S/he is performing specialized work under general supervision.)²³
• An employee on a team responsible for negotiating a real estate transaction. (S/he is performing a special assignment under general supervision.)²⁴

2.4. Primarily engaged in exempt work

The administrative exemption to overtime laws requires that the worker “primarily” do administrative work.²⁵

This means that the employee must spend more than one-half of their work time on exempt work.²⁶

Exempt work is work that fits the three requirements just discussed. It also includes work that is directly related to exempt work. And it includes work that is a means for doing exempt work.²⁷

So the administrative exemption can apply even if a worker sometimes does non-exempt work. It can apply even if s/he regularly does non-exempt work. S/he just needs to spend more than half of working hours on administrative work.²⁸

Example: David is a manager at a package delivery company. Most of his work is management work. This work meets the LC 515 administrative exemption.

But once in a while, David has to help delivery drivers make their deliveries. This occurs only when the drivers are behind on deliveries. This is non-exempt work.

David does occasional non-exempt work. But more than half of his time is devoted to exempt tasks. So the administrative exemption still applies to him.²⁹

Whether an employee primarily does exempt work is determined by his/her actual work. The official job description does not matter if it is inaccurate.³⁰

The administrative exemption requires a minimum salary.

3. What is the required salary for the California administrative exemption?

In addition to certain job duties, the administrative exemption requires a minimum salary. Employees must earn a monthly salary at least twice the California minimum wage for full-time work.³¹

In 2024, the state minimum wage is $16.00/hour.³²

So for employees to be exempt under LC 515, they must earn a monthly salary of over $5,546.67 per month. This is equivalent to earning $32 an hour for forty hours a week.

Example: Tanya works as a manager at a start-up that creates internet content. She oversees the content writers’ work. She also has the authority to hire and fire them. She has considerable discretion in her job. She also answers directly to the company’s top executives.

But Tanya is paid a monthly salary of only $2500.

Tanya does exempt work. But her salary is too low for the administrative exemption. This means her employer must pay her overtime when she works more than 40 hours a week.

4. What if an employer misclassifies an employee under the administrative exemption?

A misclassified employee may be able to bring a wage and hour lawsuit for unpaid overtime wages.

Employees who don’t fall under the administrative exemption must be paid overtime when they work

• more than 8 hours in a day,
• more than 40 hours in a week, and/or
• more than 6 days in a workweek.³³

Overtime means time and a half. Or in some cases double the regular hourly pay.³⁴

A non-exempt employee who is wrongly classified as exempt can sue his/her employer for unpaid overtime. S/he can collect the unpaid overtime pay. S/he can also sue for interest and attorney’s fees/litigation costs.³⁵

Misclassified employees under the administrative exemption may also have been entitled to meal and rest breaks.

If so, they can bring a wage/hour lawsuit for compensation. Employers will owe one hour’s pay for each meal or rest break the employee should have received.³⁶

Sometimes employers wrongly classify a large group of employees under the administrative exemption. In that case, a wage/hour class action lawsuit may make sense.

5. Does California or federal law determine the administrative exemption?

Both California and federal law have an administrative exemption from overtime law.³⁷

California law is controlling for the California administrative exemption. This is because it is generally more favorable to workers.³⁸

But federal law is often used to help interpret the Labor Code 515 administrative exemption.³⁹

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