California Overtime Law and the Exempt Misclassification Problem

"You're salaried, so you don't get overtime" is one of the most common things California employees hear, and often it's wrong. Being paid a salary doesn't make someone exempt. Exemption depends on meeting specific tests, and California's are stricter than federal law's. Its overtime rules also kick in sooner.

The daily rule

Under Cal. Labor Code § 510, nonexempt employees are owed one and a half times their regular rate for hours worked over eight in a workday or forty in a workweek, and for the first eight hours worked on the seventh consecutive day of work in a workweek. They're owed double time for hours over twelve in a workday and for hours over eight on that seventh consecutive day.

The daily threshold is the big difference from federal law. The Fair Labor Standards Act looks only at the forty-hour week. Under California law, an employee who works four ten-hour days is owed eight hours of overtime even though the week totals exactly forty.

The regular rate

Overtime is calculated from the regular rate of pay, which isn't always the hourly wage. Nondiscretionary bonuses, commissions, and shift differentials generally have to be included. An employer that pays overtime based only on the base hourly rate, ignoring a production bonus, has underpaid.

Who's actually exempt

California has several exemptions. The ones employers rely on most are the executive, administrative, and professional exemptions, and each requires passing two tests.

The first is a salary test. Under Cal. Labor Code § 515(a), the employee must earn a monthly salary equal to at least twice the state minimum wage for full-time work. The minimum wage rises every year, so the salary threshold does too. An employee paid below it isn't exempt under these exemptions, whatever the job involves.

The second is a duties test. The employee must be primarily engaged in exempt work, meaning it takes up more than half of their working time, and must customarily and regularly exercise discretion and independent judgment. For the executive exemption, that means managing the business or a department, directing at least two employees, and having authority to hire and fire or making recommendations that carry real weight. For the administrative exemption, it means office or non-manual work directly related to management policies or general business operations, involving independent judgment on significant matters. The professional exemption covers licensed or certified practitioners in fields like law, medicine, engineering, architecture, teaching, and accounting, plus certain learned and artistic professions.

Job titles don't decide any of this. An "assistant manager" who spends most of the day at the register and stocking shelves, doing the same work as hourly staff, isn't an executive. A "coordinator" who follows detailed procedures and makes no significant decisions isn't administrative. The employer carries the burden of proving the exemption applies.

Other common problems

Misclassification isn't the only way overtime goes unpaid. Employees get asked to arrive early, stay late, answer messages at night, or work through breaks off the clock. Timekeeping systems round in ways that consistently favor the employer. Meal breaks are deducted automatically whether or not anyone took them. And some workers are labeled independent contractors, which removes overtime protection entirely. California's test for contractor status, codified at Cal. Labor Code § 2775, is strict.

What employees can recover

Unpaid overtime is recoverable with interest, and under Cal. Labor Code § 1194 a prevailing employee is entitled to reasonable attorney's fees and costs. Penalties can add significantly. If an employer willfully fails to pay all wages owed when employment ends, § 203 continues the employee's daily wages as a penalty for up to thirty days. An employer that knowingly and intentionally issues inaccurate wage statements faces penalties under § 226, capped at $4,000 per employee. And the Private Attorneys General Act, Cal. Labor Code § 2698 and following, allows employees to recover civil penalties on behalf of the state and other affected workers.

Deadlines

Overtime claims under the Labor Code generally have a three-year statute of limitations under Cal. Code Civ. Proc. § 338(a). Claims for restitution under the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, can reach back four years. PAGA claims carry a one-year period and require written notice to the state before filing.

If you suspect you're being shorted, start keeping your own record of the hours you actually work, including anything done before or after your shift. Keep your pay stubs. If you're classified as exempt, write down what you actually spend your time doing in a typical week. That record often ends up being the most important evidence.