California lets an employer skip overtime for a manager or administrator only 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.” That’s Labor Code section 515(a). In a misclassification claim the employer must prove both, and the duties test usually decides the case.
What salary does an exempt employee need in California in 2026?
At least $70,304 a year for the executive and administrative exemptions. “Exempt” means exempt from overtime and from most of the wage orders’ rules on hours and breaks. The Labor Commissioner’s Office announced the 2026 figure in a December 2025 release: “As of January 1, 2026, employees in California must earn an annual salary of at least $70,304 to meet this threshold.” The math is the 2026 state minimum wage of $16.90 (Labor Commissioner’s minimum wage FAQ), times two, times 40 hours, times 52 weeks.
The number goes up again soon. In an August 2026 release, the Labor Commissioner’s Office announced that the state minimum wage will be $17.40 on January 1, 2027, and that “an employee must earn an annual salary of at least $72,384 to meet the salary threshold for exemption.” Payroll should have the new salaries loaded before the first pay period of 2027.
Two details trip employers up. The test is measured against “full-time employment,” which section 515(c) defines as 40 hours a week, so a part-time manager paid a prorated salary may fall below it. And the same release reminds employers that “Employees must also satisfy the duties and other requirements applicable to the specific exemption.”
What are the duties tests for the executive exemption?
The executive has to manage something real and spend more than half of the time doing it. The duties tests live in the Industrial Welfare Commission’s wage orders, which are the industry-specific regulations that set California’s hours and working conditions. Under Wage Order 4, section 1(A)(1), an executive is an employee whose duties involve management of the enterprise or “a customarily recognized department or subdivision thereof,” who “customarily and regularly directs the work of two or more other employees therein,” and who “has the authority to hire or fire other employees” or whose hiring and firing recommendations get particular weight. The employee must also exercise discretion and independent judgment, and must be primarily engaged in exempt duties.
“Primarily” is a number. Section 515(e) says it “means more than one-half of the employee’s worktime.” The wage order adds that the work the employee actually performed is examined “first and foremost,” together with “the employer’s realistic expectations and the realistic requirements of the job.”
That’s where store and shift managers get into trouble. In Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, a published opinion applying the parallel test in the mercantile wage order, a former assistant manager at a grocery store claimed she spent more than half her hours on nonexempt tasks such as bagging groceries and stocking shelves. An advisory jury and the trial court agreed and awarded her overtime. Safeway argued that time spent supervising while also working a register should count as exempt. The Court of Appeal affirmed, holding that each task is classified by its objective purpose. Work done to “supervis[e] the employees or contribute to the smooth functioning of the department” is exempt, and work done “for some other reason” is not. For example, bagging groceries because the store is short-staffed is likely nonexempt time, while showing a new hire how to bag may be exempt.
When does the administrative exemption apply?
When the employee does office or non-manual work “directly related to management policies or general business operations” of the employer or its customers, with real discretion. Wage Order 4, section 1(A)(2) adds three alternatives, and the employee must meet one: regularly and directly assisting a proprietor or an exempt executive or administrator, doing skilled or technical work that requires special training, experience, or knowledge, under only general supervision, or executing “under only general supervision special assignments and tasks.” The employee must also be primarily engaged in exempt duties and meet the salary test.
The Supreme Court of California has warned against shortcuts here. In Harris v. Superior Court (2011) 53 Cal.4th 170, insurance claims adjusters argued they were “production” workers who couldn’t be administrators. The court said the administrative/production worker dichotomy “is a judicially created creature of the common law, which has been effectively superseded in this context by the more specific and detailed statutory and regulatory enactments.” The court didn’t ban the dichotomy outright, but it held that the Court of Appeal erred in using it as a dispositive test. Courts are to apply the language of the wage order and the federal regulations it incorporates first.
Harris helps employers in one way and hurts them in another. It means a job isn’t automatically nonexempt because it’s part of what the company sells. But it also means there’s no easy label to rely on. Titles like coordinator and analyst are the ones I’d look at hardest, because those jobs are often built around carrying out decisions rather than making them.
Who has to prove the exemption?
The employer does. In Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, the Supreme Court of California said that “the assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.” The same opinion says that “under California law, exemptions from statutory mandatory overtime provisions are narrowly construed.”
That burden shapes the defense. The employee can testify to spending 70 percent of the day on the sales floor, and the employer has to answer with schedules, staffing levels, task records, and witnesses who saw what the job looked like day to day. A job description helps only if it matches reality. My firm view is that the best misclassification defense is built before the lawsuit, by an employer that checked whether each exempt role still matched its description after the last reorganization or staffing cut.
What does a misclassification claim cost an employer?
The unpaid overtime is the start, and the salary doesn’t offset it. Section 515(d)(2) says that “Payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee’s regular, nonovertime hours, notwithstanding any private agreement to the contrary.” Section 515(d)(1) sets the regular hourly rate for a nonexempt full-time salaried employee at one-fortieth of the weekly salary. An employee earning $1,500 a week has a regular rate of $37.50, and every overtime hour is owed on top of the salary.
The other exposure follows from the same mistake. Wage Order 4 says that for exempt employees, “Provisions of Sections 3 through 12 shall not apply,” and those sections include the meal and rest period rules. For any period in which the exemption fails, the meal and rest rules applied.
| Claim | Statute | Exposure and its conditions | Where the defense starts |
|---|---|---|---|
| Unpaid overtime | Lab. Code §§ 510, 515(d), 1194 | Overtime premiums calculated from a regular rate of one-fortieth of the weekly salary, plus interest, attorney’s fees, and costs under § 1194 | Proof that the employee was primarily engaged in exempt duties and paid the required salary |
| Meal and rest periods | Wage Order sections 11 and 12, which don’t apply to exempt employees | Premiums for missed or noncompliant breaks, for the period the exemption fails | The exemption itself, then any evidence that breaks were provided |
| Final pay | Lab. Code § 203 | Waiting time penalties only for a willful failure to pay, capped at 30 days of wages | Evidence that the failure to pay wasn’t willful, such as a documented basis for treating the job as exempt |
In my view, the fee-shifting is often the largest number. Section 1194(a) gives an employee who was underpaid overtime “reasonable attorney’s fees, and costs of suit.” The waiting time penalty in section 203(a) applies only to a willful failure to pay a departing employee, and “the wages shall not continue for more than 30 days.” A genuine, documented belief that the job was exempt is the employer’s best answer to willfulness.
What should an employer do when a misclassification claim arrives?
Start with the facts of the job, not the job description. An exemption defense depends on how the employee actually spent the workweek, and the evidence of that is scattered across systems that don’t keep it forever. Act on these quickly:
- Put a litigation hold on the employee’s personnel file and job descriptions, organizational charts showing who reported to the employee, schedules and staffing records for the employee’s location or team, badge and login data, point-of-sale records, and emails and texts about the role.
- Calendar the response deadline on the demand letter, PAGA notice, or complaint, and check for an arbitration agreement and for an employment practices liability (EPLI) policy that requires prompt notice.
- Identify the people who supervised the employee and the people the employee supervised, because their testimony about a typical week often decides whether the employee was primarily engaged in exempt work, and make sure no one takes action against the employee that could look like retaliation.
- Pull the salary history for the whole claim period against each year’s threshold, and look for any week, leave period, or part-time stretch where pay fell below it.
- Talk to a lawyer before reclassifying anyone, responding to the claim, contacting the employee or the employee’s lawyer, or offering anything to settle.
The firm’s California employment defense lawyers page describes how wage and hour claims, including exemption disputes, are defended.
Exempt misclassification questions from California employers
If an employee meets the federal FLSA test, are they exempt in California?
Not necessarily. California’s salary threshold is set by its own statute and minimum wage, and California’s duties test counts time differently. Wage Order 4 incorporates specific federal regulations only “effective as of the date of this order,” and the Heyen court declined to follow the 2004 federal regulation on concurrent duties because California hadn’t adopted it. Treat the California test as the one that controls, and check the federal test separately.
Can a part-time employee be exempt in California?
Only if the salary still meets the full-time threshold. Section 515(a) requires a monthly salary equal to at least twice the state minimum wage “for full-time employment,” and section 515(c) defines full-time as 40 hours a week. A manager working 30 hours on a prorated salary of three-quarters of the threshold doesn’t meet the test, however managerial the work.
Does giving someone a manager title make them exempt?
No. The wage order looks first at “the work actually performed by the employee during the course of the workweek,” and the employer’s realistic expectations. A title, a salary, and a job description are evidence, but a judge, jury, or arbitrator will weigh them against testimony about what the employee did all day. The Heyen manager had the title and the salary and still recovered overtime.
Should we reclassify the position as soon as a claim comes in?
Talk to counsel first. Reclassifying going forward can cut off future exposure, and it’s often the right call. But it doesn’t erase the back pay claim, it can affect how coworkers in the same role view their own positions, and how the change is explained matters. Decide the scope (one employee or the whole job category) with the litigation in mind.
If an employee says they were misclassified as exempt
If a current or former manager has sent a demand letter or filed suit claiming overtime as a misclassified exempt employee, the schedules, staffing data, and testimony about a typical week usually decide the case. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving exempt misclassification and unpaid overtime. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 515, 1194, and 203. The duties tests are in IWC Wage Order 4-2001, section 1(A). Other industries’ wage orders contain parallel tests. The salary figures come from the Labor Commissioner’s 2026 minimum wage release, 2027 minimum wage release, and minimum wage FAQ. The decisions are Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, Harris v. Superior Court (2011) 53 Cal.4th 170, and Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795.
This post is general information about California and federal employment law as of November 5, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.