The California Administrative Exemption

Under California labor laws, certain provisions of the Industrial Welfare Commission (IWC) Wage Orders – including California overtime law and meal and rest period premiums – do not apply to persons employed in an exempt administrative capacity.  An exempt administrator is primarily engaged (51%-plus) in high level “desk-bound” planning, organizing, and enabling of production as opposed to the actual production of the company itself.  An administrator makes sure the “production line” is created, established, coordinated, serviced and maintained as opposed to participating directly in that production line.  In other words, an administrator is concerned with how a business is programmed and organized to turn out its products or services, not with actually assembling that product or delivering that service.  Since an exempt administrator may also perform such organizational duties for his employer’s clients or customers to enable them to produce in turn, it is possible in special cases for an employer’s service providers to be exempt administrators (for example, a consulting company that employs specialists to provide custom management or financial investment consulting and advice to its clients).

An exempt administrator needs no actual juniors to direct on the chain of command.  It is possible for such administrator to occupy a “one person” subdivision of a company.  However, he or she must regularly and customarily exercise independent judgment and discretion in the programming and coordination of personnel and/or resources that enables the production of the employer or the employer’s clients.

While every employee is expected to use judgment as an element of any job, a worker will qualify for the administrative exemption only where he or she has and exercises the authority to make independent choices on the highest or higher levels of business policy, planning and coordination of operations, so-called “matters of significance.”   A truck driver who makes “discretionary” decisions on the route he or she takes to a destination is not exempt from overtime.  A programs director for a trucking business – responsible for the planning, programming, financing, acquisition of resources, allocations of personnel, etc. to ensure the company’s viability – is probably exempt from overtime compensation.

Last, the required regular and customary exercise of discretion and independent judgment is not limited to powers to make final decisions on significant matters. An administrator is legitimately exempt from overtime even if he or she only makes recommendations on policy, planning and coordination subject to review and approval, as long as the company’s seniors give weight to those recommendations.

If an administrator must perform a rote or routine duty that is “directly and closely related” to his or her planning and coordination functions such as typing up a program or counting and reporting on the statistical production of an area,  the law considers this incidental work as part of exempt duties.

California recognizes three main settings for exempt administrators:

•  someone who regularly assists the company owner, a exempt executive or other administrator and is entrusted with the same discretionary authority as the senior when that senior is absent (classically, the “executive assistant”);
•  an individual who performs his or  her coordinating functions in highly specialized or technical areas that require special training, experience or knowledge (for example, the internal IT manager, entrusted with planning and enabling a state-of-the-art computing and communications system for the employer); and
•  a person who executes special assignments or tasks under only general supervision (for example, a marketing specialist responsible for assigned projects to find and create new markets and to develop and define new products to service those pioneer markets).

Job titles are not determinative.  As with exempt executives, an exempt administrator’s purposes, duties and products contained in his or her written job description should accurately emphasize all of the above concepts as requirements, including the expectation that he or she will devote the majority of work time to the job’s administrative functions.

As with exempt executives, the employer must pay an exempt administrator a salary in each pay period that is at least two times the state minimum wage.  As of January 1, 2008, the minimum is $640 weekly and $2,773.33 monthly.  These amounts are unchanged for 2009 and thus far for 2010.

The California Industrial Welfare Commission (IWC) Wage Orders are available online at http://www.dir.ca.gov/iwc/wageorderindustries.htm.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards