June 2009

Many employers mistakenly believe that simply paying a salary or bestowing an impressive job title is enough to make an employee exempt from the overtime rules. In fact, only one thing really matters—the employee's duties. If you sometimes have trouble figuring out which employees are exempt and which aren't, you're not alone. It's easy to make mistakes, and they can be extremely costly.

This report is designed to clear the confusion and guide you through this complicated area of the law. We've included helpful checklists you can use to determine who's exempt and who isn't. Plus, you'll find out which common pay practices to avoid, so you don't inadvertently destroy an employee's exempt status.

In 2004, the federal Department of Labor issued final changes to the white-collar overtime exemption rules under the Fair Labor Standards Act (FLSA). For most California private employers, the changes have little impact because California's overtime exemption rules provide greater protection to workers and continue to govern overtime pay practices. But for public sector employers in California—who are covered only by the FLSA—and private employers with workers outside the state, the changes have an impact. In this guide, we'll explain the key FLSA changes and how they compare to California's regulations. Note that whenever both state and federal law apply, you are required to follow whichever law is stricter—in other words, the rule most likely to give your employees the right to overtime.

Throughout this guide, we've indicated the new FLSA rules in boxed, shaded text. Remember, California's overtime exemption rules provide greater protection to workers than the federal rules, so only public employers and employers with out-of-state workers are affected by FLSA changes.

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