If I put an employee on salary, are they exempt from overtime?

Not necessarily. Paying an employee a salary does not, by itself, make the employee exempt from overtime.

Nonexempt salaried employees are still entitled to overtime, and employers must track all hours worked. A salaried employee is exempt only if they meet all exemption requirements.

To qualify as exempt under California and federal law, the employee must:

  • Primarily be engaged in exempt duties that meet the exemption;
  • Meet California’s strict duties test; and
  • Earn a salary of at least twice the applicable statewide minimum wage for full-time work.

Under Labor Code Section 515, a salary paid to a nonexempt employee covers only regular (non-overtime) hours, regardless of any agreement.

“Explicit mutual wage agreements” that include overtime are not permitted. For a full-time salaried nonexempt employee, the regular hourly rate is calculated by dividing the weekly salary by 40 hours, and overtime is based on that rate.

Read about Determining Exempt or Nonexempt Employee Status in the HR Library.

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