Lesser Known Pay Exemptions

While some pay exemptions are fairly well-known, there are some, such as the Computer Professional and Sales exemptions, that are not as common. Meagan Bainbridge and Lukas Clary close out the pay exemptions series on California Employment News with this episode reviewing these two lesser known pay exemptions.

Watch this episode on the Weintraub YouTube channel here.

Show Notes:

Hello, everyone. Thank you for joining us for this installment of the California Employment News, an informative video and podcast resource offered by the Labor and Employment Group at Weintraub Tobin. My name is Lukas Clary. I’m a shareholder in the firm’s labor and employment group. I’m joined today by my partner, Meagan Bainbridge, and we are today concluding our series on exemptions by discussing a couple of the lesser known exemptions from federal and state overtime, meal and rest, break and minimum wage laws. Specifically, the computer professional exemption and the sales exemptions. Meagan, let’s start with the computer professional exemption. What can you tell our listeners about that one?

Well, to start, exempt computer professionals must work on or with computers as their primary duty. This extends beyond the use of a computer as a daily function and refers to those who are directly working with, creating or altering computer technologies, such as operating systems and software. In order to meet this exemption, the employee must meet both the salary test and the job duties test. As we’ve discussed in previous episodes, to meet the salary test in 2023, California employers must compensate their employees a certain salary. For computer professional employees, this annual salary is $112,065.20. This equals no less than $53.80 an hour. If you’ll recall, this is substantially more than the other exemptions we’ve been discussing. If the salary test can be met, the employee then must meet the job duties test. Part one of the test says that the worker qualifies as a computer professional if the worker is, one, primarily engaged in the intellectual or creative work that requires the exercise of discretion and independent judgment, and two, is highly skilled and is highly proficient in the theoretical and practical application of highly specialized information to computer systems analysis, computer software programs, or software engineering.

And then part two of the duties test says that the worker is exempt if the primary duties consist of one or more of the following: the application of systems analysis, techniques, and procedures; the design, development, testing or modification of computer systems or programs; and three the documentation, creation, or modification of computer programs related to the design software or computer hardware or related equipment for computer and machines operating systems. The employee must pass both these part one and part two of the job duties test for the employee to be labeled a computer professional. What this really means is that an employee involved in general It support, such as installing software, configuring hard drives and troubleshooting issues, likely is not going to meet the exemptions test. On the other hand, an employee who develops the software or is responsible for evaluating the entire It system and make recommendations based upon that examination, they may very well be able to meet the exemption. So that’s the computer professional exemption. Let’s move on to the sales exemptions. Lukas, what can you tell us about the outside sales exemption?

Thanks, Meagan. So the outside sales exemption, like the name implies, is one that applies to certain employees in sales. Now, this exemption, unlike several of the others that we’ve discussed, does not have a salary requirement component to it. Instead, to meet this exemption, it’s pretty straightforward. Two things have to apply. One, the employee must be at least 18 years old, so the exemption will never apply to minors. And then second, the employee must customarily work at least 50% of their working time away from the employer’s place of business conducting sales. Now, conducting sales means selling tangible or intangible items or obtaining orders or contracts for products, services, or use of facilities. Now, importantly, when factoring in whether an employee spends at least 50% of their time on sales activities, California law, unlike federal law, does not permit employers to count any time spent on work that is incidental to the actual sales activities, such as collections and deliveries. So think of a sales employee who is out on a route who might also do their delivery and collection work. That time can’t be counted. So that’s an important nuance to keep in mind. And given nuances like this, I think this is one, again, that employers should work with legal counsel before determining whether that exemption applies.

Now, that’s outside sales. Meagan, we also have one called inside sales, which is a little bit different, right?

Absolutely. And while the employees may have kind of similar positions and do similar things, the exemption for inside sales is actually quite different. And in my opinion, one of the trickier exemptions to understand. So, as you just suggested, with outside sales, getting legal counsel involved is never a bad idea. Here. This exemption is also known as the commission sales exemption and is applicable during a pay period in which a the employee earns more than 150% of the minimum wage b more than 50% of the employee’s compensation is derived from commissions and C. The employee works in the mercantile industry, which is covered by wage order seven or in a professional, technical, clerical, mechanical or other similar occupation that’s covered by wage order four. This is a little different than the FLSA. We’re an employee working in the retail and service industry, meaning they derive at least 75% of their annual sales revenue from goods or services, not for resale, and are recognized as a retail establishment for their industry. So here there’s some differences between the FLSA and the California law that you’ll want to look at before you even consider exempting someone based upon the inside sales exemption in order to qualify as a commission within the meaning of this exemption, incentive based compensation must be roughly proportional to an employee’s sales productivity.

In other words, if an employee earns a fixed amount of incentive compensation for achieving a particular milestone, this compensation does not include a commission. This is more likely referred to as a bonus. Rather, the commission earned must be directly related to the particular milestone reached there. Are a couple of additional nuances to this exemption that employers should note. First, the inside salesperson exemption exempts employers only from paying overtime. The exemption does not relieve employers from complying with other wage and hour laws, such as providing meal and rest breaks or keeping accurate time records. Second, commission sales employees must meet the exemption under both state and federal law during each pay period. This means you cannot look at an entire year of earnings you’re looking at each pay period to determine whether the exemption is met during that particular pay period. This takes quite a bit of administrative oversight. Finally, when state and federal law differ, the employer must apply the law more protective of the employee. For example, inside salespeople exempt from state law but not federal law must be paid weekly overtime, but not daily overtime, because federal law does not require the payment of daily overtime.

Thanks, Meagan. Lot to digest there, but that’s it for now. That concludes our series on exemptions. We hope you found them valuable. You can continue to find our video series and podcasts through the Lelblog.com or on the Weintraub Tobin YouTube channel or other outlets you use to listen to your favorite podcasts. Thanks everyone for joining us, and we look forward to reconnecting with the next edition of California Employment News.