In determining whether employees are exempt from overtime requirements, employers often focus primarily on the exemptions available under the federal Fair Labor Standards Act.  Although many states with overtime laws have exemptions corresponding to the federal exemptions (for example, exemptions for executive, administrative, and professional employees and for outside salespersons), the rules for determining exempt status under state law sometimes differ substantially from the requirements for meeting the federal exemptions, resulting in situations in which employees may be exempt under federal law but not under state law.

The importance of state overtime exemptions is illustrated by the recent settlement of state overtime claims in the case of Conley v. Pacific Gas and Electric Co.  After nine years of litigation involving three certified classes of employees, a utility company in California agreed to settle state-law overtime claims for $17.25 million.  The lawsuit alleged that the employer had misclassified approximately 700 employees as exempt under California law, which sets forth much more stringent rules for exempt status than the Fair Labor Standards Act.  The employees eligible for payments under the settlement agreement held the positions of senior new business representatives, industrial power engineers, gas distribution engineers, and electric distribution engineers.  In agreeing to the settlement, the employer denied any wrongdoing with respect to the classification of employees as exempt.