WORKPLACE LAW -
Exempt or Non-exempt?
Question:
My company pays many of our employees a set monthly salary for their services regardless of how many hours they work. Are those salaried employees exempt from the overtime provisions of the California Wage Orders?
Answer:
Not necessarily. The California Wage Orders include rules regarding the payment of wages and overtime, and the provision of meal and rest periods. Employees in California are either exempt from the provisions of the Wage Orders, or they are non-exempt and therefore subject to the overtime, meal and rest period provisions of the Wage Orders.
While exempt employees are typically paid on a salary basis and non-exempt employees are generally paid an hourly wage, this is not the determining factor with regard to whether an employee is exempt or non-exempt. Similarly, simply referring to an employee as a manager or supervisor does not necessarily mean that he or she is exempt. Also, simply classifying an employee as exempt in an employment agreement does not result in the employee being exempt.
Pursuant to the Wage Orders, individuals who work in executive, administrative, or professional positions may be exempt from most wage and hour regulations. Employees who may qualify for the executive exemption include those in managerial roles, while administrative assistants and field representatives are examples of employees who may qualify for the administrative exemption. Typical employees who may fall under the professional exemption include certain licensed professionals and those engaged in learned or artistic professions (as defined in the Wage Orders).
To fall within the executive, administrative, or professional exemptions, an employee must satisfy what are known as the duties test and the salary basis test. Generally, to satisfy the duties test under the executive, administrative, or professional exemptions, the employee must be primarily engaged in certain defined duties and must customarily and regularly exercise discretion and independent judgment in performing those duties. Notably, an employee’s job description does not determine whether he or she is exempt. Instead, the employee’s actual duties are determinative. When deciding if an exemption exists, California courts look at how the employee’s time is spent and the employer’s expectations.
Further, to be properly classified as exempt, an employee’s monthly salary must satisfy the salary basis test. An exempt employee must earn at least twice the minimum wage for full-time work of 40 hours per week. Currently, that amounts to $2,773.33 per month. However, satisfying the salary basis test does not by itself result in an employee being exempt, as the employee must also satisfy the duties test of the applicable exemption. For example, a salaried employee who earns $4,000.00 per month but does not satisfy the duties test is non-exempt, and would therefore be entitled to overtime pay and meal and rest periods.
In California, employees who work in certain occupations may be exempt under a profession-specific exemption if the stated requirements are met. Employees who may be eligible for such exemptions include computer professionals, outside salespersons, commissioned inside salespersons, drivers, personal attendants, student nurses, and airline employees, amongst others. The profession-specific exemptions have numerous requirements that are narrowly interpreted.
As you can see, it is important that employers periodically review their employees’ classifications in order to ensure that their employees are properly classified as either exempt or non-exempt employees. By improperly classifying an employee as exempt, an employer can inadvertently deny that employee rights to which he or she is entitled under the Wage Orders. This can lead to significant liability based on failure to pay the minimum wage, unpaid overtime, and/or missed meal and rest periods. Further, statutory waiting time penalties can be quite costly to employers.
In order to assess whether your employees are properly classified, you can refer to the California Department of Industrial Relations’ website (http://www.dir.ca.gov/). That website contains links to the Wage Orders, a description of each exempt category, and a list of the requirements that must be satisfied in order to classify an employee as exempt.
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