Companies large and small struggle with the issue of whether to classify an employee as exempt, i.e., exempt from overtime, or non-exempt. A common misconception among employers is that if a person is salaried, rather than hourly, they are exempt, and thus not entitled to overtime pay. This is not true! Whether a person is salaried or hourly is not the determining factor. Another frequent misunderstanding about exempt vs. non-exempt has to do with titles. Having a job title that appears to fit into one of the exempt classifications is not enough.
Also, California law differs from federal law in a number of areas. If you have employees in California, be sure you are adhering to the California Labor Code, because it provides broader protection for employees and thus trumps the FLSA (Fair Labor Standards Act).
Defining Exempt Status
In California, employees may be exempt from overtime pay rules if:
1. They are engaged in work which is primarily intellectual, managerial or creative, AND
2. They are paid a monthly salary equivalent to at least two times the state minimum wage for full time employees (40 hours per week)
Employees who meet these criteria are generally classified in one of the three exempt classifications: Executive, Professional, or Administrative. Unless a job falls into one of these exemptions, an employer must pay overtime. In California, non-exempt, hourly employees are entitled to overtime pay for any hours worked over 8 in a day and over 40 in a week.
Another important distinction between FLSA and the California Labor Code is that an employee must be “primarily” engaged in intellectual, managerial, or creative work for 50% or more of his or her work time. California law focuses on the amount of time the employee spends on his or her specific duties, while the federal law focuses on the “primary duty” or the reason for which the employee was hired.
Another common misconception is that employees who are paid commissions are automatically exempt. This is also not true. Although there is an exemption for sales people who “customarily and regularly work more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities,” there is no exemption for inside sales people.
What Does This Mean to YOU?
Employers should keep in mind that in California if the employer fails to compensate an employee for overtime pay, the employer is subject not only to the unpaid wages, but to liquidated damages in an amount equal to the overtime wages, interest, the employee’s attorney’s fees, and costs.
Always assume employees are nonexempt unless they clearly meet the job duties of an exempt position and will earn at least two times the current minimum wage on a monthly basis.
How to Avoid the Pitfalls
I recommend thoroughly reviewing job duties and responsibilities vis a vis the provisions of the California Labor Code prior to classifying a position as Exempt or Non-Exempt. Also, the Department of Industrial Relations has a great website. You can visit their site to learn more about overtime regulations in California.
If you are not experienced in determining exempt and nonexempt status, or if you are unsure about the status of a particular position, ask competent employment law counsel familiar with California regulations to review your determination.
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