Exempt vs. Non-exempt…. How Can I Tell?

by connecttohr on March 25, 2011

Companies large and small struggle with the issue of who must be paid overtime and who can be exempt. For example, some employers think because a person is salaried, rather than hourly, the employee is exempt from the requirement to pay for overtime. This is not true!  Whether a person is salaried or hourly is not the determining factor.

California law provides greater protection to an employee than the FLSA (Fair Labor Standards Act ). Therefore, if you are an employer with employees in California, you must ensure you are adhering to the California Labor Code, because it provides broader protection for employees and thus trumps the FLSA.

Defining Exempt Status:

The most widely used exemptions are often referred to as the “executive,” “professional” and “administrative”. Unless a job falls under these exemptions, an employer must pay overtime to their employees. 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. Also, the exemption must meet the following requirements:

1. Is “engaged in work which is primarily intellectual, managerial, or creative,” and “which requires exercise of discretion and independent judgment,” and

2. Is paid a monthly salary equivalent to at least twice the state minimum wage for full time employees.

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. Thus, California law focuses on the amount of time the employee spends on his or her specific duties. This law is very different than the comparable law under the FLSA, which focuses on the “primary duty” or the reason for which the employee was hired.

Another frequent misunderstanding about exempt classification has to do with titles.  For example, having a title that on the surface would appear to fit under one of the exemptions is not enough. In fact, on October 15, 2010, a class action lawsuit was certified by the Alameda County Superior court against Oracle. The lawsuit challenges the exempt status of the following positions:

1. Technical Analyst

2. Project Manager

3. Quality Assurance

After investigating the job duties, it was found the positions with titles: technical analyst, project managers and quality assurance lacked the discretion and independent judgment needed to satisfy the exemptions under California labor codes.

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.

How to Avoid the Pitfalls:

I recommend that a fact-specific inquiry must be thoughtfully applied prior to every position being made “exempt” from the overtime provisions of the wage and hour laws.  Also, employers should work with legal counsel to conduct an attorney-client privilege audit of any currently classified exempt positions.

THIS BLOG POST IS OF A GENERAL NATURE AND IS NOT INTENDED TO ADDRESS ALL ISSUES OR PROBLEMS THAT MIGHT ARISE IN ANY EMPLOYMENT RELATED MATTER. NOR IS IT INTENDED TO BE LEGAL ADVICE, WHICH CAN ONLY BE RENDERED BY A DULY LICENSED ATTORNEY-AT-LAW. READERS SHOULD CONSULT WITH A LAWYER IF THEY HAVE SPECIFIC CONCERNS THAT THEY FEEL ARE LEGAL IN NATURE. NEITHER CONNECT TO HR OR MICHELLE MENDOZA HAVE ANY LIABILITY FOR HOW THIS INFORMATION IS APPLIED IN PRACTICE OR FOR THE ACCURACY OF THIS INFORMATION.  THIS BLOG POST IS PROVIDED AS AN EDUCATIONAL RESOURCE ONLY, AND CONNECT TO HR OR MICHELLE MENDOZA SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST REVENUES OR LOST PROFITS THAT MAY RESULT FROM THE USE OF THIS INFORMATION.


THIS BLOG POST IS OF A GENERAL NATURE AND IS NOT INTENDED TO ADDRESS ALL ISSUES OR PROBLEMS THAT MIGHT ARISE IN ANY EMPLOYMENT RELATED MATTER. NOR IS IT INTENDED TO BE LEGAL ADVICE, WHICH CAN ONLY BE RENDERED BY A DULY LICENSED ATTORNEY-AT-LAW. READERS SHOULD CONSULT WITH A LAWYER IF THEY HAVE SPECIFIC CONCERNS THAT THEY FEEL ARE LEGAL IN NATURE. NEITHER CONNECT TO HR OR MICHELLE MENDOZA HAVE ANY LIABILITY FOR HOW THIS INFORMATION IS APPLIED IN PRACTICE OR FOR THE ACCURACY OF THIS INFORMATION. THIS BLOG POST IS PROVIDED AS AN EDUCATIONAL RESOURCE ONLY, AND CONNECT TO HR OR MICHELLE MENDOZA SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST REVENUES OR LOST PROFITS THAT MAY RESULT FROM THE USE OF THIS INFORMATION.

{ 4 comments… read them below or add one }

Daniel Casciato April 13, 2011 at 8:23 pm

Good piece…I’m not in California, but it helps me better understand exempt vs. no exempt status. I’m sure Pennsylvania has similar laws.

Reply

Silvia Johnson April 14, 2011 at 5:17 pm

Michelle- great article. Even though I was in HR for over 10 years, I still got confused by status. This is a great reminder of how and why to apply the difference.

Reply

Jerrilynn Thomas April 15, 2011 at 9:41 am

Great post. From an employee point of view it’s very helpful. A person should know their rights before taking a job.

Reply

Women Ugg Boots October 9, 2011 at 11:45 pm

Excellent read, I just passed this onto a colleague who was doing a little research on that. And he actually bought me lunch because I found it for him smile So let me rephrase that: Thanks for lunch!

Reply

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