California Exemptions: Are you REALLY Exempt from Overtime Pay?
One of the most common and often expensive mistakes an employer can make is to misclassify their employees as being exempt from overtime, if they are, in fact, non exempt employees by law. Exempt employees are often referred to as salaried employees and in very basic terms it means that the employee is therefore is not eligible for overtime. California labor law addresses what criteria are necessary in order to classify employees properly. This law relates specifically to the California administrative exemption, the California professional exemption, the California executive exemption, and the California outside sales exemption. "California" is stressed because the federal labor laws are slightly different than those of the state of California. As an employer or employee it is wise to educate yourself on your states employment laws or the consequences could be costly.
Its also important to note that in California, whenever a labor law dispute is brought to court, the burden of proof is on the employer. This means it is the employers responsibility to prove that they are not guilty of the violations they are accused of committing. Lastly, and most importantly, for the most part, the actual job duties that an employee performs determine whether or not they are exempt, not the job title given to them.
The California administrative exemption statute states that in order for an employee to be classified as exempt the employee must perform office work or non manual work that is directly related to policy shaping or business operations. This means that the employee must have the power to issue and enforce company policy. It does not necessarily apply to workers that are allowed to exercise discretion in their daily job function, within the parameters or guidelines of existing company policy. This can be confusing, but a very generic example of California administrative exemption may be helpful. A non exempt employee does not have the authority to create new rules that other company employees must follow, but an exempt employee would have this authority.
The California professional exemption most commonly refers to professional occupations that require a California state license, such as dentistry, engineering, optometry, law, medicine, architecture, teaching, or accounting. However, nurses and pharmacists are rarely included as exempt under the California professional exemption law. The most common mistake among employers is to misclassify employees that have not yet received their licensing from the state.
The most frequently used defense by employers is that their employee can be classified exempt under the California executive exemption. Although, it is actually the hardest exemption to qualify for because it requires that the employee perform ALL of a long list of criteria named in the labor law, not just some. To be more specific, the California executive exemption requires that the exempt employee have the ability to hire or fire other employees or at least have a highly valued opinion in this matter. It also requires that the employee directly manages the work of two or more employees or the equivalent of 80 hours a week. This exempt employee must be in charge of the entire department or unit they are managing and regularly exercise discretion and independent judgment on the job. This employee must also be paid a salary of twice the California minimum wage.
The California outside sales exemption differs slightly from federal law in that California does not regard "exempt work" duties incidental to the employees sales or solicitations, including incidental deliveries and collections. This difference in law is significant for route salespeople and others who perform many other functions in an average day, such as delivery, repair, and maintenance. California outside sales exemption applies to an adult worker that spends over half his or her time away from the employers place of business selling or taking orders for an actual product or service. The final area that is different about the California outside sales exemption from the other California exemption laws is that is does not require that the salary be "twice the minimum wage amount". Often times these jobs have opportunity for commissions or bonuses.
With such specific regulations to comply with, it is extremely important that as an employer or as an employee you are well aware of how to classify yourself or others. Under California law, the employee has up to four years to file a lawsuit to claim any wages that were not paid as a result of being misclassified as exempt from overtime. Additionally, if the court finds that the employer knowingly and intentionally misclassified the employee, the financial ramifications can be exceedingly detrimental. As an employee if you suspect you have been misclassified, you may want to contact the California Labor Board or a California labor law attorney to help you claim the money that is owed to you.
Lars Vheltzer is a freelance journalist who comments on California professional exemption and California executive exemption guidelines. Lars also advises that sales employees be informed about the California outside sales exemption.