6 Tips on Misclassification of Exempt Employees

By: Brad Nakase, Attorney

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For two years, Portia has been a manager at Grandad’s Crawdad Pad, a restaurant in Santa Monica serving New Orleans-style cuisine. While she is charged with monitoring servers and the quality of food coming out of the kitchen, she does not have the power to hire or fire employees. She is also paid by the hour. Her boss, Charlie “Po’Boy” Jenkins, has informed Portia that as an exempt employee, she is not allowed to take meal breaks. He says that she is needed around the clock to supervise the restaurant. But Portia begins to wonder whether she is really exempt. It seems to her that Po’Boy Jenkins is merely trying to save money by not paying her overtime and giving her meal breaks. Exhausted and angry, Portia hires a lawyer to see if she is actually a non-exempt employee and to sue her boss over denied rights.

1. Misclassifying Non-Exempt Employees as Exempt

Exempt employee misclassification occurs when an employer treats a non-exempt worker as exempt in order to deny that worker overtime, meal breaks, and rest breaks. An employer might misclassify an employee in order to save money while increasing productivity.

In California, all employees are automatically non-exempt. For an employee to qualify as exempt, an employer must prove that the employee meets a set of very strict requirements. If an employee qualifies as exempt according to this list, the employer does not have to pay overtime or provide meal and rest breaks.

2. Exempt Positions in California

 In California, there are a few different types of exempt positions. These include the following:

  • Executive employees
    • These are managers of two or more employees who can hire and fire employees
  • Administrative employees
    • Workers involved in tax, finance, accounting, budgeting, auditing, insurance, purchasing, quality control, marketing, advertising, research, personnel management, HR, employee benefits, public relations, government relations, safety and health, labor relations, computer network, database administration, legal and regulatory compliance, among other related professions
  • Computer Software Employees
    • Skilled computer workers involved in design, development, analysis, documentation, testing, or creation of computer programs and systems
  • Professional employees
    • Attorneys, doctors, dentists, optometrists, architects, engineers, teachers, accountants, and certain “artistic” professions

Note: While hourly employees are most often non-exempt, it is possible for exempt employees to be paid an hourly wage.

In our example, Portia does not qualify as an exempt employee. Her boss, Charlie “Po’Boy” Jenkins does qualify, as he makes the executive decisions for the Creole kitchen.

Let’s look at a few more examples of exempt employees:

Jessie, who manages a team of five people, all of whom she has hired.

Lance, who designs computer programs for a living.

Yolanda, who works as a neurosurgeon at UCLA.

3. Exempt Vs. Non-Exempt

To be classified as an exempt employee, a worker must meet the following conditions:

  1. Salary requirement
    • The employee’s salary must be at least twice the state minimum wage
    • As of 2022, the required minimum salary in California would be $62,400
    • For this requirement to be met, an employee must be paid a salary. A salary is a set amount that does not change based on hours of work performed or the quality of work
    • Exception: Computer professionals can be paid hourly or by salary and still qualify as exempt
  2. Independent Judgement Requirement
    • The employee is able to make decisions and has the authority to make decisions on matters of significance
  3. Duties Requirement
    • An employee with an administrative exemption must perform non-manual work and have the authority to make back-office decisions
    • An employee with a professional exemption must perform intellectual duties that require specialized and advanced knowledge in his or her field
    • An employee with executive exemption must manage a team or department, having authority over two or more employees and having the right to hire, fire, or discipline.

Let’s test our knowledge:

Hamza works at a real estate office in 2022. He has been told that he is an exempt employee. His salary is $58,900. Is he exempt?

Answer: No, he is not exempt. His salary is less than twice the minimum wage in California.

Colleen works at Target, where she is called a manager. She manages a team of ten people and has the ability to hire and fire employees. Is she exempt?

Answer: Yes, she is exempt. She manages a team of two or more people and has the ability to hire and fire.

Roger works at Best Buy. He loves to work with computers but spends his day mostly selling them to customers. He is paid $20 an hour. Is he exempt?

Answer: No, he is not exempt. Though Roger may have IT knowledge, he is not employed as an IT worker with specialized knowledge and decision-making ability.

4. Commonly Misclassified Positions

There are some professions where misclassification is more common than others. These include the following areas:

  • IT
  • Sales
  • Healthcare
  • Customer service
  • Construction
  • Tipping industries

5. The Reason Behind Misclassification

Employers may be tempted to misclassify non-exempt employees as exempt, because then they don’t have to pay overtime or provide meal and rest breaks. By paying a lump sum amount (a salary), they can save money.

Whether an employer breaks the law intentionally or due to ignorance, workers who are misclassified are entitled to be compensated for unlawfully denied overtime and breaks.

6. Compensation for Misclassification

As a state, California is very protective of its workers, and the penalties for the misclassification of employees are severe. It is therefore possible for misclassified employees to recover tens or hundreds of thousands of dollars in unpaid overtime and penalties.

Employers who misclassify their employees may be sued over the following:

  • Minimum wage rights
  • Meal break rights
  • Rest break rights
  • Overtime rights

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