Misclassification of Non-Exempt Employees as Exempt in California

Under California labor laws, a non-exempt employee who is misclassified as exempt may be able to sue their employer for unpaid wages, interest, damages, and attorney's fees.

Below, our California wage and hour lawyers discuss the following frequently asked questions about misclassified non-exempt employees in California:

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Under California labor laws, a non-exempt employee who is misclassified as exempt may be able to sue their employer for unpaid wages, interest, damages, and attorney’s fees.

If you have further questions after reading this article, we invite you to contact us at Shouse Law Group.

1. What happens if my employer misclassified me as an exempt employee in California?

Under California employment law, employees are generally classified as exempt or non-exempt. Non-exempt employees are eligible for overtime, rest and meal breaks, and are subject to California's minimum wage laws.1

Exempt employees may not be eligible for overtime or breaks. However, exempt employees must be paid at twice the minimum hourly wage based on a 40-hour workweek.2

As an exempt employee, an employer could require the employee to work more than 40-hours per week without overtime pay. An employer would also not have to provide rest breaks and meal breaks to an exempt employee. An employer may intentionally or unintentionally classify a non-exempt employee as an exempt employee.

If an employer wrongly classifies a non-exempt employee as exempt, the employer may owe the employee for unpaid wages. This may include damages for:

2. What is the difference between exempt and non-exempt?

The difference between an exempt employee and non-exempt employee is that some employees are not subject to state and federal labor laws, including overtime, rest breaks, and meal breaks.

Exempt Employees

The largest group of exempt employees includes executive, administrative, and professional employees. This is known as the so-called “white-collar exemption.”3 Other exempt workers may include:

Exemption status is not based on job title alone. A job title with “executive” or “administrative” or “professional” does not necessarily mean that the job qualifies for an exemption.5

Similarly, just because an employee is paid a regular salary does not automatically make them exempt from California labor laws.

In order to be considered an exempt employee, workers have to meet certain requirements. Executive, administrative, and professional workers have to qualify based on duties and salary requirements. In California, the employee must meet the following tests:

  1. Be primarily engaged in executive, administrative or professional duties (generally, this requires the employee dedicate about 50% or more of his or her work time to these duties);
  2. Regularly and customarily exercise discretion and independent judgment on the job; and
  3. Earn a salary equivalent to at least twice the state minimum wage for full-time work (based on a 40-hour workweek).6

As of January 1, 2017, the minimum annual salary to qualify for an exempt employee would be $43,680 (Double the state minimum wage $10.50/hour for employers with 26 or more employees is $21.00/hour x 40 hours/week x 52 weeks = $43,680). For employers with 25 or fewer employees, the minimum annual salary would be $41,600.

The salary minimum for exempt workers is based on the current California minimum wage. Each year, on January 1st from 2017 and 2023, the minimum wage is scheduled to increase. This will increase the minimum salary requirement for exempt workers each year until 2023.7

Non-Exempt Employees

Non-exempt employees include all other employees who do not meet the requirements for exemption. As a non-exempt employee, workers are protected by federal and California labor laws. This includes minimum wage laws, required rest periods, meal breaks, and overtime pay.

Overtime Pay

Overtime

Under California labor laws, non-exempt employees who are not part of an alternative workweek schedule earn overtime if they work more than:

  • eight (8) hours in a single workday,
  • forty (40) hours in a single workweek, or
  • six (6) days in a single workweek.8

Overtime pay generally consists of time and a half--that is, one and a half the worker's regular hourly rate of pay. However, an employee is paid double the regular hourly pay rate for

  • any work in excess of twelve (12) hours in a single workday, and
  • any work in excess of eight (8) hours on the seventh day of a workweek.9

Minimum Wage Laws

In 2017, the statewide minimum wage in California is $10.50 per hour (or $10 per hour for employers with 25 or fewer employees). However, in some cities and counties, the minimum wage may be higher than the California minimum wage.10

The California minimum wage is set to continue to increase every year between 2017 and 2023, based on the following schedule:11

Year

California Minimum Wage for Employers with 26 or more employees

California Minimum Wage for Employers with 25 or fewer employees

2017

$10.50/hour

$10.00/hour

2018

$11.00/hour

$10.50/hour

2019

$12.00/hour

$11.00/hour

2020

$13.00/hour

$12.00/hour

2021

$14.00/hour

$13.00/hour

2022

$15.00/hour

$14.00/hour

2023

$16.00/hour

$15.00/hour

Rest and Meal Breaks

The California Labor Code requires meal breaks and rest breaks during the workday, based on the number of hours worked.

During the workday, non-exempt employees are entitled to rest periods and meal breaks. Rest breaks must be at least ten (10) minutes for each four (4) hours of work. Rest breaks must be counted as time worked and paid by the employer.12

Employees who work more than five (5) hours in a day are also entitled to a thirty (30) minute meal break. However, an employee may agree to waive that meal break if the employee does not work more than six (6) hours in the day. Employees who are working more than ten (10) hours in a day must also be given a second thirty (30) minute meal break. 13

3. Why would my employer intentionally misclassify me as exempt?

Some employers intentionally misclassify employees as “exempt” in violation of California labor law and the Fair Labor Standards Act (FLSA).

Intentional misclassification as an exempt employee is generally based on an employer's financial motives. However, because of the penalties involved with misclassifying employees, an employer may ultimately pay more if they are caught violating labor laws.

Employers may misclassify a non-exempt employee as an exempt employee for the following reasons:

  • The employer can have an employee work more than 8-hours a day or 40-hours in a workweek without paying overtime.
  • The employer does not have to provide a lunch break.
  • The employer can require the employee to be on the job during their work break.
  • The employer does not have to provide for regular rest breaks.
  • The employer does not have to track employee hours

4. What are some signs that an employee is misclassified as exempt?

The requirements for exempt status may be unclear for employees. An employee may be unsure whether they are exempt or non-exempt. There are some indications that an employee is misclassified as exempt.

Hourly Pay Rate

Exempt employees are generally not paid on an hourly basis. Most exempt employees are paid a regular salary that is not directly tied to hours worked or production. If an employer regularly deducts wages from an employee when they miss a few hours of work, the employee may be misclassified as exempt.

Example: Ray is an executive administrator who is paid a salary of $2,000 per week. Ray gets permission from his employer to take half days on Fridays to take a college course. However, Ray's employer deducts about one-tenth (1/10th) of his salary, which is reduced to $1,800 for the weeks Ray takes a half day. Ray's salary reduction may be a sign that his employer is paying based on the number of hours of work instead of the job performed. Depending on the situation, Ray may be improperly classified as an exempt employee.

Minimum Salary Requirement

Exempt employees cannot be paid less than the minimum wage, even if they work part-time. The salary requirements for exemption are not based on hours worked. The salary requirement for exempt status requires being paid double the minimum hourly wage based on a 40-hour workweek, no matter how many hours the employee is scheduled to work.

Example: Clem is working as an audio technician professional at a recording studio. Clem works between 40 to 50 hours per week at a set salary of $45,000 per year. Clem makes a number of mistakes that require additional editing work to fix. Clem's boss says Clem will have to work with lower-profile clients while he continues learning the job. As a result, his salary will be reduced to $40,000.

Clem's salary at $40,000 per year is lower than the minimum salary requirement for exempt white-collar employees in 2017. The minimum salary for an employer with 26 or more employees is $43,680, and for employers with 25 or fewer employees, the minimum salary is $41,600. Clem cannot be considered an exempt employee because he is being less than the minimum salary requirement.

Change in Job Duties

Even if an employee meets the requirements to be classified as exempt, they may lose the exempt status with a change in job duties. An exempt employee must be primarily engaged in executive, administrative, or professional duties and regularly exercise discretion and independent judgment.

Example: Danny is working as an HR manager at a hipster clothing company. Danny's job duties and salary meet the California exempt requirements for a white-collar worker.

Danny's employer is purchased by another company. Danny's job duties are moved around because the new company is bringing in their own HR staff. Danny is happy to get to keep his job and maintains the same salary.

However, Danny is now working under the direction of the head HR manager. Danny spends about 75% of his time doing administrative tasks and only about 25% of his time using his independent judgment in dealing with HR matters.

The change in Danny's duties may result in a loss of exempt status. As a non-exempt employee, Danny's employer may have to provide rest breaks, meal breaks, and pay Danny for any overtime work.

5. Can my employer fire me if I tell them I am not an exempt employee?

An employer cannot be fired or retaliated against for reporting labor law violations. Firing an employee for questioning exempt or non-exempt status may amount to unlawful retaliation.14

An employer cannot take retaliatory action, including a reduction in pay, threatening disciplinary action, or termination related to unpaid wages. Firing an employee for notifying the employer of misclassification may be considered "wrongful termination".

If an employer retaliates against an employee for filing a wage/hour lawsuit, the employee may have an additional cause of action against the employer. The employee may be able to seek money damages, reinstatement, back pay, or other equitable relief.

6. Can I sue my employer for misclassifying me as exempt?

If your employer has misclassified you as exempt, you may be able to seek unpaid wages for labor law violations. It is illegal for an employer to take away vacation time or refuse to pay an employee for unused vacation time after the employee leaves the company.

The damages available for misclassifying an employee will depend on the situation. A successful labor lawsuit may result in damages including:

  • Unpaid overtime
  • Minimum wage violations
  • Missed rest breaks
  • Missed meal breaks
  • Interest
  • Legal fees
  • Court costs

Additionally, under federal law, an employee who was misclassified may be able to seek double damages.15

In many cases, an employer will misclassify multiple employees in violation of California and federal labor laws. This can lead to a class action lawsuit involving multiple plaintiffs. Wage and hour class action lawsuits often involve failure to properly classify employees, unpaid wages, and failure to pay overtime.

Call us for help....

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For questions about California exemption laws and misclassified employees or to discuss your case confidentially with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Shouse Law Group.

We have local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.


Legal References:

  1. 8 California Code of Regulations ("C.C.R.") 11040(1)(A). ("1. Applicability of Order This order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis, except that: (A) Provisions of sections 3 through 12 shall not apply to persons employed in administrative, executive, or professional capacities.")
  2. Labor Code 515 LC -- Exemptions from overtime and other wage/hour laws. ("(a) The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid pursuant to Sections 510 and 511 for executive, administrative, and professional employees, if the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. The commission shall conduct a review of the duties that meet the test of the exemption. The commission may, based upon this review, convene a public hearing to adopt or modify regulations at that hearing pertaining to duties that meet the test of the exemption without convening wage boards. Any hearing conducted pursuant to this subdivision shall be concluded not later than July 1, 2000.")
  3. Same.
  4. Labor Code 515.5 LC -- Computer software professionals; exemption from wage/hour laws. ("(a) Except as provided in subdivision (b), an employee in the computer software field shall be exempt from the requirement that an overtime rate of compensation be paid pursuant to Section 510 if all of the following apply: (1) The employee is primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment. (2) The employee is primarily engaged in duties that consist of one or more of the following: (A) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications. (B) The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications. (C) The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems. (3) The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering. A job title shall not be determinative of the applicability of this exemption. (4) The employee's hourly rate of pay is not less than thirty-six dollars ($36.00) or, if the employee is paid on a salaried basis, the employee earns an annual salary of not less than seventy-five thousand dollars ($75,000) for full-time employment, which is paid at least once a month and in a monthly amount of not less than six thousand two hundred fifty dollars ($6,250). The department shall adjust both the hourly pay rate and the salary level described in this paragraph on October 1 of each year to be effective on January 1 of the following year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers. (b) The exemption provided in subdivision (a) does not apply to an employee if any of the following apply: (1) The employee is a trainee or employee in an entry-level position who is learning to become proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering. (2) The employee is in a computer-related occupation but has not attained the level of skill and expertise necessary to work independently and without close supervision. (3) The employee is engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment. (4) The employee is an engineer, drafter, machinist, or other professional whose work is highly dependent upon or facilitated by the use of computers and computer software programs and who is skilled in computer-aided design software, including CAD/CAM, but who is not engaged in computer systems analysis, programming, or any other similarly skilled computer-related occupation. (5) The employee is a writer engaged in writing material, including box labels, product descriptions, documentation, promotional material, setup and installation instructions, and other similar written information, either for print or for onscreen media or who writes or provides content material intended to be read by customers, subscribers, or visitors to computer-related media such as the World Wide Web or CD-ROMs. (6) The employee is engaged in any of the activities set forth in subdivision (a) for the purpose of creating imagery for effects used in the motion picture, television, or theatrical industry.")
  5. 8 C.C.R 11040. (“(1)(A)(1)(f) Such an employee must also earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment is defined in Labor Code Section 515(c) as 40 hours per week.”) See also sections (1)(A)(2)(g); and (1)(A)(3)(d).
  6. Labor Code 1182.12 LC -- Minimum wage; scheduled increases; adjusted minimum wage; temporary suspension of increases.
  7. 29 C.F.R. 541.2 -- Job titles insufficient. (“A job title alone is insufficient to establish the exempt status of an employee. The exempt or nonexempt status of any particular employee must be determined on the basis of whether the employee's salary and duties meet the requirements of the regulations in this part.”)
  8. Labor Code 510 LC -- Day's work; overtime; commuting time. ("(a) Eight hours of labor constitutes a day's work. Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee. Any work in excess of 12 hours in one day shall be compensated at the rate of no less than twice the regular rate of pay for an employee. In addition, any work in excess of eight hours on any seventh day of a workweek shall be compensated at the rate of no less than twice the regular rate of pay of an employee. Nothing in this section requires an employer to combine more than one rate of overtime compensation in order to calculate the amount to be paid to an employee for any hour of overtime work. The requirements of this section do not apply to the payment of overtime compensation to an employee working pursuant to any of the following: (1) An alternative workweek schedule adopted pursuant to Section 511. (2) An alternative workweek schedule adopted pursuant to a collective bargaining agreement pursuant to Section 514. (3) An alternative workweek schedule to which this chapter is inapplicable pursuant to Section 554.")
  9. Same.
  10. See California Department of Industrial Relations, Minimum Wage.
  11. Labor Code 1182.12 LC -- Minimum wage; scheduled increases; adjusted minimum wage; temporary suspension of increases.
  12. 8 C.C.R. 11040. ("12. Rest Periods (A) Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.")
  13. Labor Code 512 LC -- Meal periods; requirements; order permitting meal period after six hours of work; exceptions; remedies under collective bargaining agreement. ("(a) An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.")
  14. Labor Code 98.6 LC -- Discharge or discrimination, retaliation, or adverse action against employee or applicant for conduct delineated in this chapter or because employee or applicant has filed complaint or claim, instituted or caused to be instituted any proceeding under or relating to his or her rights or testified relating to the same on behalf of that person or another whistleblower protection for reporting wage/hour or labor law violations.
  15. 29 U.S.C. § 216(b) (“Any employer who violates the provisions of section 6 or section 7 of this Act shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.”).

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