Employers know that the exempt/nonexempt classification is critical. Failure to correctly classify your employees can result in liability for unpaid overtime. Class action lawsuits brought by employees who claim they were misclassified continue to be a hot area of litigation.
Employers must focus on the employee’s actual job duties in determining whether a worker is exempt or nonexempt. However, employers must also keep in mind another critical component of the test for exempt classification: Exempt employees must be paid on a salary basis.
This generally means, with rare exception, that hourly employees cannot be treated as “exempt,” regardless of their job duties. Also, part-time employees are generally subject to the same restriction: they must be paid on an hourly basis, and cannot be treated or labeled as “exempt.”
Example: a California court of appeal ruled that an insurance adjuster who received $29 per hour was not paid on a salary basis, was not exempt and could proceed with his overtime claim.
Exempt employees must meet two key salary requirements, in addition to meeting all other tests of the particular exemption. First, exempt employees generally must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment.
For most exempt executive, administrative and professional employees, the minimum salary is currently $2,773.33 per month based on the current minimum wage of $8 per hour. Special minimums apply to certain physicians who are paid hourly and to computer professionals.
Also, be aware that a “salary” is a predetermined sum not subject to variation based on the number of hours worked or the quality of work. Because of this “predetermined sum requirement,” employees compensated on an hourly basis generally cannot be deemed to meet the salary test required for exempt employees.
But there may be an “escape hatch”: if an employee is paid a guaranteed minimum for full-time work, but is also paid a “bonus” based on hours actually worked in excess of the basis definition of full-time work (40 hours is a “safe” definition”), an employee who meets all
other requirements may qualify as “exempt.”
This is one of the most “dangerous” areas, exposing non-compliant employers to very substantial penalties which can easily run into tens of thousands of dollars, even for smaller employers. Be aware, be alert, and be cautious!
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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