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Home CA Labor Law 3 Reasons Your Employee Should Not Be Classified as Exempt

3 Reasons Your Employee Should Not Be Classified as Exempt

Another highly contested area of Labor and Employment Law centers around how business owners classify their employees. Making the wrong determination regarding employee status could mean costly litigation and payment of back wages, including overtime. In 2014, we saw 33 major cases of pay and overtime litigation, resulting in an average win for the employee of $575,000.

The classification process has many exceptions to it and if you’re not experienced in making these determinations, you should consult an HR Specialist or qualified Employment Law attorney. However, we will give you three tests to consider so you can determine if you need to do a deeper dive into your exempt employees’ status.

Management and Decision Making Responsibility

The first litmus test on whether an employee should be classified as an exempt employee revolves around their level of responsibility. If your employee is not managing part of the business, or team members, and does not have to make any decisions that directly impact your business, there is a good chance he or she should not be classified as an exempt employee. Those employees with management and decision making responsibility are typically executive, administrative or professional employees. In very specific cases, outside and inside sales people can also qualify as exempt. However, everyone else should be assumed to be in the non-exempt category until established otherwise.

When determining if an employee’s duties meet the requirements for an exemption, remember that an employee who does not perform exempt duties on a regular basis cannot be classified as exempt for a temporary assignment unless he/she meets the following criteria:

  • Works the exempt job for at least one month
  • Meets the duties and salary tests

Fancy Job Titles Don’t Make an Employee Exempt

Ordering your bookkeeper business cards that say CFO while keeping their daily duties clearly that of a bookkeeper does not make that employee exempt. This is where an Exemption Worksheet comes in handy. As you map out the bookkeeper’s daily duties you will most likely see that classification should remain non-exempt.

Exempt Employees Must Earn a Minimum Income Each Month

Generally speaking, exempt employees must earn a minimum monthly salary of no less than two times California’s minimum wage for full time employment. Also, the salary must be a pre-determined amount. As with every law, there are exceptions to this requirement, but that’s a topic for a different day (or a conversation with your HR Specialist). So to make the salary calculation easy to understand, we’ve broken it down here:

The current minimum salary calculation is:

  • California minimum wage = $9.00/hour
  • Number of hours a full-time employee works in a week = 40
  • Number of weeks in a year = 52
  • Number of hours a full-time employee works in a year = 40 x 52 = 2,080
  • Minimum annual salary for a full-time exempt employee beginning July 1, 2014 = $9.00 x 2 = $18 x 2,080 = $37,440
  • Minimum monthly salary for a full-time exempt employee beginning July 1, 2014 = $37,440 ÷ 12 = $3,120.00

So unless you are paying your exempt employee $3,120 per month, they are not a qualified exempt employee. What they are is a non-exempt, salary employee that can also earn overtime.

As with all areas of labor and employment law, the foundation is always shifting. Effective January 1, 2016, the minimum monthly salary for an exempt employee is $3,804.00 per month.

Key Takeaways

So unless you want to subject your business to unnecessary litigation, regulatory interference and an overall blow to your company’s good will, take the time to review and classify each employee correctly. Chances are any exempt employees you have that:

  • Do not have management and/or decision making responsibility…OR
  • Have a fancy job title without the responsibility …OR
  • Do not make a minimum of $3,120 per month based on California minimum wage law…

ARE NOT EXEMPT!

How do you determine exemption or non-exemption with your workforce?

About KEB…

KEB Business Consultants is a human resource management and outsourcing company that partners with small and medium businesses to provide turnkey solutions for all human resource obligations, talent acquisition, compliance oversight and bookkeeping services. Our HR Specialists will work with your company to design a program that gives you the capabilities of a high caliber human resource team without the financial commitment of additional employees. Whether you have one employee or over one hundred employees, we will integrate our team into your business and provide a seamless experience, all while making sure your business is compliant with its human resource requirements. Spend less time managing your employees and more time growing your business.

To learn more about KEB, give us a call at 714-367-8528 or email us at natalie@keb-businessconsultants.com


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