Exemp vs. Non-exempt employees

This month's topic relates to exempt employees versus non-exempt employees for purposes of overtime compensation. We have observed this is an area where there is a lot of misunderstanding by employers. For example, some employers think because a person is salaried, rather than hourly, the employee is exempt from the requirement to pay for overtime. This is not true. Whether a person is salaried or hourly is not the determining factor.

If you are trying to comply with the Federal Labor Standards Act ("FLSA"), this could be the source of confusion and a big problem. Where California law provides greater protection to an employee than the FLSA, employers must comply with California law. Therefore, you must ensure you are adhering to the California Labor Code, because it provides broader protection for employees and thus trumps the FLSA.

Under California law, you must pay overtime to your employees unless they fall under an exemption. For instance, professional, administrative, and executive employees are exempt from overtime pay. The definition of a professional, administrative or executive employee is one who:

  1. Is "engaged in work which is primarily intellectual, managerial, or creative," and "which requires exercise of discretion and independent judgment," and

  2. Is paid a monthly salary equivalent to at least twice the state minimum wage for full time employees.

Cal. Code Regs., Title 8, sec 11040 et al.; Nordquist v. McGraw-Hill Broadcasting Co., Inc. (1995) 32 Cal.App.4th 555. An employee is "primarily" engaged in intellectual, managerial, or creative work if more than half of his or her work time is devoted to such duties. Thus, California law focuses on the amount of time the employee spends on his or her specific duties. This law is very different than the comparable law under the FLSA, which focuses on the "primary duty" or the reason for which the employee was hired.

Another common misconception is that employees who are paid commissions are automatically exempt. This is also not true. Although there is an exemption for sales people who "customarily and regularly work more than half the working time away from the employer's place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities," there is no exemption for inside sales people.

Since laws relating to overtime pay are different from one state to another, employers with employees in more than one state must take special care to make sure they are complying with the laws of all states in which they have employees. Employers should also keep in mind that, in California, if the employer fails to compensate an employee for proper overtime pay, the employer is subject not only to the unpaid wages, but to liquidated damages in an amount equal to the overtime wages, interest, the employee's attorney's fees, and costs.

ESKRIDGE & ASSOCIATES, Attorneys at Law, may be contacted by phone (310/792-7021), by fax (310/792-7022) or by e-mail (geskridge@ealaw.net or cbyrnes@ealaw.net). Please visit our web site at ealaw.net or employmentattorneys.net.

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