Misclassification Issues: Exempt vs. Non-Exempt

Unethical employers will go to considerable lengths to save money. One of the ways that they may do this is by misclassifying their employees. We have already discussed misclassifying employees as independent contractors in order to avoid paying overtime and providing other benefits. Another common misclassification is to classify non-exempt employees as exempt employees. Unfortunately, it can be difficult for employees to know if they have been misclassified, but you should contact a seasoned employment lawyer if you believe that you are being paid unfairly or are not receiving the benefits you are entitled to.  

The Difference Between Exempt and Non-Exempt Employees

There is a misconception that the difference between exempt and non-exempt employees is based on how they are compensated: non-exempt employees are paid an hourly wage while exempt employees are paid on a salaried basis. While this is often true, the distinction is more nuanced. It may be helpful to start with what employees are or are not exempt from:  

• Non-exempt employees are subject to state and federal labor laws, meaning that they are entitled to minimum wage and overtime pay when they work more than 40 hours per week. They are also entitled to meal and rest breaks. 
• Exempt employees are those who are not subject to state and federal labor laws and as a result, are not entitled to minimum wage, overtime pay, or breaks.

In other words, how an employee is compensated is not determinative of whether or not they are exempt. Otherwise, employers could avoid the requirements of state and federal labor laws by simply paying a salary to all of their employees. And in fact, this is one of the ways that employers attempt to deny workers the wages they have rightfully earned. 

What Determines an Employee as Exempt?

Generally speaking, most exempt employees fall within the “white collar” exemption category. You should be aware, however, that there are other categories that may be exempt from the Fair Labor Standards Act, such as movie theater employees, outside sales professionals, independent contractors, and those who may be governed by other state or federal laws. 

The “white collar” exemption category generally applies to anyone who works in an executive, administrative, or professional role. However, an employee’s job title is, by itself, insufficient to determine whether they should be paid on an exempt or non-exempt basis. Instead, employees must meet all criteria of the following three-pronged test to be considered exempt: 

1. The salary test.  Exempt employees must be paid a salary that is the equivalent of at least twice California’s minimum wage. California’s minimum wage is currently set at $15.50, so an employee must earn a minimum annual salary of $64,480 in order to qualify as exempt. As a reminder, the employee’s salary alone does not determine whether they are exempt. 
2. The duties test. Exempt employees must spend at least 50% of their time engaged in professional, administrative, or executive duties. The focus of the duties test is on the actual work performed and not on the employee’s job title. Factors that will be considered include whether the employee is engaged in a management role, is responsible for supervising two or more employees, or is substantively involved in the hiring, termination, or promotion of other employees. For example, an “administrative assistant” may not qualify as exempt because they spend more than 50% of their time performing strictly clerical duties. 
3. The judgment test. Employees who exercise independent judgment or discretion may be considered exempt. For example, an employee who has considerable freedom in choosing how to perform their job may qualify as exempt, while an employee who is routinely given specific directions concerning the accomplishment of daily tasks may not. 

As you can see, the salary test is the only “black and white” element of the test. The other elements require more careful analysis. Furthermore, you may meet the minimum salary requirement, but fail the other two elements of the test. If you believe you have been misclassified as an exempt employee, an experienced employment lawyer can review your situation and provide guidance. 

Who Are Non-Exempt Employees?

To state the obvious, non-exempt employees are those who are not exempt from state and federal wage laws. As a result, non-exempt employees are entitled to the following:

• A minimum hourly wage
• Overtime pay (time and a half and double time)
• Rest breaks  (10 minutes for every 4 hours)
• Meal breaks (30 minutes for every 5 hours)

In most cases, it is fairly straightforward when a non-exempt employee is not receiving the pay or other benefits they are entitled to. However, it can get quite complicated in cases where an employee is paid a salary but does otherwise not qualify as exempt. 

What Can I Do if I Have Been Misclassified as Exempt?

If you have been misclassified as exempt, you may be able to pursue a misclassification lawsuit. As part of your case, you may have a claim for damages that includes the following: 

• Any additional wages you may be owed due to minimum wage violations (e.g. a salaried employee actually earned less than minimum wage due to the number of hours worked)
• Any unpaid overtime wages
• Compensation for missed meals and rest breaks 
• Interest on any unpaid wages
• Attorney’s fees and court costs

You may also be entitled to double damages under federal law. A knowledgeable employment lawyer can review your case and provide an estimate of what they believe you may reasonably expect to recover if your claim is successful. 

Contact Attorneys for Employees if You Have Been Misclassified 

Misclassification cases are complex and require careful analysis. The important thing is to trust your instinct and seek guidance if you believe you are not being paid the wages you deserve. To discuss your case with an employment attorney who is on your side, contact Attorneys for Employees at 310-601-1330 to schedule a confidential consultation. We will assess whether you have a claim, help you understand your options, and discuss what we can do to help you get the compensation you deserve.