California Employee Misclassification: How Employers Steal Pay

California Employee Misclassification: How Employers Steal Your Overtime Pay

In California, employers often misclassify employees as “exempt” from overtime to avoid paying overtime wages, and instead pay the employee a salary – the same amount every two weeks regardless of the number of hours actually worked, and therefore, no overtime. This illegal practice is known as California employee misclassification.

Many times, the employer’s classification of an employee is incorrect because the employer has not correctly applied California wage law to the employee’s actual job duties and responsibilities, resulting in a “misclassification” claim that potentially is worth thousands of dollars in unpaid overtime and statutory penalties.

Here’s a closer look at how California employee misclassification happens and what general legal criteria must be met for an employee to properly be classified as “exempt” from overtime pay in California.

Understanding Exempt Employee vs. Non-Exempt Employee Status

Under California law, all employees are presumed to be “non-exempt,” which means entitled to overtime pay, unless the employee qualifies for one of the specific exemptions outlines in the law. The primary  distinction between “exempt” and “non-exempt” employees is that exempt employees typically are paid a regular salary regardless of the number of hours worked each week, and non-exempt employees are paid an hourly wage and earn overtime for all hours worked over 8 in one day or hours over 40 in one week (including double time when applicable).

Most employees (as well as most employers, especially small employers) incorrectly believe that simply paying an employee a salary makes the employee “exempt” from overtime. Most employees that are paid a salary do not object because many employees believe a salary is more prestigious and more reliable than earning an hourly wage week after week after week.

In fact, in almost all scenarios, most employees would be paid more if the employee earned an hourly wage and was paid overtime wages.  Consequently, it is important to be able to identify the basic criteria that properly make an employee eligible to be classified as “exempt” and therefore lawfully eligible to be paid a salary without overtime pay.

Following are the primary categories of exemptions in California:

Executive Exemption

• Primary Duty: The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the company.
• Supervisory Role: The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent (e.g. four half-time employees).
• Authority: The employee must have the authority to hire or fire other employees, or be able to effectively recommend the hiring, firing, advancement, promotion, or any other change of status of other employees.  The employee must also regularly exercise discretion and independent judgment in performance of the management position.
• Salary Basis: The employee must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.

Administrative Exemption

• Primary Duty: The employee’s primary duty must be performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
• Discretion and Independent Judgment: The employee must exercise discretion and independent judgment with respect to matters of significance.  Generally speaking, the “matters of significance” must be issues that commit the resources of the company, not just deciding one particular method over another.  For instance, deciding to send a letter via the United States Post Office instead of FedEx would not be a “matter of significance,” but hiring a delivery driver and buying a delivery truck rather than using a third-party delivery service like FedEx or UPS  would be a decision on a matter of significance.
• Salary Basis: The employee must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.

Professional Exemption

• Learned or Artistic Profession: The employee must be engaged in a learned or artistic profession. This generally requires advanced knowledge in a field of science or learning acquired through a prolonged course of specialized intellectual instruction, or creative and artistic endeavors.  Generally speaking, in order to qualify for the Professional Exemption, the worker must have a professional degree, such a doctor, a lawyer, an accountant, etc.
• Discretion and Judgment: The work must require the exercise of discretion and independent judgment.
• Salary Basis: The employee must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.

Computer Professional Exemption

• Duties: The employee must be primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment, such as systems analysis, programming, or other highly skilled computer-related tasks.  The Computer Professional Exemption does not apply to hardware technicians; it applies only to software engineers.
• Hourly or Salary Basis: The employee must be compensated on either an hourly basis at a rate not less than $50.00 per hour (as of 2023) or on a salary basis equivalent to no less than two times the state minimum wage for full-time employment.

Outside Sales Exemption

• Primary Duty: The employee must be primarily engaged in sales activities outside the employer’s place of business.
• More than Half of Working Time: The employee must spend more than half of their working time engaged in sales activities away from the employer’s place of business.

Red Flags of California Employee Misclassification

Employers use various tactics to misclassify employees in order to deny them overtime pay. Here are some red flags to watch out for:

• Title Manipulation: Simply giving an employee a title such as “manager” or “supervisor” without their duties aligning with the executive exemption criteria.  Titles alone are not determinative of exempt status, but often are  improperly relied upon by employers for that purpose.
• Generalized Job Descriptions: Crafting job descriptions to appear as if they meet administrative or professional exemptions without the actual duties reflecting the required criteria, or designating someone as a “manager” of a collection of employees that is not a “recognized department or subdivision” of the company is another common ruse employers use to dodge overtime compensation.
• Insufficient Salary: Paying a salary that does not meet the minimum threshold required for exempt status.  Many times, employers will simply pay an otherwise non-exempt employee a salary and believe that paying a salary makes the employee exempt from overtime, which is incorrect and backwards because a salary is required if the employee is exempt, not something that makes the employee exempt.  Likewise, employers that pay an employee exactly twice the minimum wage often are cheating the employee out of overtime wages because, like the example above, the employer believes that meeting the “salary test” is enough on its own to make the employee exempt, which is entirely incorrect and simply illegal.
• Routine Tasks Misrepresented: Many times, employers will misrepresenting routine or clerical tasks as requiring discretion and independent judgment, despite the fact that the employer knows that the tasks the employee is required to perform have limited options, and therefore do not genuinely require the exercise of “discretion” or any “independent judgment” on the part of the employee because the employer requires the employee to follow a particular guideline or policy when completing the task.

Impact on Employees

Incorrect classification always results in employers failing to pay employees the overtime pay the employees legally are entitled to under California law. This not only affects the employee’s immediate earnings but also their overall financial well-being and job satisfaction, leading to financial strain and decreased morale.  Keep in mind that California law provides for substantial penalties under the California Labor Code any time an employee is misclassified as “exempt” from overtime; many times, the amount of penalties far exceeds the value of the underlying claim for unpaid overtime wages.

What to Do If You Suspect California Employee Misclassification

If you suspect that you have been misclassified, there are several steps you can take to protect your rights:

1. Review Your Job Duties: Compare your actual daily tasks and job duties with the criteria for exempt status.
2. Document Your Work: Keep detailed records of your job duties, hours worked, and any discrepancies in your classification.
3. Consult HR: Discuss your concerns with your employer’s Human Resources Department.
4. Seek Legal Advice: If necessary, consult an employment lawyer to understand your rights and explore your options for recourse.

Conclusion

Understanding the criteria for overtime exemption and recognizing the signs of misclassification are crucial steps in protecting your rights to fair compensation. Stay informed and proactive to ensure you receive the pay you deserve. Employers who engage in misclassification to avoid paying overtime wages must be held accountable. By taking the appropriate steps, you can safeguard your earnings and contribute to a fair workplace.

For more information on protecting your paycheck, visit our comprehensive guide on Guarding Your Paycheck: A Guide to Recognizing Wage Theft.

Contact the Ruggles Law Firm at 916-758-8058 for a free, no obligation consultation.

Blog posts are not legal advice and are for information purposes only.  Contact the Ruggles Law Firm for consideration of your individual circumstances.