Misclassification of employees is a common tactic used by California employers to steal wages from employees. By misclassifying employees as exempt, employers deny them rightful overtime pay, meal and rest breaks, and other critical protections, effectively pocketing money that belongs to the employee.
Read on to educate yourself and avoid falling victim to this illegal practice.
What Does “Exempt” and “Non-Exempt” Mean in California?
A California employee that is classified by the employer as “exempt” is one who is exempt from California’s wage laws, including the California law requiring payment of overtime pay for more than 8 hours of work in a single day or more than 40 hours of work in a week. That means that an exempt employee gets paid a regular bi-weekly salary regardless of the number of hours the employee works on any particular day or week. An exempt employee also is not subject to other California wage laws, including meal and rest breaks and minimum wage requirements. However, as discussed below, only employees that meet specific job-related criteria and are paid a salary are eligible to be classified as “exempt” from overtime and other wage laws.
On the other hand, a California employee that is classified by the employer as “non-exempt” is entitled to the full range of wage protections afforded by California law. In fact, all employee are presumed to be “non-exempt” and entitled to overtime and other legal protections. That means that the employer, not the employee, is responsible for demonstrating the proper application of the specific exemptions. If the employer is unable to do so, the employer will almost certainly be liable for misclassification of employees as “non-exempt,” resulting in substantial unpaid overtime wages, as well as significant statutory penalties under the California Labor Code.
Non-Exempt Employees: Specific Protections under California Law
Hourly Pay: California non-exempt employees must be paid on an hourly basis. Non-exempt employees also are entitled to receive at least the state’s minimum wage for all hours worked. Most importantly, non-exempt employees are entitled to overtime pay at a rate of one and a half times their regular rate for hours worked beyond 8 hours in a workday or 40 hours in a workweek.
Meal and Rest Breaks: Non-exempt employees are entitled to meal breaks of at least 30 minutes for every 5 hours worked and rest breaks of at least 10 minutes for every 4 hours worked.
Time Records: Non-exempt employees must be compensated for any overtime work, and employers must maintain accurate and contemporaneous records of all hours worked.
Exempt Employees: What Does It Mean?
By definition, “exempt” employees are excluded (i.e. exempt) from certain wage and hour regulations, such as overtime pay, meal and rest break requirements, and minimum wage provisions. It’s important to note that California has stringent regulations regarding exempt classifications, and misclassification can lead to legal liability for employers.
In California, there are three primary categories that cover most exempt employees: Executive employees, Administrative employees, and Professionals. Here are the general criteria and factors that are considered when determining whether an employee can be classified as exempt within these categories:
Executive Exemption
To qualify for the executive exemption, an employee must generally meet the following criteria:
The Executive employee’s primary duty is managing an enterprise or a recognized department/subdivision of an enterprise. The executive exemption does not require the employee to be a “C-suite” officer so long as the employee is the top manager for a particular subdivision or separate office/location for the business. For instance, a Store Manager of a chain retail store or restaurant would likely qualify as exempt if the Store Manager has general oversight and responsibility for the retail location/restaurant. However, an Assistant Manager of a chain retail store normally does not qualify under the Executive exemption because the Assistant Manager’s “primary job duty” does not include overall management; the Assistant Manager only fulfills that role when the Manager is not present, which is less than 50% of the time.
Another factor for executive exemption is the employee regularly directs the work of two or more full-time employees or equivalent (including hiring, firing, and performance evaluations). In addition, the employee has the authority to make significant decisions that affect the business. Generally, this means that the “executive” employee has the authority to directly (or indirectly) commit assets and resources of the company.
Lastly, the employee customarily and regularly exercises discretion and independent judgment. This means that the executive employee has sufficient authority and discretion to operate the business on a day-to- day basis doing primarily management-related activities rather than working the line along with other subordinate workers.
Administrative Exemption
To qualify for the administrative exemption, an employee must generally meet the following criteria:
The Administrative employee’s primary duty involves performing office or non-manual work that is directly related to the management or general business operations of the employer or its customers. Additionally, the employee’s primary duty includes exercising discretion and independent judgment with respect to matters of significance. Lastly, the employee’s work involves matters that are not routine or clerical in nature. Although an employee classified as exempt under the Administrative exemption does not need to supervise any employees, the employee classified as exempt under the Administrative exemption must have substantial authority; common examples include a company’s Controller, Safety Officer, or other high level positions that are directly related to the operation of the business.
Professional Exemption
To qualify for the professional exemption, an employee must generally meet the following criteria:
The employee’s primary duty involves performing work requiring advanced knowledge in a field of science or learning, customarily acquired through a prolonged course of specialized intellectual instruction. Because the Professional Exemption requires “advanced knowledge,” to qualify as a “Professional” the employee must have an advanced degree or a professional license. The most common examples are doctors, lawyers, accountants, architects, etc. Another condition of professional exemption is if the employee’s work is predominantly intellectual and varied and cannot be standardized.
Salary Basis Test: The Financial Threshold for Exemption
While the duties tests above establish whether you’re an employee’s responsibilities align with an exempt classification, the salary basis test adds an equally important financial requirement. Even if the employee’s duties appear to meet the standards for an exemption, the employee must still satisfy the salary test to be legitimately classified as exempt under California law.
An exempt employee in California must be paid a salary that is at least twice the minimum wage. In 2024, exempt employees in California must earn a minimum salary of $64,480 annually ($1,240 per week) if their employer has 26 or more employees. For employers with 25 or fewer employees, the minimum salary threshold is slightly lower. If your salary does not meet this threshold, you cannot be classified as exempt, no matter your job duties or title.
Exempt employees must also receive their salary on a fixed and guaranteed basis, meaning:
- Your salary must not fluctuate based on the number of hours worked or the quantity of work performed.
- Employers cannot dock your pay for partial-day absences, such as leaving work early for a personal matter or taking a short sick day. The only exception to this rule is the first and final weeks of employment.
If your pay is subject to deductions for hours worked or time missed, you likely do not meet the salary basis test and should be classified as non-exempt. This would entitle you to overtime pay, meal and rest breaks, and other benefits under California law.
The Primary Reasons Employers Try to Misclassify Non-Exempt Employees as Exempt
Employers often misclassify employees as exempt to reduce labor costs and avoid compliance with California’s stringent overtime pay laws. This practice shifts financial responsibility from the employer to the employee, enabling businesses to save money at the expense of workers’ rights. Here’s why it happens:
Avoiding Overtime Pay
California law requires non-exempt employees to be paid overtime at 1.5 times their regular rate of pay for hours worked beyond 8 in a workday or 40 in a workweek. Employers also owe double-time pay for hours worked beyond 12 in a single day. By intentionally misclassifying employees as exempt, employers can bypass these costly overtime obligations.
Skipping Meal and Rest Breaks
Non-exempt employees are entitled to meal and rest breaks under California labor law, with penalties for missed or interrupted breaks. Misclassifying employees as exempt allows employers to deny these breaks without providing compensation, avoiding additional liability.
Reducing Payroll and Administrative Costs
Managing non-exempt employees requires meticulous tracking of hours worked, overtime calculations, and compliance with wage statement requirements. Misclassifying employees as exempt simplifies payroll and reduces administrative burdens, even though it violates the law.
What California Non-Exempt Employees Can Do to Avoid Misclassification Wage Theft
To protect yourself from wage theft and ensure proper classification, here are key steps you can take:
Misclassification of Employees: Understand Your Rights
- Educate yourself on California labor laws, including the duties test and the salary basis test for exempt employees. Know that being paid a salary or having a professional title does not automatically make you exempt.
- Be aware of your entitlement to overtime pay, meal and rest breaks, and accurate wage statements as a non-exempt employee.
Monitor Your Job Duties
- Keep track of the actual work you perform on a daily basis. If your duties do not align with the criteria for executive, administrative, or professional exemptions but you are paid a salary, you are likely misclassified as “exempt” and may be entitled to significant backpay in the form of unpaid overtime wages, as well as penalties under the California Labor Code.
- Watch for changes in your role, especially if your employer asks you to take on more routine or manual tasks while keeping you classified as exempt.
Review Your Pay
- Verify that your pay meets California’s minimum salary threshold for exempt employees (currently $64,480 annually for employers with 26+ employees in 2024). If your salary is below this amount, you must be classified as non-exempt.
- Employees that are paid exactly (or very close to) the minimum salary for an exempt employee very often are misclassified as exempt. If you are paid a salary that is right at the minimum or within a few thousand dollars of the minimum salary for exempt status, odds are high that you potentially are misclassified as exempt and are owed overtime pay and statutory penalties from your employer.
- Check your pay stubs for irregularities, including missing overtime pay, unexplained deductions, or unclear wage statements.
Keep Records
- Document your hours worked, missed breaks, and tasks performed. This information can be crucial if you need to challenge your classification or seek back pay.
- Save copies of your pay stubs and any communications with your employer regarding your classification or job duties.
Question Dubious Practices
- If you suspect misclassification of employees, ask your employer for clarification on why they believe your role qualifies as exempt. Employers are required to follow California’s strict standards, and their explanations should align with the law.
- Matt Ruggles recommends that employees make that sort of inquiry in writing so that the employee has a record of the request and a record of the employer’s response. If the employer only provides a verbal response to an inquiry about exempt status, Matt recommends that employees confirm the explanation in an email to HR that does not argue the point, but rather simply recites the employer’s rationale.
Report Violations of Misclassification of Employees
- If your employer fails to address your concerns, consider filing a complaint with the California Labor Commissioner. The Labor Commissioner’s office can investigate your claim and recover unpaid wages if you are found to be misclassified.
- Seek legal advice to evaluate your case and ensure you are taking the appropriate steps to protect your rights.
Know the Consequences of Misclassification of Employees
- Misclassification of employees often results in unpaid wages, denied breaks, and ineligibility for other protections. If you are misclassified, you may be entitled to significant back pay, penalties, and damages.
By staying informed, monitoring your job conditions, and taking proactive steps, you can safeguard yourself against wage theft and ensure you receive the full protections and compensation afforded under California law. If you suspect misclassification, consult with an experienced employment attorney for guidance.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
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.
