Exempt vs. Non Exempt California – What’s The Difference?
Are you an exempt or non exempt employee?
Your employment status in California can be confusing, yet it is crucial in determining if you qualify for certain perks like overtime, meal breaks, rest breaks, etc. There are two types of employees in this regard, namely: exempt and non exempt employees.
Definition of an exempt employee in California
Exempt employees are employees who don’t qualify for overtime, meal breaks, rest breaks, etc. What’s more: The wage and hour laws in California don’t apply to exempt employees.
A California employee is regarded as exempt if they meet the legal definition of an exempt employee under the State’s Labor Code.
Important: Your employer can’t “make you” exempt even if you are required to sign a contract stating you are exempt, and you will be receiving a salary as opposed to an hourly wage.
Examples of exempt employees
Executives, administrative, and professional employees earning twice the minimum wage and above make up the majority of exempt employees in California. Other employees qualifying as exempt in California include independent contractors, outside sales, and some computer employees. There is a misconception that all employees who are salaried or work in an office are exempt employees. This isn’t true.
What makes an employee exempt?
To be considered exempt or “white-collar exempt” in California, you must be:
- Doing administrative, executive or professional duties 50% or more times, at work
- Exercising discretion as well as independent judgment regularly at work
- Earning a salary that is twice the minimum wage or more, full-time
Definition of non exempt employees in California
Non exempt employees are employees who are protected by California’s wage and hour legislation, which includes overtime laws and laws requiring rest and meal breaks. If you don’t meet the California Labor law definition of an exempt employee, you are considered non exempt. Non exempt employees are protected by minimum wage laws in addition to federal and labor laws dictating overtime pay, meal breaks, and rest periods.
Examples of non exempt employees
Non exempt employees are generally people employed in; technical, professional, mechanical, clerical among other similar occupations whether pay is time-based, piece rate, commission-based among other similar basis.
What are you entitled to as a non exempt employee in California?
Non exempt employees in California are entitled to three main things, namely:
- Overtime pay
- Minimum wage and above
- Rest breaks and meal breaks
1. Overtime pay
If you work at least 8 hours daily, 40 hours weekly, or 6 days in one workweek, you are entitled to overtime pay, which is 1.5 times the regular hourly pay, for every additional hour worked. You are entitled to double your hourly pay if you work more than 12 hours a day. You should also earn double for any work above 8 hours on the 7th day of any workweek, according to Labor Code 510.
2. Minimum wage
As of 2019, California’s minimum wage stands at $12 per hour or $11 per hour if you work in a company with 25 or fewer workers. However, the minimum wage is higher in certain cities and counties like San Francisco. The minimum wage is set to increase continuously by $1 every year up to 2023. In 2023, the minimum wage should be $16 for employers with 26 or more workers and $15 for employers with 25 or fewer employees.
3. Rest breaks and meal breaks
As a non exempt employee, you have the right to meal and rest breaks during the day based on how long you work.
Rest break: Generally, you should get 10 minutes or more of rest for every 4 hours worked, and rest breaks must count as working time.
Meal break: You should get 30 minutes of paid meal break if you work over 5 hours daily. However, you can voluntarily waive your meal break if you work 6 hours or less in a day. If you work for over 10 hours daily, you are entitled to another meal break lasting 30 minutes or more.
The exempt/non exempt rules have exceptions depending on factors like areas of expertise or field of profession. They apply to:
- Registered nurse
- Computer software professionals
- Private school teachers
- Some medical professionals (doctors and surgeons)
- State and local government employees
- Employees earning commissions
- Unionized employees in specific industries
1. Registered nurse
According to Labor Code 515, there exists an exception to regular professional wage-hour exemption applicable to registered nurses. Although registered nurses are considered non exempt employees subjected to overtime rules, those rules apply unless the registered nurse in question engages in administrative or executive tasks or meets other white-collar exemption requirements.
2. Computer software professionals
According to California Labor Code 515.5, some computer professionals are exempted from wage/hour and overtime laws. The exemption affects California employees working in computer software/hardware design, computer systems analysis, and computer system/program design/development. The following also has to be true:
- The employee must be engaged in creative or intellectual work requiring independent judgment and discretion
- The employee must be highly skilled/proficient in applying specialized information in computer programming, software engineering, and computer system analysis applications.
- The employee must earn $45+ per hour ($94,603 per year paid monthly). Figures are inflation-adjusted as of 2019.
The software employee wage/hour exemption doesn’t apply to:
- Entry-level employees or trainees still in the process of learning
- Employees who can’t work without supervision
- Employees whose core work is engaging in manufacture/operations of computers, computer repairs or computer hardware maintenance
- Employees who are drafters/engineers and highly skilled in computer-aided designing but lack expertise in computer programming, system analysis, etc.
- Employees who provide (writer content) related to computers and software
- Employees engaged in highly skilled computer programing or system analysis to create effects imagery in theater, TV, and movie industries.
3. Private school teachers
Private school teachers in K-12 schools aren’t subject to overtime laws. To qualify for wage/hour exemption, teachers must:
- Be engaged mainly in knowledge-imparting tasks
- Exercise independent judgment and discretion regularly and customarily
- Have valid teaching credentials or a bachelor’s degree or higher from accredited institutions (university).
Private school teachers are considered overtime exempt only if their salaries are within a certain range i.e., if they earn more than 100% of the least salary offered to credentialed teachers in a school district according to Labor Code 515.8.
4. Some medical professionals (doctors and surgeons)
Surgeons and licensed physicians are exempt employees in California. However, the exemption doesn’t apply to interns residents or doctors subject to collective bargaining agreements as per Labor Code 515.6. Doctors must earn $82.72 hourly (inflation-adjusted as of 2019) or an equivalent full-time salary to be exempt.
5. State and local government employees
California meal break, rest break, and overtime laws don’t apply to state/local government employees.
6. Employees earning commissions
Employees who earn over 1.5 times the minimum wage and earn over 50% of their compensation via commissions are exempt.
7. Unionized employees in specific industries
Unionized employees working in some industries are considered exempt if they have special agreements on offering perks such as meal breaks. Collective bargaining agreements in California override the labor code in regards to unionized employees in energy, construction, security, commercial driving, and motion picture industries.
What is misclassification?
Some employers are guilty of intentionally misclassifying employees i.e., giving employees an exempt status when an employee is actually non exempt. Misclassification is an offense under the FLSA and California Labor law.
Why do employers intentionally misclassify employees as exempt?
Employers who misclassify employees as exempt stand to enjoy financial benefits. However, when an employer is caught and found guilty of misclassification, the penalties usually outweigh the benefits they enjoyed misclassifying their employees. You employer can misclassify you as exempt when you are non exempt so that:
- They can avoid paying you overtime if you work for over 8 hours daily or 40+ hours weekly
- They can avoid giving you a lunch break
- They can avoid giving you a rest break
- They can require you to work during your rest break
- They don’t have to track your working hours.
How do I know you if I have been misclassified as exempt?
Most employees have a hard time determining their employment status. If you don’t know if you are exempt/non exempt, there are signs you can look out for. Here questions that can help you determine if you are misclassified:
- How are you paid? Hourly or monthly?
- Are you being paid less than the minimum wage?
- What are your duties?
- Are there deductions in your salary?
- What do federal salary rules say?
- What does the labor commissioner say?
1. How are you paid? Hourly or monthly?
Exempt employees aren’t paid hourly. They receive a monthly salary that doesn’t fluctuate based on the number of hours they work every day. If your employer pays you less if you work fewer hours on a certain day, you should be classified as non exempt.
2. Are you being paid less than the minimum wage?
If you are an exempt employee, you should be paid at least double the California minimum hourly wage applicable on a forty-hour workweek. This should apply regardless of the number of hours you are scheduled to work. You can’t be exempt and be paid less than the California minimum wage even if you work part-time. Furthermore, being paid a monthly salary doesn’t automatically make you exempt.
3. What are your duties?
Employees classified as exempt can be deemed misclassified if there is a change in their job duties. Exempt employees must do administrative, executive, or professional duties. They should also exercise independent judgment and discretion when discharging their duties. Ideally, you should spend over 50% of your time doing exempt job duties like exercising discretion and independent judgment to be considered exempt.
It’s worth noting that your job title can’t be used to determine your exempt or non exempt status. If you have an impressive job title but perform the duties of a non exempt employee, you will still be considered non exempt. A manager is supposed to supervise other employees. He/she should also have the power to discipline other employees for wrongdoing. You can’t be an executive (exempt employee) but lack such powers.
4. Are there deductions in your salary?
Conducting a quick salary test can let you know if you are exempt or non exempt. Exempt employees should be paid a “full” salary with limited exceptions allowing deductions. For instance, an exempt employee can be unavailable from work if work is unavailable due to operational requirements of the business. This applies only when the exempt employee is ready, able, and willing to work.
For instance, holidays like 4th July which fall on a working day (Friday) can’t be used as a justification to deduct a day’s pay from weekly earnings of an exempt employee, if the employee worked on all other working days including Thursday. In such a case, the exempt employee should be paid in full.
You may be non exempt if your employer reduces your pay because you have missed going to work. They should instead deduct a day from your accrued leave days. You are also non exempt if your salary depends on the number of days/hours you work.
5. What do federal salary rules say?
Although California labor laws are generally better than federal laws, the DLSE has been on record stating that federal regulations can be used as a guide if there’s no conflict.
6. What does the labor commissioner say?
The labor commissioner’s office can determine if a California employee is exempt or not by examining the work an employee does during a workweek.
You can also turn to a lawyer specializing in California Labor law to determine whether you have been misclassified. In most cases, it can be challenging measuring the % of your work that is considered exercising discretion and independent judgment. Furthermore, the answer to your employment status can result in significant compensation. In a nutshell, determining misclassification is a critical issue that shouldn’t be left to chance.
I have been misclassified as an exempt employee. What do I do?
There is no fixed “formula” for dealing with misclassification. Different employee situations tend to demand different solutions. It is advisable to seek legal advice. Generally, you have three main options if you are a victim of misclassification:
- Resolving the dispute informally
- Filing a wage claim
- Filing a lawsuit
1. Resolving the dispute informally
In some cases, you may be misclassified unintentionally by your employer. From the above information, many factors determine exempt and non exempt employees. An employer who is not knowledgeable with California Labor codes can misclassify you unintentionally by giving you all manner of tasks and payment terms. You can determine the innocence of your employer by having a casual conversation with them and determining your course of action based on how they respond. If they accept there is a problem and promise to compensate you accordingly, you can settle the dispute informally. Large startups are guilty of misclassification in many cases since they meet the employee number threshold but lack defined roles for their employees.
If you meet a hostile employer who is uncooperative or threatens action against you, you can seek other dispute resolution mechanisms discussed below. If you lose your job because of asking for your meal break, rest break, overtime, or a better wage (above minimum wage), you are a victim of workplace discrimination. In such an instance, you can file an EEOC workplace discrimination charge (retaliation) against your employer.
2. Filing a DLSE wage claim for misclassification
Employee can file claims with the DLSE (Division of Labor Standards Enforcement) – the body responsible for adjudicating wage claims in California on behalf of employees who have complaints about nonpayment of overtime, wages, vacation pay, among other applicable pay.
- 1 year to file a claim about a bounced check or failure by your employer to offer you a copy or copies of your personal or payroll records (as required by law)
- 2 years to file a claim if your employer doesn’t keep their oral promise to increase your pay above minimum wage.
- 3 years to file a claim regarding overtime, minimum wage, meal break, rest break, illegal deductions, and sick leave violations.
- 4 years to file because of violations on a written contract.
Important: The time is counted from when the first violation happens. Ideally, any overtime, rest break, meal break, among other applicable dues should be paid/are due on a regular payday or applicable pay period when an employee worked.
In some cases, there are longer deadlines (four years) for filing specific types of claims, such as failure to pay due wages because of unlawful business practice. However, it’s advisable to file claims as soon as possible.
Summary of the process
If you are filing a DLSE claim for meal break, rest break and overtime violations, among other employee misclassification issues, ensures you aren’t an independent contractor or working under a collective bargaining agreement. Claims falling under the Labor Commissioner’s jurisdiction warrant a DLSE file after the State Labor Commissioner directive. However, the commissioner must have jurisdiction over a claim first.
Wage claims complaints are investigated through conferences, hearings, or both. Complex filings involving many parties and large records are directed to the Bureau of Field Enforcement. In such a case, a complainant will receive correspondence on the same. However, most claims are resolved through conferences and hearings. A conference offers bother parties (employer and employee) a platform to settle claims informally. If the conference isn’t successful in settling the dispute, a hearing (formal proceeding) is conducted.
The entire process more complicated than discussed above. Besides observing strict timelines, you must gather evidence which has to be admissible in court. You also need to complete different forms depending on the type of claim. Although you can file directly with the DLSE (on your own), the importance of legal help during the entire process can’t be overlooked.
3. Filling a lawsuit
You can sue your employer for misclassifying you as exempt instead of non exempt. It’s illegal for employers in California to misclassify you for purposes of denying you rights in the form of applicable overtime, meal break, rest break, or minimum wages. If your labor lawsuit is successful, you can be paid for every violation plus interest, court costs, and legal fees, among other damages you seek successfully. In most misclassification cases, violations involve multiple employees resulting in class action lawsuits.
You’ll obviously need an attorney who specializes in misclassification cases or labor laws to navigate the court process successfully. Some employers may deny liability in informal dispute resolution processes, given the huge costs of settling misclassification violations (especially when multiple employees are involved).
Unfair employers can also give employees too much work forcing them to take unauthorized overtime. In such a case, you need an attorney to advise you on the evidence you need to collect. A lawyer will also be able to represent you and negotiate a settlement.
Employer liability for misclassification: Penalties for misclassification
What does your employer stand to lose for misclassifying you?
Before you receive any compensation for misclassification violations, you must demonstrate that you plainly and unmistakable qualify for a specific employee status before you are deemed misclassified.
However, employees are generally favored. Employers are legally burdened to provide an exemption. If they fail to treat non exempt employees as such, they must face severe consequences. California Labor law has a variety of penalties for violations such as misclassification.
1. What are the penalties for unpaid overtime in California?
Non exempt employees should be paid overtime according to the conditions discussed above (i.e., working for 8+ hours daily or 40+ hours weekly or 7 days consecutively). If your employer is found guilty of misclassifying you so that they can avoid paying you overtime, they are liable to back-pay unpaid overtime wages. The wages can add up to significant amounts even if you are paid minimum wage.
Furthermore, an employer found guilty of overtime violations may be required to pay attorney and legal fees that the employee/s incur while pursuing their rights to overtime wages. A $100 or $200 penalty can be charged per pay period when overtime regulations were violated. The penalty is paid to the State, but employees can get 25% of the penalty in some situations.
What are the penalties for rest and meal break violations
If you are misclassified as exempt and denied your right to meal breaks and rest breaks, you are entitled to 1 hour of additional pay at the regular hourly rate for every missed break. If you miss multiple meal/rest breaks, you can get 1 hour extra of pay per day for a missed rest period and another extra hour of pay per day for a missed meal break. This translates to two extra hours of pay a day for every 12-hour working shift without meal and rest breaks.
What are the penalties for employers who don’t keep employee work records and those who delay paying?
Employers are required to maintain proper employee records by law. Those records should also be produced on demand. There exists a pay stub penalty to punish employers who don’t keep proper employee work records.
The penalty exists since it’s in the best interests of an employer who misclassifies employees to lack proper working records for those employees. Paystub penalties generally depend on the no. of pay periods a violation lasts. First violations attract a $50.00 penalty. All subsequent violations attract a $100 penalty for every pay period up to $4,000. Paystub penalties generally apply when employees aren’t sure how much they are owed since an employer doesn’t have records.
Employers who willfully delay their employee’s dues are required to pay a waiting time penalty. The penalty usually applies to misclassification cases when employees are denied their full pay for some time because they are considered exempt. Delays can attract up to a month’s worth of wages as penalties. Unpaid wages accrue daily during both workdays and non-workdays.
There are other applicable penalties depending on a case, and other factors dictating the number of penalties an employer can pay for misclassification. You should talk to an attorney to understand how much you stand to gain from taking your employer to court.
Employee misclassification cases in California
California has been home to many misclassification cases. Here are some notable ones:
- Lyft V. California drivers
- Uber V. drivers
- FedEx V. California drivers
- SuperShuttle V. drivers
1. California drivers v. Lyft
2016, San Francisco based ride-sharing company Lyft agreed to pay $27 million as settlement for a class action suit initiated by California Lyft drivers. According to the lawsuit, Lyft misclassified the drivers as independent contractors, denying them rightful dues like reimbursements for vehicle maintenance and gasoline. The drivers paid for such expenses overtime but wouldn’t be required to if they were employees.
When you are misclassified as an independent contractor instead of an employee, your employer doesn’t have to reimburse business expenses, pay payroll tax, or cover you under workers’ compensation insurance.
According to an originally negotiated settlement, Lyft was found guilty of providing outdated data, which halved the number of miles Lyft drivers were seeking compensation for. The updated settlement of $27 million was reached after considering updated data. Under the settlement agreement, Lyft drivers retained their independent contractor status but got reimbursement according to the number of hours driven during the disputed pay period. Lyft was also ordered to amend its service and product terms nationwide despite the settlement, including California drivers only.
2. Drivers V. Uber
In 2019, global US ride-sharing company Uber agreed to pay $20 million to California and Massachusetts-based drivers. In 2013, the drivers went to court to compel Uber to change their employment status from independent contractors to employees. In March 2019, Uber agreed to pay the drivers $20 million. However, the settlement didn’t include a change in employee status.
Uber, however, looked into working in a more transparent manner. The company has even published a policy on how drivers are deactivated from their platform as well as initiated plans to allow drivers to appeal deactivation. The company is also embarking on training drivers to boost ride quality. The settlement is believed to be part of Uber’s preparation to go public.
3. California drivers V. FedEx
In 2015, FedEx agreed to settle a long-standing misclassification case by creating a $228 million fund to for resolving claims involving over thousands of drivers who had been misclassified wrongly as independent contractors over the years. The settlement involved claims dating back to the year 2000 involving FedEx Ground and Home Delivery drivers working in California between 2000 and 2007. FedEx was found guilty of misclassifying and short-changing thousands of drivers on benefits and pay by giving drivers an independent contractor status.
4. Drivers V. SuperShuttle
In 2014, California-based Airport Shuttle Company, SuperShuttle agreed to pay $12 million as a worker misclassification settlement. The misclassification lawsuit filed by SuperShuttle drivers alleged that the company misclassified them as franchisees or independent contractors. As a result, the drivers weren’t paid minimum wage, overtime pay, or business expenses as required by California’s meal and rest break laws.
Although SuperShuttle agreed to settle, the company maintained the status of the drivers as non-employees. The settlement meant for the drivers amounted to $7.6 million was distributed among 3000+ class members translating to approximately $2,350 per driver.
The above misclassification cases represent a small percentage of cases where employees in California have been denied rightful dues through intentional misclassification. If you suspect you have been misclassified by a current or past employer, talk to an attorney immediately. An attorney can advise on how to proceed, including participating in class action suits filed against a past employer.