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Exempt vs. Non-Exempt Classification: FAQs

by Jennifer Shaw and Melissa Whitehead | | June 10, 2024

The proper classification of employees as exempt or non-exempt is often at the root of wage and hour litigation, and there are many common misunderstandings about the subject. Below are some of the questions SLG attorneys most frequently receive about employee classification:

Q: Are all salaried employees exempt?

A: No! Although many use the word “salaried” as synonymous to “exempt,” the analysis is significantly more complicated. Most California exemptions require employees to be paid at least double minimum wage on a salary basis and to be primarily engaged in exempt duties, which are specifically defined for each exemption. Some exemptions have a higher salary threshold, such as certain physicians and computer professionals, and there are different rules for some commissioned salespeople.

Q: Do California employers need to worry about the U.S. Department of Labor’s recently released Overtime Rule?

A: Mostly likely no. Under the new Overtime Rule, effective July 1, 2024, the minimum annual salary for executive, administrative, and professional exempt employees will increase to $43, 888, and then to $53, 656 on January 1, 2025. The “highly compensated employee” annual salary threshold will increase to $132,964 on July 1, 2024, and to $151,164 on January 1, 2025. Multiple lawsuits have already been filed to challenge the new Overtime Rule.

Even after the DOL’s Overtime Rule goes into effect, California’s exempt salary threshold ($66,560) will still be higher than the federal threshold, and California does not have a separate exemption for “highly compensated employees.” So, California employers will continue to be bound by California requirements.

 Q: Aren’t all managers or supervisors exempt?

A: No! Job titles are irrelevant to exempt classification analysis. Instead, employers must evaluate the job duties actually performed. Many managers supervise employees, while also performing routine tasks (e.g., working a cash register, answering phones, stocking shelves, etc.). These multi-tasking managers are only exempt if they spend more than 50 percent of their time on exempt tasks (and meet the salary requirements).  Exempt duties are specifically defined by each type of exemption, and generally require employees to exercise independent discretion and judgment.

Q: Why does proper classification matter?

A: Because the price of getting it wrong is high! Employers who misclassify employees as exempt may be liable for unpaid overtime wages, wage statement violations, and meal and rest break violation premiums, among other damages, fines, and penalties. These legal challenges are difficult (and costly) to defend because employers generally will not have those employees’ time records, which means these employees are permitted to provide their own estimates of overtime hours worked and meal and rest periods missed.

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Employers should regularly audit their exempt classifications and job descriptions. A good practice is to include a job description review with annual performance evaluations, which help ensure that any exempt classification is based on duties actually performed. And, of course, we’re always here to help!

Have more questions? Join us on August 1, 2024, for, “The Million Dollar Violation: Wage-Hour Compliance 101.” For more details and to register, click here.

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