Employers are required to classify their employees as either exempt employee or non-exempt but many find it difficult to determine how an employee should be classified. In the following we will review the rules and regulations surrounding qualifying employees for exempt status versus non-exempt status in California.
What does it mean to be an exempt employee?
An exempt employee is someone that is paid a salary and is exempt from all overtime pay requirements. Typically an exempt employee will be paid the same amount for any given week that he or she works regardless of the number of hours he or she worked.
The FLSA acknowledges three main categories of exempt employees
1) Executive
2) Professional
3) Administrative
Exempt employees must meet the minimum requirements of both the Department of Labor as well as California’s guidelines.
What is a non-exempt employee?
A non-exempt employee is someone who receives at least the federal minimum wage and overtime pay of 1.5 times their normal hourly rate for all hours worked over 40 hours a week. Typically non-exempt employees are paid on an hourly basis, however, employers may choose to pay employees on a salary basis and simply pay an additional amount for all overtime hours worked.
Exempt vs. Non-Exempt Tests
- Duties Test
- Salary Level
- Salary Basis
Duties Test
Exempt employees perform relatively high level duties at their place of employment and are considered to be “white-collar” workers. They are employees that are trained professionals and are categorized as an executive, a professional or in the administrative field. It is important to note, job titles are not a consideration in the duties test. To meet the requirements of an executive exempt employee, the employee should manage the operations of the company or supervise a minimum of two employees. A professional exemption requires the employee to have professional training in a particular field such as accounting, architecture, engineering, law, medicine, or education. The administrative exemption is slightly vaguer; the employee should perform office work or other non-manual labor and work directly with management.
Salary Level
Exempt employees must earn a minimum yearly salary. The Department of Labor (DOL) increased the minimum salary from $23,660 to $47,476 effective December 1, 2016. However, on November 22, 2016 a federal judge temporarily blocked the increase in the salary threshold. If the DOL successfully reverses the federal judge’s ruling and the increase goes into effect, it is unclear if the minimum salary requirement will be retroactive. That being said, it may be wise to implement the change now and avoid compensation and moral issues.
Salary Basis
The salary basis test relates to California’s minimum wage and mandates that an employee must make twice what the minimum wage dictates. As of January 1, 2017 the salary basis for an exempt employee in California will be at least $43,680. It should be noted that this number will continue to rise as the minimum wages rise from $10.50 in 2017 to $15.00 in 2022.
