Correctly Designating Exempt vs. Non-Exempt Employees

The differences between exempt and nonexempt employees in California are substantial, and abiding by the rules for both is crucial to keeping your business in good standing. There are advantages to properly classifying your workers as exempt if they truly qualify for that designation, such as not having to pay for breaks or overtime, but it can be very costly to exempt workers who don’t meet the requirements for salaried employment. It is crucial to ensure that the employees you classify as exempt really are exempt.

Is There a Minimum Wage for Exempt Employees?

Yes, exempt employees must be paid at least twice the minimum wage for a full-time employee, although this amount also depends on how many employees your business supports. If you employ more than 25 employees, the annual salary for your exempt employees in 2022 must be at least $62,400‬. If you employ 25 employees or fewer, their annual salary must be no less than $58,240. 

The Professional, Administrative, and Executive Exemption

Just because you pay your employees the minimum salary for exempt status does not mean your employees are automatically exempt. You must also prove that the work they perform warrants exempting them from the wage-and-hour rules that govern non-exempt employment. There are three ways to do so:

  • Executive exemption: This applies when the employee in question exerts managerial control over the company or one of its departments. Additionally, they generally must have hiring and firing power (or opinions that carry weight in those situations). 
  • Administrative exemption: The employee performs non-manual or office labor that directly affects general business operations. Human resources professionals are a good example of salaried workers who qualify for the administrative exemption. 
  • Professional exemption: This includes workers like dentists, doctors, accountants, attorneys, and others who rely on professional licensing from a state board or department. Other employees who use the professional exemption are those who have advanced knowledge in a field of science or learning. 

There are also a few job-specific exemptions that exist due to the unique characteristics of certain professions. Affected workers include computer professionals, truck drivers, outside sales representatives, and private school teachers, among others.

The third and final condition employers must prove is that their exempt employees “customarily and regularly exercise discretion and independent judgment” when performing their job duties, meaning that they make their own decisions and operate without direct supervision a majority of the time.

Misclassifying Non-Exempt Employees as Exempt Can Cost You

Misclassifying an employee who does not qualify as exempt per the conditions described above can be very costly. If a former employee decides to take action against your business, you could be on the hook for years of unpaid overtime in addition to the reimbursement of attorney’s fees and hefty penalties paid to the state of California. 

Legal missteps early on in your entrepreneurial career can result in big trouble down the road. No matter what stage your company is at, Integrated General Counsel has both the legal know-how and business savvy to provide great value for your enterprise. Contact Integrated General Counsel today to schedule a consultation with our team.

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