|
If you employ people, you need to know the difference between exempt and non-exempt jobs or face the risk of potential penalties, legal fees, and payment of back overtime and missed breaks. Most non-exempt positions are paid hourly and exempt positions are paid salary. It is unwise to improperly classify an employee as exempt, just to avoid paying overtime or to ease scheduling requirements. Employers must decide whether jobs are exempt, or not, from wage & hour requirements (overtime and meal/rest periods) based on complex classification regulations set by State and Federal law.
Here’s a real life example of what can happen when the employer misclassifies a job: A former employee filed a complaint with their local Department of Labor stating his employer misclassified him as an exempt employee. He claimed that the company had removed so many of the exempt level job functions that he was left with non-exempt duties. Thus, he claimed that he should have been treated as a non-exempt and should have been paid overtime and provided with meal/rest periods. The employer, had in fact, removed duties since they felt he was unable to perform the higher level functions (engineering) at an acceptable level. As a result, they eroded the exempt status the employee was determined by the court to be non-exempt. The company had to pay back wages (going back three years), which included what the employee reported to DOL as missed overtime and missed meal/rest periods. The employer also paid penalties on top of the overtime and missed meal periods: a one-hour meal period penalty for every day he stated he missed a meal/rest break, for the company had no proof that the breaks were taken. Then there was the interest… What makes a job Exempt? It’s actually the job duties that classify a position as exempt or non-exempt. Job titles are irrelevant. So, just because you create the job title, for example, VP of Administration, it doesn’t mean the person meets the requirements for an overtime exemption. State and federal governments assume a position is non-exempt unless it clearly meets both tests for exempt status: the salary test and the duties test. In addition, all exempt positions must exercise sufficient independent judgment and discretion. Salary test For most “exempt” jobs, the employee must be salaried and earn twice the current minimum wage per month. There are exceptions, most commonly physicians and advanced computer professionals. Duties tests There are five main job categories that qualify for exempt status: Executive: the primary duty must be management of the enterprise or a department and include decisions such as hiring/firing, promotions or assignments. The position must regularly supervise at least two full-time employees and exercise sufficient discretion and independent judgment in the performance of its duties. In CA the qualifications are even more stringent - the employee must spend the majority of their time performing exempt level duties. Administrative: The primary duties must be office (non-manual) work directly related to management or general business operations (think non-revenue/overhead departments), the position must perform under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, and the employee must regularly exercise independent judgment about matters of significance. This exemption is often misapplied to clerks, secretaries and customer service employees who do not meet the duties test. The administrative exemption is meant to apply to higher level jobs including credit managers, safety directors, wage-rate analysts, tax experts, and bona fide executive assistants who have authority to make decisions on behalf of their executive. Professional: Jobs under the professional exemption are most often those that require licensing or certification by the state and are primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting. The exemption may also be applied to jobs where the employee is primarily engaged in an occupation commonly recognized as a learned or artistic profession. That means the work either requires knowledge of an advance type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study or it is original and creative in character in a recognized field of artistic endeavor. The work also must be predominantly intellectual and varied enough that the output or result cannot be standardized to a set period of time. Just because someone has an advanced degree doesn’t mean their job is exempt. It depends on the job duties and job requirements. Computer Professional: This exemption is reserved for high level computer professionals such as systems analysts, programmers and software engineers, who exercise independent judgment. Specifically, the exemption applies to employees who apply systems analysis techniques and procedures to determine hardware, software, or system functional specifications, or who design, develop, test or modify computer systems or programs based on user or design specifications. Outside Sales: This exemption does not have to meet the salary test. The primary duty is to make sales or obtain orders for the company, while regularly working away from the place of business (not at home and not in the office). Inside sales typically don’t qualify as an exempt position). There are a few niche jobs such as certain caregivers or live-in domestic workers, college faculty, etc., that are classified as exempt outside of the above. Independent Judgment and Discretion in Matters of Significance: Federal and state interpretations differ somewhat but they both require the job to customarily and regularly exercise discretion and independent judgment with respect to matters of significance and not be confused with having skill in applying techniques, procedures, or specific standards. Content from opinion letters and other sources abound but they all point to the same conclusion - the work needs to be more than routine, more than following procedures, and has to potentially impact the success of the business. Examples include whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business, whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; etc. Preserving the exemption: Once a position is considered exempt, you will want to avoid eroding that status by changing the duties, or making improper salary deductions. You may not dock pay for quality/quantity of work, discipline or availability of work. Requiring or requesting an exempt employee to clock in and out and/or to complete a timesheet, reflecting hours worked may also erode your argument that their position is exempt, though exempts are subject to attendance or job costing requirements the same as non-exempts. Exempt employees must be paid the week’s salary for any week in which they perform work. There are exceptions to this rule, the most common of which are docking for absences from work for one or more full days for either personal reasons or sickness or disability (as long as the employer has a bona fide sick leave plan). Employers may dock exempt leave banks for partial day absences, but not pay. There have been a few landmark cases involving misclassification and substantial penalties:
If you would like help with properly classifying your jobs and employees or with administration of policies for exempt employees, please contact Jennifer Scott at 707-526-0877 x16. For additional reading, see the following government sites: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime http://www.dir.ca.gov/dlse/FAQ_OvertimeExemptions.htm Comments are closed.
|
Categories |