An Irvine based business, doing business primarily in Orange County, but covering parts of all Southern California, called my Orange County employment law firm with a question. He has a dozen or so employees, and is unsure how to properly classify them so as to not get into any legal troubles.
His two choices are either exempt or non-exempt. Exempt essentially means you are salaried and meet one of several exceptions making you ineligible for overtime. Non-exempt, as you may guess, means you do not qualify for any of the exceptions and are thus entitled to overtime compensation.
As I have written in previous blog posts about overtime, California has by far the strictest and most complex labor laws in the country. California wage and hour laws are extremely "pro" employee, which often gets the uniformed small business owner (as well as corporate giants) into significant legal trouble.
It has been my experience that an employer's most common mistake is misclassifying an employee as exempt (i.e. a manager). Employers typically do this because managers (and other qualifying employees) are not entitled to overtime pay at the overtime premium rate of one and one half times the employee's regular rate of pay.
The problem is, just because you call someone a manager, does not make them one. Managers, for instance, must manage either an enterprise, a customarily recognized department or a subdivision thereof. Additionally, managers must also customarily and regularly direct the work of 2 or more employees and must have authority to hire/fire OR must have the ability to suggest/recommend the hiring/firing/advancement/promotion or other similar change of status of an employee. Lastly, a manager must customarily and regularly exercise discretion and independent judgement and must spend at least 51% of the time performing "exempt" work (i.e. managerial type work as described above)
I have seen it time and time again - an employer classifies an employee as a "manager" so he/she is exempt from receiving overtime pay. However, after analyzing the "managers" actual job duties, it often turns out that he/she is not in fact performing managerial tasks or given managerial authority. As a result, such an employee is then determined to be misclassified and as a result, is entitled to overtime compensation for all overtime hours previously worked for which he/she did not receive overtime compensation. What's more, if it turns out an entire group of employees were misclassified, then the case could be a class action.
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