Just Because You Are Paid A Salary Does Not Mean You Are Automatically Exempt from Receiving Overtime Pay

Just Because You Are Paid A Salary Does Not Mean You Are Automatically Exempt from Receiving Overtime Pay

When Haeggquist & Eck, LLP asks clients or potential clients whether they have been properly receiving overtime compensation at their job, a common response we hear is, “I am not entitled to overtime because I am paid a salary.”

No matter the origin of this commonly held myth, it is not fully accurate. The nature of an employee’s work, not the basis of the employee’s paycheck, calculates whether the employee is entitled to overtime. An employer can technically pay anyone one a “salary,” but that does not make the employee automatically exempt. Thus, even if an employee is paid on a “salary” basis, if the employee is not working in an exempt position, the employer must still pay overtime above and beyond the employee’s salary.

You May Be Misclassified as An Exempt Worker

Under California law, employees are entitled to overtime pay unless their jobs are exempt from overtime requirements. Exemptions from mandatory minimum wage and overtime laws are narrowly construed in order to curb abuses. Federal labor law is similar, but employers in the state of California must meet the California standards, because the state rules are marginally stricter.

One of the more common categories of exemptions apply to those persons employed in an “administrative, executive, or professional” capacity. This is likely the category from which the “salary” myth was derived, as it constitutes one of the elements—often referred to as the “salary basis” test—that must be met in order to be exempt. The three exemptions have some similarities, and some differences.

Similarities Between Common Exemptions

All three exemptions require the employee: (1) be “primarily engaged in duties that meet the test of the exemption; (2) “customarily and regularly exercise discretion and independent judgment in performing those duties”; and (3) earn “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” In 2020, the minimum compensation for exempt employees is $54,080 per year for an employer with more than 25 employees, and $49,920 per year for employers with 25 or fewer employees. That number will rise slightly every year.

If an employee’s job does not meet all three of those elements, it will not qualify for the administrative, executive, or professional exemption, and the employee will be entitled to overtime pay.

Consider the first factor. Generally speaking, an employee must spend the majority of his or her time performing exempt duties. If the employee does too much non-exempt work, the exemption will not apply. The classic example here would be a “manager” working in a retail business who actually spends the majority of his or her time stocking shelves, cleaning, dealing with customers, or otherwise performing the tasks that hourly employees are expected to do. Under these facts, the manager might not be “primarily” engaged in exempt, executive functions; and he or she would, therefore, be entitled to overtime pay and a guaranteed minimum wage.

Differences Between Common Exemptions

The differences between the common exemptions boil down to the nature of the work performed. “Executives” are employees who direct business operations, manage at least two other employees on a

regular basis, and have at least some meaningful involvement in hiring and firing decisions. The “professional” category applies to classic professions, like doctors and lawyers, or other so-called practitioners of the “learned arts,” like scientists and college professors. The trickiest category is probably the “administrative” exemption. Generally speaking, administrators fill roles that support executives or business owners in non-manual tasks, but they also perform more than merely clerical functions.

If an employee’s job does not actually involve exempt functions, the employee must be paid overtime. Determining whether job duties fit the exemptions can be a tricky inquiry that depends on the facts and circumstances of a particular situation.

If you think you might be performing non-exempt job duties, you should consult an experienced labor and employment attorney who can advise you on whether your employer should be paying you overtime.

Even If You Are or Were Properly Classified, Not All Your Work May Be Exempt from Overtime

The nature of the world is such that things can, and often do, change. Some exempt employees may have been properly classified when they were hired, but their job duties may shift over time to the point where the employees are no longer “primarily” performing exempt functions. Even temporary changes, such as might occur during periods of uncertainty or upheaval at a company, can cause workers to temporarily lose their exempt status if they are called on to fill non-exempt roles for a substantial period of time.

Too often, employers expect exempt employees to “rise to the occasion” when a business faces unexpected challenges. This is all well and good, but, if “rising to the occasion” means exempt employees start filling non-exempt roles just to get by, then those employees may be entitled to a guaranteed minimum wage and overtime pay. Whether an employee loses exempt status will depend on the facts on the ground at the particular job. While it may be OK to have an exempt employee working a nonexempt job for a day, maybe even for a week, if the changed circumstances continue unabated, there may be a problem with the exemption.

What Should I Do If Suspect I Am Misclassified?

Just because you are paid a salary, does not automatically mean you are exempt from overtime and minimum wage compensation. Misclassification of non-exempt employees is a serious violation of state and federal labor law. If you believe you have been misclassified, you should consult a labor and employment attorney. You may be entitled to recover unpaid wages and overtime pay from your employer.

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