Overtime Pay

Some employees – but not many – are legally “exempt” from overtime and employers do not have to pay overtime to these workers.  But it is important to remember that just because your employer calls you exempt, does not make it so.  The employer must make sure you meet the legal definition and that you fall within one of several specific exemptions to overtime.  As examples, there are exemptions for some executive, administrative, and professional employees, and certain salespeople.  There are also exemptions that are specific to certain industries, such as interstate trucking and agriculture.  Each exemption has its own set of strict legal criteria, as discussed below.

Often employers will treat employees as “exempt” to sidestep paying overtime, even though they do not meet all of the proper legal criteria and they should really be considered “non-exempt.”  Employees lose hundreds or thousands dollars a year in lost wages when their employers misclassify them and improperly label them as “exempt.”  Employers can save millions of dollars a year by misclassifying large segments of their workforce.  However, when employers get caught misclassifying employees as exempt, they can often owe several years of back pay, interest, and other damages and penalties. Attorneys at Leonard Carder have successfully prosecuted scores of class action and individual lawsuits to recover overtime back pay for workers who have been misclassified as exempt.

The most common and often misapplied exemptions are what are referred to as the “white collar” exemptions—executive, administrative, and professional employee exemptions.  Each of these exemptions requires the employees to meet a “duties test,” which evaluates whether the employee’s work truly focuses on executive, administrative, or professional duties.  In California, the employees must also be paid a salary that is equal to two times California’s minimum wage law (at least $41,600 per year).  If employees do not meet both the “duties” and “salary basis” tests, the exemptions do not apply and the employer must pay overtime.

Employers often misclassify some lower-level managers and other supervisors as “exempt executives.”  But importantly, merely having the title of “manager” and paid a salary does not make an employee a true executive.  Misclassified “managers” may have some supervising duties—such as instructing and scheduling other employees, purchasing supplies and equipment, and handling personnel matters. But frequently these “exempt” duties are not the focus of that manager’s day-to-day work, as they spend most of their time performing the same work as their subordinates.  Also, misclassified managers often do not meet other “executive” criteria, such or having sufficient hire and fire authority.   Leonard Carder attorneys have represented a wide-variety of supervisors who have been misclassified as exempt executives, including hotel managers, construction supervisors, restaurant and retail store managers, warehouse managers, and movie theater managers.

The “administrative” exemption is perhaps the most confusing and misapplied exemption.  The exemption should not ordinarily cover employees who carry out the day-to-day business of the company, such as making, providing, or selling the company’s product or service.  Instead, true administrative employees have responsibility for the general policies and practices applicable to the overall operations of the employer or of the employer’s customers.  These employees are often part of the “nerve center” of the company—such as high level accountants, financial analysts, marketing specialists, and human resource professionals—and participate in major decision-making as to how a company operates overall.  Often employees who have specialized skills or who work with little supervision, such as IT or sales staff, are misclassified as exempt administrative employees.  While designing an IT system or formulating marketing strategies may be exempt administrative work, routine maintenance or sales work is not.  Attorneys at Leonard Carder have recovered millions of dollars for misclassified administrative employees, such as technical writers, maintenance staff, account executives and other sales staff, and credit agents.

The “professional” exemption only applies to employees whose work requires an advanced and specialized education in a particular field.  Some licensed occupations meet this requirement, such as lawyers, doctors, engineers, accountants, and teachers.  Other jobs that require an advance degree in a particular field, such as a masters or a doctorate, may meet the professional exemption as well. Certain high-level computer professionals can also be exempt.  However, jobs that require only an undergraduate degree or do not require that the degree be in a particular field do not usually qualify for the exemption. Thus, for instance, some social workers, lower level computer software or hardware engineers, technical writers, and non-licensed medical personnel may fall outside the exemption and be entitled to overtime.

Even employees who perform exempt duties much of the time can fall outside the exemptions if they are not paid properly. The salary requirement for the white-collar exemption is only met if the employee receives a set amount of pay on a regular basis, and the amount is not depended on the employee’s level of output or quality of work.  Thus, for instance, employees who are paid on a commission or a percentage of the profits of a store, may not meet the salary requirement.  Also, if an employee’s pay is reduced to account for the employer’s business losses, such as cash register shortages or merchandise loss, she may fail the salary basis test and have the right to overtime.

There are also exemptions for some salespeople, but not all.  Those who spend the majority of their time engaged in sales activities outside their employer’s facility or their own home may fall into the “outside sales” exemption, and these employees are usually not entitled to overtime or to certain other wage and hour protections.  Also, depending on the industry, salespeople who earn at least half of their income from commissions  can be exempt from overtime if they are also actually engaged in sales at least half of their work time.

There are many industry-specific exemptions as well.

As you can see, the overtime exemptions and their various requirements can be difficult to understand and apply.  If your employer does not pay you overtime and you think you might have been misclassified, feel free to contact us to discuss your work situation.