Exempt / Non-Exempt Employees

The failure to understand the difference between exempt and non-exempt employees could be very costly to a business.  Employees improperly treated as exempt employees could be owed a significant amount of overtime pay. There are several common questions that are asked regarding this issue:

Is there a difference in paying an exempt versus a non-exempt employee?

Yes.  A non-exempt employee is subject to all pay rules established by the Industrial Welfare Commission (IWC).  This includes the payment of overtime.

Does paying an employees a salary classify them as exempt?

No.  Non-exempt employees must be paid all overtime hours that are worked, even if they are also paid a salary.

How can I determine if an employee is exempt or non-exempt?

The classification of one as an exempt employee depends on the level of responsibility given to the exempt employee, or their status as a professional. Exempt status has nothing to do with the employee’s job title or paying the employee a salary rather than an hourly wage.  The following categories of employees are generally considered to be exempt from the IWC rules:

  • Licensed professionals.  This includes doctors, lawyers, architects, engineers, and certified public accountants.
  • Managers who hire, fire, and train, and who spend less than 50 percent of their time performing the same duties as their employees.
  • Top administrators who create policies for a business.
  • Outside salespersons.

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