Exempt vs. Non-Exempt Employees
Most workers are classified as either exempt or non-exempt depending on their salary and the type of work they do. The federal Fair Labor Standards Act (FLSA) requires that in addition to paying at least the minimum wage, employers also must pay overtime to employees who work more than 40 hours in a given workweek, unless they meet certain exceptions. To complicate matters further, many states have wage and hour laws that may have more requirements than the FLSA. Employers must make sure they abide by both federal and California wage and hours laws to avoid legal trouble.

In addition to regular non-exempt employees and exempt employees, there are several other classifications of workers. It's important to make sure that those workers actually meet the requirements for those classifications in the FLSA and California's wage and hour laws. Other classifications include volunteers , trainees , interns , independent contractors , and temporary employees .

California has become a hotbed for "wage & hour" litigation - especially when a labor attorney can encourage a group of employees to seek remedy against the employer. Also of note, proposed Department of Labor laws are currently under a review process that could significantly increase the minimum annual compensation of exempt employees (to $50,440).  At present, exempt employees must be paid at least twice the state or federal minimum wage (whichever is higher).
  • Definition of non-exempt employee:  Most employees are entitled to overtime pay under the Fair Labor Standards Act. They are called non-exempt employees. Employers must pay them one-and-a-half times their regular rate of pay when they work more than 40 hours in a week. The biggest problem most employers have with nonexempt employees is miscalculating how much overtime workers are owed.
  • Definition of exempt employee:  The Fair Labor Standards Act contains dozens of exemptions under which specific categories of employers and employees are exempted from overtime requirements. The most common exemptions are the white-collar exemptions for administrative, executive, and professional employees, computer professionals, and outside sales employees. There is also a lesser known exemption for certain retail or service organizations. The primary advantages of classifying employees as exempt are that you don't have to track their hours or pay them overtime, no matter how many hours they work.
Obviously, this is an appealing scenario for employers. However, exemptions from the overtime requirements of the FLSA are just that - exceptions to the rule. They are very narrowly construed, and as the employer, you will always bear the burden of proving that you have correctly classified an employee as exempt.

Other issues to consider:
  • Comp time. Although there are exceptions, it's usually illegal to give non-exempt employees comp time (time off) instead of paying them overtime.
  • Child labor. Federal and state laws include special provisions to protect workers younger than 18. These laws can affect the type of work, wages, and hours that an employee can work.
  • Breaks. Employers need to make sure they follow federal and state law requirements regarding breaks, including meal breaks, for workers.
Wage and hour law enforcement
The provisions of the FLSA are interpreted and enforced by the U.S. Department of Labor which investigates complaints and sometimes sues when it find violations. Many states also have agencies that enforce state labor laws and investigate complaints.

Businesses can protect themselves against non-exempt ("wage & hour") allegations by considering Employment Practices Liability Insurance (EPLI). EPLI also covers allegations such as Wrongful Termination, Discrimination and Harassment (of many types). Market conditions are favorable and the underwriting process is such that five minutes of your time will allow Risk Concepts to provide a no-obligation coverage and premium indication.

"I want to thank you, Serena, and the rest of your staff for the outstanding job your firm does for us.

Some firms make an insurance sale, and then are passive and invisible until renewal time. Your firm is the opposite- you proactively "look and listen" for potential problems throughout the year, offer suggestions, answer questions rapidly and thoroughly, and then at the end of the policy term make sure that the renewal is in the client's best interest- with rates, terms, coverage, exclusions, etc.

We've worked with several firms over the years, and your company consistently does the best overall job. I sure appreciate it!"

Jim Vivrette, Altera Design & Remodeling

Call us today at (925) 250-8168 or send an e-mail if you have any questions regarding employee status or EPLI .


Mike Robertson
Risk Concepts Insurance Brokers
3480 Buskirk Ave., Ste. 260
Pleasant Hill, CA 94523
(925) 933-9200 or (925) 250-8168
(855) 928-2211 (Fax)

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