Fraternizing with the Enemy: Tips From an Employee-side Attorney

Curt Surls, Employment Attorney

by Curt Surls, Employment Attorney

I am an employment lawyer. I represent employees who have been discriminated against, harassed, improperly compensated or wrongfully terminated. As a small business owner, you would undoubtedly prefer to keep me and my colleagues at bay. This will be the first of a series of posts outlining common – and expensive — mistakes I have seen small employers make in my 20 plus years of practice.

Mistake Number One: Misclassifying non-exempt employees as exempt. Picture this: business is picking up again, and your hourly bookkeeper has been working 10 hours a day to keep up with the workload (paying bills, sending out invoices, etc.). You already know that unless an employee is exempt from wage and hour laws, you have to pay overtime (time and a half) after 8 hours in one day and 40 hours in one week. Your hourly bookkeeper is getting rather expensive, and – truth be told – he’s kind of slow and may just be milking it for the overtime. What if you put him on straight salary and gave him a lofty title like Supreme Executive Financial Control Officer (or “SEFCO”) with a gold-embossed business card? Problem solved, right?

Not so fast. In California, all employees are presumed to be nonexempt; that is to say, a sometimes confusing array of wage and hour laws apply, including overtime and meal break regulations. Therefore, the burden of establishing that an employee is exempt, such as your newly-exalted SEFCO, rests with you, the employer.

There are three exemptions under California law: Executive, Administrative and Professional. A salary and a really impressive title is not enough. Under both state law and the federal Fair Labor Standards Act, all employees, including the SEFCO, must meet both the “salary” and “duties” tests to be considered exempt. Under the “salary” test, to be exempt, the employee must earn a wage of at least double the minimum wage (currently $8.00 per hour in California). Under the “duties” test, your employees must spend at least 50% of their time engaged in “exempt” duties (for example, supervising employees, managing the business, performing work requiring advanced training and/or otherwise exercising “independent discretion and judgment”). So, title and salary notwithstanding, the SEFCO is still doing routine bookkeeping tasks and is entitled to overtime.

The consequences of misclassification can be serious, including back wages and penalties. Even the big dogs get this wrong. Wachovia recently settled a class action for $39,000,000 brought by a group of stockbroker trainees improperly classified as exempt. So be very careful before you decide that an employee is exempt from California’s wage and hour laws.

For more information, contact the California Department of Industrial Relations’ website at www.dir.ca.gov. Next time, we’ll discuss whether you can hire that bookkeeper as an “independent contractor” and avoid paying him overtime and benefits.