The Four Most Common Mistakes Employers Make When Classifying Employees as Exempt

As the Agency Rent-A-Car case shows, you can find yourself mired in an expensive lawsuit for misclassifying employees as exempt from overtime. Here are four common employer mistakes:

  1. Ignorance of the law is not an excuse. Employers run into trouble when they don’t know the rules on classifying employees. Private sector employers in California are covered by both state and federal law. You must follow whichever rules are most beneficial to your employees. Most often, these will be California’s because they are usually stricter. Public employers-whether federal, state or local-are covered by federal law.

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  2. Paying a salary doesn’t automatically mean an employee is exempt. Many employers believe employees who are salaried are exempt from overtime. This is wrong-it’s their duties that count.
  3. Impressive job titles aren’t enough. Just calling someone a ‘manager’ or ‘assistant manager,’ as Agency did, doesn’t make an employee exempt. Again, it’s their duties, not their title, that really matters.
  4. Ignoring the problem is risky. Many employers fear that if they try to correct a classification mistake by suddenly beginning to pay overtime, they will be faced with claims for past overtime-sometimes going as far back as three years. And, like Agency Rent-A-Car, you may not have the records to refute these claims. Because of these concerns, some employers do nothing, hoping the problem will go away. It usually doesn’t. The best approach is to work with an employment law expert to help develop a strategy for confronting and resolving classification errors.