Exemptions: When We Move an Employee from Full- to Half-Time, Is the Person Still Exempt?

We have an exempt worker who is going to reduce her hours by half. She currently makes $54,000 a year, and we agreed to just cut that in half. We have other employees who will take over parts of her tasks. She knows she will lose her health benefits. But what about vacation, sick time, etc.? Do we just prorate those—that is, cut them in half also? Is she still exempt if she is part-time? — Greg W., HR Manager in Monterey

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We sent this interesting compensation query to Lloyd Aubry.

The short answer to “Is she still exempt?” is no. The employee is not exempt under California law because she will not be making the salary required of an exempt employee. Under both federal and state law, there is no such thing as a part-time exempt employee. The employee is either making the requisite salary and performing exempt duties, or he or she is not. Exempt status cannot be prorated. Under California law, to be exempt, the employee must make a salary equivalent to two times the minimum wage, which at $6.75 an hour is $13.50, or $28,080 per year. Since half of $54,000 is $27,000, this employee by definition does not make the requisite salary to qualify for exempt status in California and therefore would be entitled to overtime.

Assume, however, that the employee makes $60,000 a year; half of that salary would be $30,000, enough to qualify for exempt status in California. There is no requirement that an exempt employee work 40 hours a week; thus, the number of hours worked as it relates to exempt status is in one sense irrelevant. However, assuming the employee is trying to qualify for exempt status as an executive or administrator, if an employee is only working part-time there is a serious question as to whether the employee could have the requisite authority or responsibility to qualify for exempt status.

On its website, the California Division of Labor Standards Enforcement (DLSE) posted an opinion letter (really an e-mail response) dated March 12, 2002, dealing with this issue. The DLSE concluded, based on federal case law, that an employer that reduced the workweek by 20 percent (one day) due to lack of work, and similarly the employee’s salary by 20 percent, would be making an illegal deduction since presumably the employee would be ready and willing to work five days that week. Accordingly, this employer violated the salary basis rule and destroyed the employee’s exempt status. In your case, where the reduction appears to be voluntary and at the employee’s request, a different outcome should result, since the employee is taking days off (must be full days off), and therefore deductions are permissible. Even so, the safest route here may be to convert the salary to an hourly rate and pay for the number of hours worked (including overtime, if any) to avoid any potential problems.

You have also asked about prorating benefits, such as vacation and sick time, and the loss of health benefits. These are all voluntary employer benefits that an employer is not required to provide to employees and, therefore, the manner in which they are treated for part-time employees is totally up to the employer. It is certainly permissible to prorate benefits in the manner you suggest, assuming that your policy is applied consistently for similarly situated employees. Other employers have policies that state that part-time employees do not receive any benefits.

Lloyd W. Aubry, Jr., former California Labor Commissioner, is of counsel at the San Francisco office of law firm Morrison & Foerster.