How should a California employer handle an exempt employee who works a partial day? What about exempt employees who do not meet the salary requirements for their exemption? The details around nonexempt versus exempt employees in California can be complex, and getting them wrong can be costly. In a recent CER webinar, Marc L. Jacuzzi was on hand to answer these questions and more. Here’s a sample of the questions and answers from that session.
Q. For an exempt employee who worked 4 hours of a work day, can we deduct 4 hours of sick or vacation time from their leave bank?
A.If you have a vacation, sick, or PTO policy in which they individual accrues time off, then you can deduct time from that bank for absences of less than full day increments. Some companies have decided to do this only in half day or even full day increments to avoid administrative hassles. Others have gone the opposite direction and choose to deduct from the leave bank any absence all the way to one-hour increments.
The key is that the deduction can be made from the vacation, sick, or PTO bank – but not from their pay for a partial-day absence for an exempt employee. There’s not a pay deduction and their total pay will not change in this case.
If, on the other hand, they have exhausted all of their vacation, sick, or PTO time, and you had a policy that allowed them to accrue such and they are out for a full day, then you can do a full day deduction from their salary. If an exempt employee is out for less than a full day and no longer has any banked time left, you cannot deduct a partial day from their salary.
Q. If I have an IT professional who is not earning the required annual level of $82,132.98 to qualify for the “computer professional” exemption, do I have to retroactively pay them their salary – or overtime pay instead – back to January 1st (since that’s the day the legal salary amount increased for the computer professional exemption)?
A.Another way to put this question is: when an employer realizes that they have an IT professional that meets the IT professional duties requirements to be exempt, but not the pay requirements to qualify as a “highly skilled computer professional” . . . does the employer need to go back and retroactively pay the individual? The answer is technically no, but if the individual was to quit and sue the employer, the employer could be subject to be waiting time penalties for the unpaid amount (these are capped at 30 days).
The statute of limitations is 3 years under the California Labor Code. The employer could decide to make the change and give the increase, without giving the retroactive pay, and simply cross their fingers for the next 3 years (hoping the individual does not sue for either the extra income or overtime pay). Whether or not the back pay is paid depends on how risk averse the company is. Either way, you’ll want to get it right going forward: either raise the rate to ensure they meet the salary basis or begin paying overtime.
Q. As a school in California, we do not have a vacation policy because all employees are paid for the times the school is closed, which is 2 months annually. We do have a PTO policy, however, and it rolls over annually. Our handbook states that we do not pay out for unused PTO. We have had no challenges on this policy, but I’m concerned that we are required to pay out any unused PTO at the time of termination. Is there an issue with this?
A.In California, a PTO policy is treated the same as a vacation policy. This means you cannot have a “use it or lose it” provision—it must be paid out. However, you can put a cap on it. If they have accrued up to the cap at the time of termination, it has to be paid out.
Q. If you determine that a person is misclassified as an exempt employee instead of nonexempt, how far back do you have to go in reviewing their pay?
A.This is a statute of limitations question. If you determine someone is misclassified, do you have to go back and pay for that? Just like with the IT professional above, the answer is technically no, but it really depends on how risk averse you are. For example, if you discover you have a whole group of misclassified employees and it would take $2 million to make them whole again, you may decide to change their classifications in a way that is least alarming so that you can simply make the change going forward.
The time to look back, however, is 3 years under the California Labor Code. A good lawyer will also bring a claim under Business and Professions Code 17200, which has a lookback time of 4 years. Most employers – unless it’s just a small amount or they want to eliminate risk/exposure – will leave it and get it right going forward. However, it’s a judgment call. Consult outside counsel and do a risk analysis.
The above information is excerpted from the webinar “Exempt vs. Nonexempt in California: How to Find and Fix Misclassification Mistakes.” To register for a future webinar, visit CER webinars.
Marc L. Jacuzzi, Esq., is a shareholder in the law firm of Simpson, Garrity, Innes & Jacuzzi. He advises clients regarding all aspects of the employer/employee relationship including hiring and termination, wage and hour requirements, employee classification, civil rights and discrimination issues, employee investigations, commission plans, employment contracts, employee handbooks and policies, confidential information agreements, reductions in force, leaves of absence, employment audits, M&A employment issues, violence in the workplace, and international employment issues.