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Misclassification of California Employees

A surprisingly large number of California employers save money by misclassifying their employees. They do that in two ways. Both are unlawful.

First, to avoid paying overtime, they classify nonexempt employees as exempt. Exempt employees earn a fixed salary, regardless of the number of hours they work. Classifying an employee as exempt allows the employer to avoid the premium overtime wages that nonexempt employees are entitled to earn when they work overtime.

Second, to avoid paying minimum wage, overtime, payroll tax contributions, unemployment insurance coverage, and other benefits that employees are entitled to receive, California employers misclassify employees as independent contractors. An independent contractor does not enjoy the protection of California or federal labor laws.

From our offices in Contra Costa County, KKG Law pursues justice for Bay Area clients who have been misclassified by their employers. Workers who were wrongly classified as independent contractors may be able to pursue overtime, minimum wage, and tax contributions they would have received if they had been classified as employees. Workers who were wrongly classified as exempt can make a claim for unpaid overtime wages. Additional remedies may also be available.

California’s Overtime Law

Under federal and California law, most employees (including nearly all employees who work for an hourly wage), are entitled to be paid extra when they work overtime. Under California law, overtime means working:

  • More than 40 hours in a workweek
  • More than 8 hours in a workday
  • More than 6 consecutive days

The “overtime” rate is a premium wage that must be added to the regular wage for overtime hours that the employee works. In most cases, the premium wage is half the regular rate, resulting in a time-and-a-half overtime wage.

In some cases, California employers must pay double time (twice the regular rate). An employer must pay time-and-a-half for the first eight hours worked on a seventh consecutive workday, but must be paid double time for all subsequent hours worked on that day. An employer must also pay time-and-a-half after an employee works 8 hours in a workday, but must pay double-time for hours worked in excess of 12 during the workday.

While there are a few exceptions to the overtime requirements of California law, most employees are entitled to overtime pay. The primary exception applies to exempt employees.

Misclassification as an Exempt Employee

A California employee is exempt from California overtime laws if both of the following requirements are met:

  • The employee is paid a monthly salary of at least twice the minimum wage
  • The employee’s job meets the standard required for an exempt position

Salary Test

An employee’s monthly salary refers to the amount an employee earns in a month, not to how often the employee is paid. A monthly salary is usually the amount that the employee will earn during the year divided by twelve.

In California, the minimum wage depends on the size of the employer. In 2018, the minimum wage is $10.50 per hour if the employer has 25 or fewer employees, or $11.00 per hour if the employer has more than 25 employees.

Doubling the minimum wage means that an employee must be paid an annual salary of at least $43,680 ($3,640 monthly) if the employer has 25 or fewer employees. The annual salary for an exempt employee must be at least $45,760 ($3,813.33 monthly) if the employer has more than 25 employees.

Job Duties Test

The job duties test identifies several kinds of employees who, based on their job duties, can be classified as exempt. The three most common classifications of exempt employees are:

  • Executive employees
  • Administrative employees
  • Professional and technical employees

The tests too complex to discuss in detail here. There are some key rules, however, to keep in mind when deciding whether a job is exempt.

First, employees cannot usually be classified as exempt unless they work independently, with little supervision, and exercise significant discretion when they decide how to their jobs.

Second, job titles are not relevant. Calling a secretary an “executive assistant” isn’t enough to classify a position as exempt. Job descriptions are also irrelevant unless they accurately describe the job.

Third, the employee’s primary job duties must be “white collar” rather than manual labor. Administrative and executive employees must generally perform duties that related to business management.

Deciding whether a position is or is not exempt requires a detailed examination of the work that the employee actually performs. An employment lawyer at Law Offices of Karan K. Gill can help employees understand whether they are entitled to unpaid overtime and other remedies if they have been misclassified as an exempt employee.

Misclassification as an Independent Contractor

An independent contractor is someone who runs his or her own business. Independent contractors work for themselves, not for an employer. They usually have several clients or customers. They can choose to accept or turn down work, they set their own schedules, and they work with relatively little supervision.

Employees work for wages, not for fees, but employers sometimes classify an employee as an independent contractor. That misclassification allows an employer to avoid paying:

  • Minimum wage
  • Overtime wages
  • The employer’s contribution to Social Security and Medicare taxes
  • Unemployment insurance contributions
  • Workers’ compensation
  • Reimbursement of business expenses

Misclassification also allows an employer to avoid complying with laws regarding rest breaks, meal breaks, discrimination, workplace harassment, union organizing, and other employment laws.

The difference between an employee and an independent contractor is not always clear. In fact, the test to determine whether a worker is an employee or an independent contractor depends on the particular employment law that the employer might be violating.

As a general rule in California, the more power a business has to control the way a worker performs a job, the more likely it is that the business is the worker’s employer. A business that sets a work schedule, describes in detail how the work is to be performed, and closely supervises the work is presumed to be an employer. The business can only avoid being treated as an employer by proving that the worker is an independent contractor.

Other factors that courts consider when they decide whether a worker is an independent contractor include:

  • Employers usually provide tools to their employees; independent contractors usually use their own tools.
  • Independent contractors usually engage in a business that is different from the business for which they are providing services.
  • Employees usually work at a job site designated by the employer; independent contractors sometimes work at their own business location.
  • Employees are usually paid by the hour; independent contractors are usually paid by the job.
  • Independent contractors have an opportunity to make a profit if they negotiate fees and manage their time wisely; employees generally make nothing more than a wage and benefits.

An employee who has been misclassified as an independent contractor may be entitled to recover payroll tax contributions, unpaid minimum wage, unpaid overtime, other unpaid compensation required by California law, and substantial penalties.

Helping Misclassified Employees in California

An employment lawyer at KKG Law can help employees who have been misclassified as exempt or as independent contractors. Employees may be entitled to recover substantial compensation as a result of the misclassification. However, making a prompt claim is essential to maximize the compensation that is due.

KKG Law represents current and former employees in Oakland, San Jose, Fairfield, and all other Bay Area communities. Contact KKG Law at 707-898-8125.