What Happens if You Misclasify an Employee as Exempt
Corey Hanrahan
Unpaid Wage Lawyer
What happens if you misclassify an employee as exempt? If your employer has misclassified you as an exempt employee, that generally means you are being denied your right to overtime pay. The main, and usually only, incentive for an employer to classify an employee as a salaried employee is that the employer can make that employee work as many hours as it wants without having to pay overtime. Overtime pay can cost a company a lot of money, so employers look for cost saving measures. Unfortunately, simply paying an employee on a salaried basis is not enough to meet the exemption. There are two critical tests that must be met for your employer to classify you as a salaried, exempt employee: (1) a salary threshold test and (2) a job duties test.
Salary Threshold
The first criterion for exempt status in California is the salary threshold. This requires employers to pay salaried, exempt employees at leaset two times the state minimum wage for full time employment. As of 2025, exempt employees must earn a minimum annual salary of $68,640. This threshold is higher than in previous years, reflecting California’s commitment to fair compensation for exempt workers with annual increases to the state’s minimum wage.
Additionally, employers must be careful about increases in minimum wage. California traditionally increases the minimum wage each year effective January 1st. Therefore, if you are a salaried employee who is being paid the minimum salary requirement, you likely need to receive an increase to your salary amount each year, or you fall out of the exempt status and you may be entitled to overtime pay.
Job Duties Test
Meeting the salary requirement alone is not sufficient for exempt status. The employee must also meet the job duties test. This analysis is far more difficult than the analysis for the salary threshold test. To pass this test, you must typically fall into one of five categories.
- Executive/Managerial Exemption: These employees primarily manage the business or a department, regularly supervise two or more employees, and have significant input on employment decisions.
- Administrative Exemption: Employees in this category perform office or non-manual work related to management policies or general business operations. They must regularly exercise discretion and independent judgment in significant matters.
- Professional Exemption: This applies to employees who perform work requiring advanced knowledge in a field of science or learning, typically acquired through prolonged specialized instruction.
- Computer Professional Exemption: Employees who primarily work in computer systems analysis, software or hardware design, or computer system or program design or development may qualify for this exemption.
- Outside Sales Exemption: This category includes employees who regularly work more than half their working time away from the employer’s place of business selling products or services.
For most exemptions, an employee must spend more than 50% of their work time performing those exempt duties. This is referred to the “primarily engaged” requirement and is stricter than federal standards and requires careful tracking of employee tasks. Exempt employees must also regularly exercise discretion and independent judgment in their work. This means they have the authority to make significant decisions without immediate supervision.
Conclusion
Classifying an employee as exempt in California requires meeting specific salary thresholds, job duties criteria, and time allocation requirements. Employers must carefully evaluate each position to ensure compliance with state labor laws. If you believe you have been misclassified as an exempt employee, contact unpaid wages lawyer Corey Hanrahan of Wage Recover for a free, confidential consultation.