Exempt Employee vs. Nonexempt Employee

Federal and state laws exempt certain employees from wage and hour requirements, including overtime pay and meal and rest break requirements. If you have a problem distinguishing between exempt and nonexempt employees in your company, you are not alone. Some of the largest multimillion-dollar awards of back pay by the courts stem from employers’ misclassification of non-exempt employees as exempt from overtime.

The subject is particularly difficult for California employers, because the state’s exemption requirements create more restrictions than federal law. As defined in the Industrial Welfare Commission (IWC) Wage Orders, California’s requirements usually exceed the federal standards adopted by the U.S. Department of Labor (DOL), making those federal standards generally irrelevant to California employees.