Exempt Employees vs. Non-Exempt Employees vs. Independent Contractors in CA
Employee classification is a very important issue for your restaurant to consider. There are three ways to potentially classify workers: non-exempt, exempt and independent contractors. Below is information about each of these classifications. Please note that this is meant to be general information and does not include specifics as they may apply to your business. It is important that you reach out to your HR or legal professional to know how this applies to your restaurant and what you may need to consider.
What is a non-exempt employee?
A non-exempt employee in the State of CA is eligible for overtime, protected meal and rest breaks, and is subject to minimum wage. Generally speaking, these are line level employees. You may also refer to them as hourly employees. Often times, they have a specific shift in your restaurant and have their job duties assigned by a manager.
What is an exempt employee?
An exempt employee in the state of CA is not eligible for overtime pay, protected breaks or subject to minimum wage, though it should be noted that they need to be paid a minimum salary amount to be consider as exempt. This amount is twice the State minimum wage based on a 40-hour work week. Often times, this is someone who is a manager at your restaurant but it is crucial to look at each “managers” job duties to ensure they meet the State of CA’s requirement for exempt employees.
What job duties does an exempt employee need to have?
First, it is important to note that job title is irrelevant in deciding whether or not someone is considered exempt. This means that just because someone has the title of manager, does not mean they should be classified as an exempt employee. They must satisfy a “strict duties” test. These duties must be at least 51% of what an employee does in a day in order to be correctly classified:
Must be primarily engaged in executive, administrative, or professional duties. This can include things like assigning work to others, managing employees, and creating reports
Must regularly exercise discretion and independent judgement- this can include things like making financial decisions for your restaurant, conducting employee reviews, or making decisions that impact the business directly.
Must meet the minimum salary requirement as designated by the state of CA, which is 2x the minimum wage at 40 hours a week.
It is important to note that there are certain specific exemptions that apply to certain professions as well. These are not covered here but should be looked at particularly if you are not in the restaurant industry.
What is an independent contractor?
An independent contractor is a person who performs something for your company that is not in the normal course of your business. For example, if your restaurant needs someone to come and fix your toilet, the plumber is not considered an employee of the restaurant. It is important to note that to be an independent contractor, a person must satisfy ALL of these requirements, per the ABC test in CA:
Free from the control and direction of the hiring entity in connection with the performance of the work
Worker is performing work that is outside of the usual course of the hiring entities business
Worker is customarily engaged in an independently established trade, occupation or business of the same nature of the work being performed
What this means is that if you are a restaurant, you shouldn’t label employees who are engaged in the everyday running of your business as independent contractors. For example, anyone who is serving food at your restaurant, should be made an employee, not classified as an independent contractor. Check out this link for more info. It should also be noted that there are certain exemptions from being labeled as an independent contractor. If you think someone should be labeled as contractor, you should refer to your HR or legal counsel for more information.
Why does this all matter?
If your workers are misclassified, you may end up owing back wages including meal break penalties and overtime, (for independent contracts you could owed back workers compensation insurance premiums, back taxes, etc.). This can be exceptionally expensive for your business, especially if an entire group of employees is not correctly classified. It is important that you do your due diligence in deciding whether or not a worker is an exempt, non-exempt or independent contractor for your restaurant. When in doubt, reach out to the Vine Solutions HR team or other HR professional. They can help you look at the job duties to decide how a worker should be classified. There are also resources online that can aid in employee classification.
KEY TAKE -AWAYS
Correctly categorizing employees at your restaurant protects your business from potentially expensive penalties. It is important to consider the duties of the employee, not the title of the position, to ensure they are being properly categorized at your restaurant. If you have questions about this, you should reach out to an HR professional or your legal counsel.
Please note: The information contained in this email is designed only to give general information. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Vine Solutions and their employees are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.