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Practical Guide to Employee Classifications in a Dental Practice

June 18, 2021 965

This information is provided to help you understand classification exemptions and salary requirements as defined in California wage and hour laws to enhance your knowledge for successful compliance in your practice.

Wage Orders

Industrial Welfare Commission (IWC) Wage Orders are sets of state wage and hour regulations created to guide employers on the payment of wages, hours of work and the working conditions in California.

There are 17 Orders in total, consisting of 12 Industrial Orders that cover different industries and five Occupational Orders that apply to various occupations or positions. Dental practices in California follow Wage Order 4-2001. A copy of this order is required to be posted where employees can read it easily. It is contained in the CDA Required Poster Set. For remote workers, notices can be sent via email or posted to a work intranet if similar required notices have been disseminated that way.

Exemptions

All employees in California are considered nonexempt unless an employer can support that the role meets the legal standards set forth by the Labor Code and Wage Orders to be classified as exempt.

Under California law, for the most common roles found in a dental practice, the most important group of exempt employees is executive, administrative and professional employees. These categories may be eligible for an exemption from certain protections of the Wage Order, including the payment of overtime compensation permitting employers to pay certain categories of employees a flat salary without overtime wages.

Not all managers duties are managerial. Reliance on a job description or job title to determine eligibility for an exemption is not advisable, as the actual exempt tasks performed often differ from the written description. If an exempt employee should perform nonexempt duties, for example, scheduling, confirming patients, records management, it's the quantity of time spent performing those nonexempt duties that may weaken the exemption. Proper classification of employees requires conducting an analysis of the position and what actually takes place to determine:

  • What activities and responsibilities it includes.
  • The relative importance in comparison to other positions.
  • The qualifications necessary for the performance of the tasks.
  • Conditions under which the work is performed.

Exempt Category Analysis

The categories of exempt positions are outlined under Section 1 of Wage Order 4:

Administrative

In order to meet the qualification of an Administrative exemption, the employee's responsibilities must meet all of the following qualifications:

  • Office or nonmanual work "directly related" to your management policies or general business operations or those of your patients
  • Customarily and regularly exercises discretion and independent judgment.
    • This phrase means the comparison and evaluation of possible courses of action or decision-making after the various possibilities have been considered. The employee must have the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.
    • The decision may be in the form of a recommendation for action, subject to a superior's final authority, but the employee must possess sufficient authority for the recommendations to affect matters of consequence to the business or its customers.
  • Regularly and directly assists a business owner or an employee employed in an executive or administrative capacity; under only general supervision, performs work along specialized or technical lines requiring special training, experience or knowledge or executes special assignments and tasks.
  • Is primarily engaged in duties that meet the administrative test "primarily engaged in."
    • More than one-half of the employee's work time is spent engaged in exempt work. This means an exempt employee spends more than 50% of their time advising management, planning, negotiating, purchasing materials and researching and analyzing business data, etc.
  • Meets the required minimum salary requirement of at least two times the current state minimum wage. Under California law, the most common exemptions require employees to earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, and the salary must be a predetermined sum. This minimum amount may not be prorated for part-time work. For purposes of exempt salary requirements, full-time employment is defined as 40 hours per week.

Executive

In order to meet the qualification of an Executive exemption, the employee's responsibilities must meet all of the following qualifications:

  • Has duties and responsibilities involving the management of the business in which the employee is employed or of a customarily recognized department.
  • Customarily and regularly directs the work of two or more other employees.
  • Has the authority to hire or fire other employees, make meaningful suggestions and recommendations relating to the hiring or firing and advancement and promotion or any other change of status of other employees.
  • Customarily and regularly exercises discretion and independent judgment.
    • This phrase means the comparison and evaluation of possible courses of action or decision-making after the various possibilities have been considered. The employee must have the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.
    • The decision may be in the form of a recommendation for action, subject to a superior's final authority, but the employee must possess sufficient authority for the recommendations to affect matters of consequence to the business or its customers.
  • Is primarily engaged in duties that meet the administrative test "primarily engaged in."
    • More than one-half of the employee's work time is spent engaged in exempt work. This means an exempt employee spends more than 50% of their time advising management, planning, negotiating, purchasing materials and researching and analyzing business data, etc.
  • Meets the required minimum salary requirement of at least two times the current state minimum wage. Under California law, the most common exemptions require employees to earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, and the salary must be a predetermined sum. This minimum amount may not be prorated for part-time work. For purposes of exempt salary requirements, full-time employment is defined as 40 hours per week.

Professional

In order to meet the qualification of the Professional exemption, the employee's responsibilities must meet all of the following qualifications:

  1. The employee must either be:
    1. Licensed or certified by the state of California and primarily engaged in the practice of law (does not include paralegals), medicine (does not include nurses; may include physician assistants; special exemption for physicians paid on an hourly basis), accounting, teaching (special exemption for private school teachers), optometry, architecture, engineering (includes licensed civil, mechanical and electrical engineers, but not junior engineers or drafters) or dentistry (does not include dental hygienists except in very limited circumstances).
    2. Primarily engaged in an occupation commonly recognized as a learned or artistic profession. "Learned or artistic profession" means an employee who is primarily engaged in the performance of:
      • Work requiring knowledge of an advanced type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual or physical processes or work that is an essential part of or necessarily incident to any of the above work.
      • OR
      • Work that is original and creative in character in a recognized field of artistic endeavor (as opposed to work which can be produced by a person endowed with general manual or intellectual ability and training) and the result of which depends primarily on the invention, imagination or talent of the employee or work that is an essential part of or necessarily incident to any of the above work.

To qualify as either a "learned or artistic profession," the work must be predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical or physical work) and of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.

  1. Customarily and regularly exercises discretion and independent judgment in the performance of their duties.
  2. Meets the required minimum salary requirement of at least two times the current state minimum wage. Under California law, the most common exemptions require employees to earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, and the salary must be a predetermined sum. This minimum amount may not be prorated for part-time work. For purposes of exempt salary requirements, full-time employment is defined as 40 hours per week.

How does this apply to associate dentist employees in the practice?

When classifying an associate dentist working as an exempt employee in a dental practice, it is important to consider that the employee meet the minimum salary requirement for the classification — regardless of how few days or hours are worked. As a best practice, CDA Practice Support recommends utilizing an Associate Agreement to set compensation terms and to have an employment law attorney review it to ensure classifications and salary agreements are compliant with wage and hour laws.

Salary Deductions

An employee must be paid a full weekly salary for any week in which any work is performed. However, there are certain limited deductions allowed. If an employee works any part of a day, the employee must be paid in full; no salary deduction is allowed. However, deductions can be made from any vacation, PTO or sick leave balance for the hours not worked.

Impermissible deductions

Quality or quantity of work: Employers may set expectations of an employee's scheduled hours of work and the expectations of duties performed, but employers may not reduce an employee's salary if those hours and duties performed are not met. Essentially, salaried employees who are exercising discretion and control decides how much a particular task is worth, measured by the number of hours is devoted it. Employers should refrain from requiring exempt employees to track their time for overtime purposes, but may need them to track their time for other purposes such as PTO and leaves.

Unavailability of work: If exempt employees are ready, willing and able to work, employers may not make deductions when work is unavailable because of the operational requirements of the practice.

For example, if the practice should need to cancel the patient schedule on a Wednesday and shuts down for that day and the remainder of the week, exempt employees who worked on Monday and Tuesday of that week are entitled to a full week's pay. If there is no work at all during the entire workweek, there is no obligation to pay an exempt employee's salary. If possible, employers should give reasonable advance notice of any shutdowns.

Disciplinary reasons: Deductions for disciplinary reasons are not allowed in California (DLSE Enforcement Policies and Interpretations Manual sec. 51.6.19).

Jury duty, witness duty or military duty: Deductions cannot be made from an exempt employee's salary for periods of less than a full workweek. If the exempt employee doesn't perform any work within the week, you can deduct from their salary for the week (DLSE Enforcement Policies and Interpretations Manual secs. 51.6.21, 51.6.21.1).

Permissible deductions

Full day: If an exempt employee has no vacation or PTO accrued, or has used up all available vacation pay or PTO, you can make deductions from salary for full-day absences for personal reasons such as vacation, personal days and religious observances (DLSE Enforcement Policies and Interpretations Manual sec. 51.6.14.3).

Partial day: Partial day absences may be deducted for intermittent leave under FMLA or CFRA. If an exempt employee is absent for a partial day and has no vacation or PTO available, the employee must be paid for a full day if they perform any work that day. An employer may deduct from an exempt employee's available vacation or PTO accrual bank for a partial-day absence for personal reasons, such as vacation, personal days and religious observances.

Initial or final week of work: An employer can prorate an exempt employee's salary in full-day increments for the initial and final week of work, paying the employee only for the days worked in the pay period.

Penalties of Misclassification

Overtime wages must be paid no later than the payday for the next regular payroll period after which overtime wages were earned (Labor Code Section 204). Only the payment of overtime wages may be delayed to the payday of the next following payroll period, as the straight time wages must still be paid within the time set forth in the applicable Labor Code section in the pay period in which they were earned; or in the case of employees who are paid on a weekly, biweekly or semimonthly basis, not more than seven calendar days following the close of the payroll period.

The penalties for misclassification can be significant. In order to avoid legal risk, costly mistakes and in some cases attorney's fees, an employer should carefully consider each classification and develop supporting job description documentation. If a misclassification occurs, an employer can be held responsible for:

  • Actual damages owed for unpaid overtime and corresponding fines.
  • Inaccurate wage statements.
  • Failure to pay for all hours worked within 72 hours of the day an employee quits or the date of termination.
  • Failure to provide required meal and rest period breaks.
  • Failure to pay overtime wages before the following payroll period.

CDA Practice Support offers resources for employers to assess and support employee classifications in your practice: