Exempt vs. nonexempt: understand employee classifications

Employee classification is an important and complex piece of being a business owner, and that applies to dentists who own a practice. By a general principle, exempt employees possess management and decision-making responsibilities as a majority of their essential job functions (51 percent minimum).

Unless an employee clearly meets the job duties of an exempt position, it's best to always assume an employee is nonexempt, thus entitled to overtime and appropriate meal and rest breaks. Oftentimes, dental offices classify office managers, team leaders and hygienists as salaried exempt employees. However, it's relatively rare for most employees of a dental practice to be classified appropriately as salaried exempt employees. The consequences of not following particular guidelines can result in audits by the Department of Industrial Relations or costly lawsuits by employees who claim they were misclassified. These types of lawsuits can revolve around overtime pay, meal and rest breaks and wage statement violations.

Here are several things dentists should know when it comes to classification of employees in dental practices.

  • Employees aren't classified by job title alone. According to the California Chamber of Commerce, "Job titles do not determine a California employee's exempt or nonexempt status. An employee with an impressive job title may not qualify as an exempt employee if his/her actual duties do not meet the requirements for one of the exemptions." For example, the title of "manager" does not always mean that an employee will be exempt.
  • It's rare for employees of a dental practice to qualify as exempt employees. Review the "Exemptions from the overtime laws" by the Department of Industrial Relations.
  • When determining exempt versus nonexempt status, the employee should clearly qualify. Employers should always err on the side of caution if there's a question and classify employees as nonexempt. The California Chamber of Commerce warns employers to "exercise caution if you have managers that supervise employees and perform routine nonexempt tasks at the same time." A California court ruled that a manager who had nonexempt responsibilities while supervising staff at the same time was not performing exempt work and was entitled to overtime. Simply working independently and following checklists or office protocols isn't considered "independent responsibility."
  • Hygienists, generally, do not qualify for exempt status. A common practice is to pay hygienists a flat daily rate. Under the federal Fair Labor Standards Act, dental hygienists could be classified as exempt employees as "learned professionals," provided the employee meets certain requirements under a "primary duty" test. This is permitted only if the hygienist has successfully completed four years of academic pre-professional and professional study in an accredited college or university approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs of the American Dental Association. As such, the hygienist generally meets the duties requirements for the "learned professional" exemption (similar to dentists). However, California law imposes a more restrictive standard, generally making it harder for California employers to establish an employee's exempt status. California law provides that those employees who are state licensed or certified and primarily engaged in the practice of law, medicine, accounting, teaching, optometry, architecture, engineering and dentistry may be considered exempt professionals. Importantly, however, California law does not automatically consider the professional exemption for the dental profession and excludes most dental hygienists.
  • Employers should have each employee track their time using a software system. Dentists should pay appropriate overtime when applicable and provide appropriate meal and rest breaks.
  • Understand the minimum wage salary requirements and recent minimum wage increase ($15 per hour by 2022) and how that will affect the practice over the next few years. With the recent federal changes and tiered California minimum wage increases through 2022, it will be important that employers stay on top of exempt salary thresholds. Navigating the terrain between California and federal rules can be complicated. Employers must comply with the law that gives the most protection to the employee.

It is important to note that licensure or an advanced degree is not the determinative factor for classifying an employee as exempt. One must still consider the quantitative component, that is, whether a particular employee actually spends more than 51 percent of his or her work time performing exempt duties, as well as the qualitative component, namely whether the employee exercises discretion and independent judgment in performing those duties. This generally leads to a case-by-case determination. It may be the case that one hygienist in the same office is "exempt" while another hygienist is "nonexempt." Taking precautions and completing a self-audit can prevent misclassification of an employee and avoid costly penalties.

For more information and advice on this and other employment matters, contact CDA Practice Support at 800.232.7645 or contact your legal counsel.

This is the second of a five-part series on best hiring practices for dentists.

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