Same job title, different exemption status

Recently I was asked a question, “Can I have two employees with the same job title, but with different exempt/nonexempt classifications?” The simple answer is yes, this is possible. From a compliance standpoint, federal and California law agree that job title is not determinative of exemption status. Under federal law, per the Department of Labor, “having some employees within the same job classification who perform the same duties but who are paid on a different (hourly) basis does not affect the status of any other exempt employees paid on a salary basis. Exemptions are not based upon a job title or job classification, but upon the salary and duties of each individual employee.” (29 C.F.R. Part 541). The California Department of Labor Standards also supports this position: DLSE Manual “Job Titles Are Not Determinative.” As with any exemption, job titles reflecting administrative classifications alone may not reflect actual job duties and do not determine exempt or nonexempt status. The actual determination of exempt or nonexempt status must be based on the nature of the work performed by the individual employee (DLSE manual 52.3.1).
To find out how and why you might want classify employees differently, read on.
Below is a brief review of the requirements to be properly classified as an exempt employee under the FLSA Executive, Administrative or Professional exemptions. Under the Fair Labor Standards Act employees may be classified as exempt when they:

• Meet the duties test
• Are paid on a salary basis
• Earn the established minimum salary

If the employee does not meet all three tests, the employee is not exempt. Even when an employee does meet all three requirements, the employer still has the option to treat the employee as an hourly nonexempt employee.
These examples illustrate situations with the same job title but different exemption classifications.
Salary Differences

• Part time vs. full time: A company may have employees with the same job title and who perform the same job, but some are full time and some are part time. Though the duties are the same, part-time workers may not meet the salary level test or their work hours make it practical to compensate them on an hourly basis. You can employ a part time employee in an exempt capacity, but their salary must be at or above the full minimum salary requirement, regardless of their part time status.
• Federal vs. state minimum salary differences: Most states do not require their own special minimum salary and follow the FLSA requirements ($35,568 for 2021). However, several states, notably New York and California, have their own, higher salary requirements. If the position does not merit the higher salary level, the employee will not meet that exemption requirement and must be paid on a nonexempt basis.
• Other salary differences: As an employer, you likely have a range of salaries for a given job title. An employee with 20 years’ experience, specialized skills or education, or other differentiating factor, will command a higher level than a new exempt employee. If the low end of your salary range is under the minimum salary level, you must treat this employee as nonexempt.

Duties Differences

• Federal vs. state duties requirements: Many businesses have operations in multiple states. Federal and state duty requirements may be different. For example, the federal duties requirement follows the “Primary Duty” test. This means the principal, main, major, or most important duty the employee performs is of an exempt nature. However, in California, exempt employees must be "Primarily Engaged" in exempt duties. This means that more than half their time is spent doing exempt duties. These two definitions are very different; the California standard is much higher. For this reason, you may have employees in some states with the same job function, who do meet the federal exemption requirement, but do not meet the state requirement.
• Job duties vary: You may have employees who have the same job title, but their actual duties vary significantly. This is a common problem in retail settings. For example, say you work for an established, nationwide grocery chain. Since your company has been around for many years, you have some stores that are large and very busy operations, with a large staff. You have other stores with smaller square footage, lower sales volume, and smaller staffing budgets. Each of your stores has an assistant store manager. In the larger operation, your assistant manager might easily satisfy the exemption requirements. They likely will spend a substantial amount of time doing executive duties, such as hiring, firing, and directing and developing the employees who report to them. They may also spend time on administrative duties (e.g., planning and determining alternative courses of action). In the smaller operation, your assistant manager has a much smaller staff. They will likely spend some time on these same exempt duties. However, their main function may be stocking shelves, bagging groceries, checking out customers, maintaining store conditions, and handling routine customer service issues. These are all nonexempt duties.

This approach to classification is not without problems. People who perform the same job expect comparable levels of pay, but there are many reasons why employees with the same job titles might receive different pay. If you do maintain different exemption statuses for the same job title, keep these tips in mind:

• Employers should ensure a nondiscriminatory, business-related reason that employees are performing the same duties at different pay rates. This may be related to seniority, market value, geography, the workers’ experience or education, or the level of responsibility or job duties the employee undertakes.

• When determining FLSA exempt/nonexempt status, create different job titles or levels (one for exempt and one for the nonexempt) to avoid confusion. The difference between the levels should be based on nondiscriminatory criteria such as experience or duties. For example, Accountant 1 and Accountant 2, with the higher-level classification being exempt, and the lower nonexempt. It may be easier for employees and managers to understand versus an arbitrary (and changing) minimum salary level.
• Though legal, other problems can develop when using dual classifications. Dividing a job classification creates a situation where employees who earn less than the minimum salary level are entitled to overtime pay, while those who earn above that level are not, regardless of how many hours they work. It is possible that hourly nonexempt employees could make more money than their exempt counterparts during period of heavy overtime. Nonexempt employees may be entitled to benefits exempt colleagues are not. For example, California employers need to provide meal and rest breaks for nonexempt employees.
• In California, where employers must continue to navigate the upcoming increases in minimum salaries for executive, administrative, and professional employees, some may discover job classifications where the compensation rate straddles the line between exempt and nonexempt.

Even with valid justifications for pay differences, employers should think hard before changing compensation that may cause employees to feel less valuable than their coworkers. The company must consistently pay the exempt group on a salary basis, without improperly docking their salary, to be in compliance with the two job categories, one exempt and one nonexempt. There is no reason why paying employees on an hourly basis will jeopardize the exempt status of the exempt group.
However an employer classifies its employees, proper planning, clear communications, and adherence to federal and state guidelines should be implemented and conveyed.

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