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• Exempt v. Non-Exempt. A common misconception, particularly among early-stage companies, is that salaried employees are not entitled to overtime pay. In fact, whether or not employees are salaried has little to do with whether they can collect overtime. To determine whether an employee is exempt from overtime pay, an employer must determine if the employee qualifies for an exemption, the most common of which are administrative, executive and professional. Under each of these exemptions, employees must have the authority or power to make independent choices – free from immediate direction or supervision – in matters of significance to the company. In other words, employees’ titles don’t affect whether they are exempt. Only their actual job responsibilities matter. Keep in mind that there is usually an income requirement for employees classified as exempt. In California, for example, in addition to meeting all of the aforementioned criteria, an employee must be paid at least two times the minimum wage ($41,600 annually) to qualify for an exemption.

It’s wise for startups to hire trusted legal counsel with experience in employment law to advise them as they scale in order to avoid major costs and penalties.

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