Employees can be misclassified in two major ways: independent contractor misclassification and exempt employee misclassification. If an employer has misclassified an employee as an independent contractor, or a non-exempt employee as an exempt employee, the potential exposure for unpaid wage can be significant.
Independent contractors are not employees. The protections of the California Labor Code and other legal protections do not govern independent contractor relationships. It is not enough that both parties agree that the work relationship will be limited to an independent contractor relationship. There are various tests in state and federal courts for determining when an employer-employee relationship exists, but generally it comes down to the amount of control the employer can exercise over the worker. If an employee has been misclassified as an independent contractor, he or she may be entitled to unpaid wages, overtime, and Labor Code penalties.
Federal and state laws requiring the payment of overtime do not apply to employees who have been properly classified as exempt. To be properly classified as exempt in California, an employee must be paid on a salary basis (in an amount not less than twice the state minimum wage), and be primarily engaged in duties that meet the test of the exemption. Exempt employees must also customarily and regularly exercise discretion and independent judgment. If a non-exempt employee has been incorrectly classified as exempt, he or she may be entitled to unpaid overtime and Labor Code penalties.