No Retroactive Fix for Underpayment to Exempt Employee

I recently took over as HR director for my company, and I discovered that for the last seven months, the company wasn’t paying the required minimum salary for one of the employees that it had designated as exempt from overtime pay. Is there any way to correct the underpayment?

This question comes up more often than you would believe. There is a way to correct the underpayment, but it is not an easy fix.

Many employers believe they can fix the failure to pay the required minimum salary by retroactively paying the amount of salary necessary to meet the minimum requirement, but that will not correct the mistake.

Lost Exemption

Once an employer fails to pay the required minimum salary to an employee designated to be exempt from minimum wage, the exemption is lost. An employer cannot regain that exempt status retroactively.

In effect, during the period that the employee was underpaid, that employee was misclassified and actually must be treated as a non-exempt employee. For each month that the employer failed to pay the minimum salary required by law, the employee was entitled to premium pay for all hours worked over 8 in a day or 40 in a workweek.

In addition, because that employee was non-exempt during that time frame, the employee also may be entitled to premium pay for any missed meal and rest breaks.

How to Compensate

The only way to compensate the employee who was not paid the minimum salary to be exempt from overtime, is to retroactively pay the employee for all overtime hours worked during those months. In order to make that payment, the employer would have to sit down with the employee and work together to determine the number of hours worked in each workweek to make the proper overtime payments.

I would strongly recommend to any employer that finds itself in this position to consult with their legal counsel on the best course of action moving forward.

Column based on questions asked by callers on the Labor Law Helpline, a service to California Chamber of Commerce preferred and executive members. For expert explanations of labor laws and Cal/OSHA regulations, not legal counsel for specific situations, call (800) 348-2262 or submit your question at