New Jersey Adopts Federal Regulations Regarding White Collar Overtime Exemptions

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1 Overview On September 6, 2011, the New Jersey Department of Labor and Workforce Development ( NJDOL ) repealed the existing state regulations regarding white collar overtime exemptions (the administrative, executive, professional, and outside sales exemptions) and adopted with minor exceptions the federal regulations regarding white collar exemptions. The revised state regulations eliminate the inconsistencies between the federal and state regulatory schemes that existed in the past. This Fast Facts explains the 2011 regulations. Background: Inconsistent Regulatory Schemes New Jersey s prior regulations, like their federal counterparts, provided overtime exemptions for individuals employed in bona fide administrative, executive, professional or outside sales capacities (the white collar exemptions). Significantly, in 2004 the U.S Department of Labor adopted new regulations based in large part on the fact that the old regulations, adopted in 1949, did not work well with the modern workplace. The new federal regulations kept the old duties and salary basis tests but streamlined them in significant respects. Unfortunately, New Jersey did not follow suit and employers operating in New Jersey could not rely on the user - friendly federal rules. Thus, under the prior regulatory scheme, employees potentially could be classified properly as exempt for purposes of federal law, but not under New Jersey law. Prior to 2011, to qualify for an exemption under the regulations, a New Jersey employer had to show that employees performed the non-manual work of an executive, administrator or professional and that these employees spent no more than 20 percent of the workweek in the performance of non-exempt tasks ( duties test ). In addition, employers needed to pay exempt employees a minimum guaranteed weekly salary of $455 subject to only limited deductions ( salary basis test ). The revised regulations retain the duties and salary basis tests. However, among other things, the revised regulations: Eliminate the 20 percent restriction on non-exempt work; Create a super salary test for executive, administrative or professional employees who receive annual guaranteed compensation of at least $100,000; Provide guidance and examples helpful in interpreting the language of regulations; and, Reorganize and consolidate the regulations for computer employees. Page 1 of 5

2 Why is this important? An employer should take note of these revisions because improper classification of an employee could produce disastrous consequences. As of December 2008 the last year the federal Department of Labor published such statistics the U.S. DOL collected $1.4 billion in back wages for overtime. The agency also assessed more than $9.9 million in civil penalties against non-compliant employers. More importantly, wage hour class actions concerning white collar exemptions continue to increase each year almost exponentially. What is the standard for the Executive exemption? Primary duty is the management of the enterprise or a recognized department or subdivision. Customarily and regularly directs the work of two or more other employees. Has the authority to hire or fire other employees (or recommendations as to the hiring, firing, promotion or other change of status of other employees are given particular weight). What is the standard for the Administrative exemption? Primary duty is performing office or non-manual work directly related to the management or general business operations of the employer or the employer s customers. Holds a position of responsibility with the employer, defined as either (1) performing work of substantial importance, or (2) performing work requiring a high level of skill or training. What is the standard for the Learned Professional exemption? Primary duty is performing office or non-manual work requiring the knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be acquired by alternative means such as an equivalent combination of intellectual instruction and work experience. What is the standard for the Creative Professional exemption? Primary duty is performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. Page 2 of 5

3 What does primary duty mean? Employees whose principal, main, major or most important duty is the performance of exempt work may qualify for the white collar exemptions. Among other factors considered in determining an employee s primary duty is the importance of the exempt duties and the independence of the employee. The amount of time spent performing exempt tasks is a consideration or factor in analyzing whether an employee s primary duty is exempt work, but is not, in and of itself, determinative. Are additional exemptions now available? No. The federal regulations provide for a streamlined analysis for the applicability of white collar exemptions to highly compensated employees who earn at least $100,000 annually (29 C.F.R ). To qualify for this super salary exemption, an employee must: Perform office or non-manual work Perform one or more of the duties of a professional, executive or administrator. What is the status of the inside sales exemption under New Jersey Law? N.J.A.C. 12:56-7.2(b) previously defined administrative employees to include any employee whose primary duty consisted of sales activity and who received at least 50% of his or her compensation in the form of commissions. The changes made in 2011 repeal the inside sales exemption in favor of the federal white collar exemptions which do not recognize an inside sales exemption. What is the status of other regulations regarding overtime exemptions? Unchanged. The revisions made in 2011 impact only the white collar exemptions discussed in N.J.A.C. 12: Accordingly, to the extent an employer relied upon exemptions detailed in other sections of the New Jersey Administrative Code, the regulatory status remains unchanged. How can I determine whether white collar exemptions are applicable? Federal regulations still require an analysis of job duties and compensation. Therefore, in terms of the approach to determine the applicability of white collar exemptions, little has changed as a result of the 2011 revisions. A title, position description or any other label employers may place upon employees is not determinative. Rather, the applicability of an exemption must be determined on a case-by-case basis through a rigorous analysis of the employee s actual job duties and responsibilities on a day-to-day basis. The adoption of the federal regulations provides employers with greater resources to make that determination, e.g., the Code of Federal Regulations, federal case law or administrative interpretations of the regulations. If you have any questions regarding the applicability of a particular exemption, it is recommended that you consult with an attorney. Page 3 of 5

4 Do the 2011 regulations impact record keeping requirements? No. The revisions made in 2011 are strictly limited to applicability of the white collar overtime exemptions. Are federal fines and penalties applicable in the event of a violation? Arguably, as of the 2011 adoption, any violation could constitute a dual violation. However, nothing in the 2011 regulations suggests any change to the fine and penalty provisions in effect. Additionally, if the punitive measures initiated against an employer include the payment of back wages/overtime, the employee(s) have arguably been made whole. Does the 2011 regulation impact motor carriers or service/retail establishment employees? No. New Jersey repealed the regulation regarding a limited number of exemptions and adopted only the federal regulations regarding certain white collar exemptions. New Jersey s exemption regarding trucking industry employers is statutory (N.J.S.A. 34:11-56a4) and remains unchanged. Likewise, the federal motor carrier exemption and retail/service establishment exemption are not discussed in 29 C.F.R. 541 and, accordingly, were not adopted as part of the 2011 revision to the State regulations. Are public employers subject to the revision? No. Public employees are expressly excluded from the 2011 revisions. Should I revise my job descriptions? If your job descriptions were crafted to take into account the 80 percent rule, you may want to revisit whether tailoring job descriptions to that requirement is necessary or advisable. The federal regulations provide employers with greater flexibility in terms of crafting job descriptions following the elimination of the 80 percent rule. Generally, employers should always keep job descriptions up-to-date and employees should understand a company s expectations at all times. If a job description (or even a change in an employee s responsibilities) leads you to conclude an employee may qualify for an exemption, you should engage in the analysis outlined above. How can I ensure continued compliance or applicability with the 2011 overtime exemptions? Employers may take a number of preventive steps in an attempt to maintain compliance with overtime regulations. A self-audit (which includes review of job descriptions and interviews with employees in those positions) is the most common tool utilized by employers in determining whether its employees are properly classified as exempt. Page 4 of 5

5 How do the 2011 revisions impact the State as a whole? The 2011 regulations level the playing field among New Jersey businesses and those in neighboring states. Employers may now implement a uniform compensation system (provided a state other than New Jersey does not have additional requirements) without consideration of any previously existing inconsistencies between federal and state regulations. Additional Resources Federal Department of Labor Fact Sheets Regarding Exemptions Wage and Hour Compliance NJ Department of Labor & Workforce Development ml For More Information If you need additional information, please contact Jeffrey J. Corradino or James M. McDonnell at (973) Updated: April 10, 2015 This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with an attorney who is familiar with the facts surrounding a specific situation and has accepted an engagement to serve as counsel. Page 5 of 5

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