Legal Updates

Why Does Employee Classification Matter?

Employee classification is one of the most consequential compliance issues facing businesses today. Misclassification exposes businesses to substantial liability for unpaid overtime, penalties, and enforcement actions.

What Wage-And-Hour Laws Apply to New Jersey Employers?

The Fair Labor Standards Act (FLSA) establishes baseline protections for workers, including minimum wage and overtime requirements. Under the FLSA, covered employees must receive overtime compensation at a rate of not less than one and one-half times their regular rate for hours worked beyond 40 in a workweek. This does not include holidays or paid time off in which the employee does not work. The federal minimum wage is currently $7.25 per hour.

New Jersey's State Wage and Hour Law provides additional protections. The state minimum wage is currently $15.92 for most employers (or $15.23 for employers who employ fewer than six employees and for employees engaged in seasonal employment). New Jersey employers must pay overtime at one and one-half times the employee's regular hourly wage for each hour worked beyond 40 in a week. Like federal law, this does not include holidays or paid time off in which the employee does not work.

Which Employees May Be Exempt From Overtime Requirements?

Not all employees are entitled to overtime pay. The FLSA provides exemptions for employees performing certain job duties. The most common are the “white collar” exemptions for employees serving in bona fide executive, administrative, and professional capacities, which are the focus of this article. Qualifying employees are exempt from minimum wage and overtime protections. New Jersey law adopts the FLSA “white collar” exemptions.

What Tests Must an Employee Satisfy to Qualify for an Exemption?

An employee must satisfy three tests: the salary basis test, the salary level test, and the duties test.

What Is the Salary Basis Test?

An exempt employee must be compensated on a salary basis, meaning the employee regularly receives a predetermined amount for each pay period that is not subject to reduction based on variations in the quality or quantity of work performed.

What Is the Salary Level Test?

The employee’s predetermined salary must meet minimum thresholds. Under current federal regulations, employees must be compensated at a rate of not less than $684 per week to qualify for the executive, administrative, or professional exemptions.

What Is the Duties Test?

Meeting the salary requirements alone is insufficient. The employee’s primary duties must align with the specific “white collar” exemption category.

When Does the Executive Exemption Apply?

An employee may qualify for the executive exemption if:

• The employee’s primary duty is management of the enterprise or of a customarily recognized department or subdivision;
• The employee customarily and regularly directs the work of two or more other employees; and
• The employee has the authority to hire or fire employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given weight.

When Does the Administrative Exemption Apply?

An employee may qualify for the administrative exemption if:

• The employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

When Does the Professional Exemption Apply?

An employee may qualify for the professional exemption if the employee’s primary duty involves work:

• • Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or
  • Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

What Other "White Collar" Exemptions May Apply?

Other “white collar” exemptions include employees working in an outside-sales capacity, as well as computer systems analysts, computer programmers, software engineers, and other similarly skilled computer employees.

What Are the Risks of Misclassifying an Employee?

The consequences of misclassifying non-exempt employees as exempt are severe. Employers who fail to pay required overtime face liability for back wages, liquidated damages, and penalties. Under New Jersey law, the employer bears the burden of proving that an exemption applies.

What Practical Steps Should Employers Take?

Employers should regularly audit employee classifications, particularly when job duties change, new positions are created, or job descriptions are drafted. The analysis must focus on the duties performed, not the employee’s job title.

How Can Connell Foley Help?

Navigating wage-and-hour compliance requires proactive attention and experienced guidance. Connell Foley’s employment law group regularly advises New Jersey employers on FLSA and Wage and Hour Law compliance, employee classification audits, and strategies to minimize liability. If you have questions about your current practices, need assistance conducting a classification review, or face a wage claim or regulatory inquiry, contact us to discuss how we can support your business and protect your interests.