Chamber Member Testifies on OT Regulations Before Department of Labor & Workforce Development
Friday, April 15, 2011

Testimony of Patricia A. Smith
Before the New Jersey Division of Wage and Hour Compliance
Concerning Proposed New Rule N.J.A.C. 12:56-7.2 on Exemptions From Overtime Compensation
April 15, 2011

Good morning. I am Patricia A. Smith, a labor and employment attorney and a partner in Ballard Spahr LLP. I am here today representing the Chamber of Commerce of Southern New Jersey. Thank you for providing the opportunity to comment on the Division of Wage and Hour Compliance’s proposed new rule regarding exemptions from overtime compensation for bona fide executive, administrative, professional, and outside sales employees.

As you know, under both federal and State law, employers have an obligation to pay overtime wages to non-exempt employees; the statutory intent of the Fair Labor Standards Act and the New Jersey Wage and Hour Law are the same in that regard. Under both federal and New Jersey law, exemptions from overtime are available to salaried executive, administrative and professional employees, as well as for outside sales employees. However, the federal and State laws differ in their application of the overtime exemptions.

We support adoption of N.J.A.C. 12:56-7.2 by which New Jersey would adopt the revised 2004 exemption regulations under the federal Fair Labor Standards Act, which provide employers and employees with clear guidance as to when an employee is exempt.

Under federal wage and hour law, employers determine whether an employee qualifies for exemption through application of a minimum salary test and a duties test. The federal regulations provide a clear two or three part duties test under each exemption to determine whether an employee would be exempt from the overtime pay requirement.

The New Jersey regulations on overtime exemptions likewise contain salary and duty components. However, the duties test is far from clear. For example, a New Jersey employer must parse through a six-part duties test to figure out whether an individual is exempt under the administrative exemption, in contrast to the federal regulations which employ a concise two-part test.

The inconsistent approaches in application of the overtime exemptions have created significant problems for New Jersey employers. Employers with the best of intentions become understandably confused in an area where frequent classification decisions need to be made. The current federal regulations apply much more concise tests that employers, and those of us who advise them, can apply with confidence.

In addition, many of New Jersey’s largest and best paying employers have establishments in other states. The inconsistency in federal and State overtime exemption rules places companies with multiple state locations at a competitive disadvantage and imposes undue financial and administrative burdens by forcing such companies to maintain different payroll and compensation systems. In its present form, New Jersey’s regulation creates a trap for these employers who are unaware of this divergent mandate and utilize a nationwide payroll system.

As a practical matter, many New Jersey employers, when they cannot identify a specific New Jersey rule addressing a particular wage and hour issue, frequently look to the federal law for guidance. New Jersey courts, however, have cautioned such employers against placing reliance on federal regulations. See Marx v. Friendly Ice Cream Corp., 380 N.J. Super. 302, 311 (N.J. Super. Ch., 2005). The proposed amendment would enable New Jersey courts and employers to look to a well developed body of law interpreting and applying exemption classifications.

Eliminating the distinction between federal and state standards on this issue will not only facilitate businesses’ ability to comply with consistent legal mandates, but will also preserve the requirement that non-exempt employees be properly compensated for overtime work.

Thank you for allowing us this opportunity to express our support for the Division’s proposed regulation regarding exemptions from overtime for bona fide executive, administrative, professional, and outside sales employees.