Correctly Classifying Employees

January 1, 2013 – In The News
New Jersey Business

Employee overtime is determined by a variety of details from e-mail use outside of office hours to whether an employee is “exempt” or an independent contractor and the price of misclassifying or underpaying an employee can be high, with companies facing potential fines, back payments and damages.

Complying with wage and hour laws concerning overtime in New Jersey has become easier thanks to recent efforts to align state and federal laws.

Work hours and settings have changed since the New Deal legislation during the Depression in the 1930s. Society has moved away from a manufacturing-production atmosphere, in which timekeeping was easy to capture with people sitting at an assembly line. Work has shifted to a more creative effort as opposed to a physical effort. This change, as well as the introduction of electronic devices that put email at your fingertips constantly, has turned earlier laws on their heads.

Complicating things further, the US Department of Labor modernized its rules in 2004, adopting new, simpler tests for determining which employees are exempt from receiving overtime. The problem was the new federal standard was completely different from the only one New Jersey recognized, says Ian Meklinsky, a partner at Fox Rothschild LLP in Princeton and Philadelphia. “A number of New Jersey-based employers ended up paying a lot of back-money to employees because they would apply the federal test, which was not the same as the New Jersey state test.”

State law also prohibited rounding employees’ work time unless it was in the workers’ favor, while federal law allowed for rounding up or down, he says.

Things have improved. “In December 2010, the State Department of Labor adopted the federal rounding rule, which was its first big step in decades in terms of meeting what the federal rules were,” Meklinsky says. “And as of Sept. 6, 2011, New Jersey employers can apply the federal rules for determining overtime exemptions.”

Meklinksy added, “You can’t do this in broad brush strokes. You have to do this on an individual employee-by employee analysis.”