On the heels of the January 1, 2020 implementation of the new federal Final Rule regarding overtime eligibility for white collar employees, Governor Murphy has directed New Jersey’s Department of Labor and Workforce Development to “assess and provide guidelines on how we can best ensure that our workers have these safeguards.”
Under the Fair Labor Standards Act and its regulations, certain white collar employees (executive, administrative and professional) may be exempt from overtime if they meet both the salary and duties test. Back in September 2019, the U.S. Department of Labor (USDOL) announced a final rule raising the earning thresholds required to maintain certain executive, administrative and professional employees’ overtime-exempt status. Notably, the USDOL did not alter any of the duties tests and the current regulations remain unchanged. Also, the 2020 updates shall remain indefinitely as they do not include any automatic increases which appeared in the 2016 Obama-Administration rulemaking.
Federal Rule Highlights
1. Raising the minimum salary level for exempt status from $455/week to $684/week (equivalent to $35,568 per year)
The increase is the first since 2004 and the USDOL is updating the minimum salary level for exempt status by applying to the current data the same method and long-standard calculations used to set that level back in 2004. The USDOL explained that it looked at the 20thpercentile of earnings of full-time salaried workers in the lowest-wage census region and/or the retail sector nationwide.
2. Increasing the annual salary requirement for “highly compensated employees” from $100,000 annually to $107,432 annually
This new compensation level of $107,432 is the equivalent of the earnings for 80th percentile of full-time salaried workers nationally. The final rule notes that to be exempt on this basis, the employee must receive the new minimum salary of $684/week on a salary basis (without regard to non-discretionary bonus).
3. Creating a 10% allocation of non-discretionary bonuses and incentive payments (like commission) paid at least annually towards the minimum salary level
The new final rule permits employers to allocate up to 10% of the minimum threshold salary level to commissions. It also permits a final "catch-up" payment within one pay period after the end of the year to bring an employee's compensation up to the required level of $35,568. But since use of commissions is capped at 10%, the employee must receive at least 90% of the salary level in his or her weekly base salary: at least $615.60. If at the end of the year, the employee's paid-out salary plus the nondiscretionary bonuses and incentive payments (including commissions) does not equal at least $35,568, employers would then have one pay period to make up for the shortfall.
4. Revising special salary levels for workers in the entertainment industry
The USDOL also increased the base minimum salary for employees in the motion picture producing industry proportionally to the increase in the minimum salary level test, to $1,043 per week (or a proportionate amount based upon the number of days worked).
The Future for New Jersey
Given the abundance of employment law changes in 2019, it comes as no surprise that Governor Murphy is considering a change to New Jersey’s rulemaking in this regard. A Trenton-based think tank, New Jersey Policy Perspective (NJPP), issued a report in October 2019 which is under review by the Governor’s office, would significantly increase the minimum salary levels for white collar workers to maintain exempt status in New Jersey, up to $78,000 by 2024. The increase is about double the new federal levels and according to NJPP would widen-overtime eligibility to more than 300,000 white collar individuals in New Jersey. Opponents to this increase contend that raising the threshold to levels this high would jeopardize New Jersey-based businesses, especially those grappling with the rising minimum wage requirements.
The Bottom Line
We are closely watching the issue in New Jersey. For now, employers in New Jersey must comply with the new federal rulemaking. We recommend that businesses complete audits to ensure that employees considered exempt are earning at least the new minimum salary levels.