On August 23, 2004, the U.S. Department of Labor overhauled the Federal overtime exemption regulations with amendments that included elimination of the former “long” and “short” tests for exemption (the application of one or the other being determined by the employee’s salary level), in favor of a single, streamlined duties test for each category of exemption, including executive, administrative, professional and outside sales employees. Since that time, New Jersey’s overtime exemption regulations, which were modeled on the Federal regulations in effect prior to August 2004, have been inconsistent with Federal law. Now, nearly seven years later, it appears that the New Jersey Department of Labor is ready to amend its regulations to eliminate those inconsistencies.

The New Jersey DOL recently proposed “repeal[ing] its existing rules regarding exemptions from overtime for bona fide executive, administrative, professional and outside sales employees and replac[ing] them with the analogous Federal overtime exemption regulations.” The proposed adoption by reference of 29 CFR Part 541 would have a significant, positive impact on New Jersey employers.

First, New Jersey’s existing overtime regulations impose a quantitative limitation on the amount of non-exempt work performed by exempt employees, regardless of the nature of their other duties and responsibilities. In particular, exempt executive and administrative employees are expressly limited to devoting “less than 20 percent of his or her workweek to non-exempt work or less than 40 percent if employed by a retail or service establishment.” N.J.A.C. 12:56-7.1(a)(5) (executive); 12:56-7.2(a)(4) (administrative). Similarly, exempt professionals and outside sales persons are limited to less than 20 percent of their workweek engaged in non-exempt work. 12:56-7.3(a)(4) (administrative); 12:56-7.4(a)(2) (outside sales). Notably, New Jersey’s quantitative limitation on the performance of non-exempt work is distinct from the qualitative “primary duty” analysis, and is, therefore, an independent basis for excluding employees from exemption.

By contrast, the Federal regulations do not impose an express quantitative limitation on the performance of non-exempt work, and the elimination of that requirement from New Jersey’s overtime exemption regulations would be a welcome change for non-government employers.

Second, New Jersey’s existing overtime regulations include various iterations of the requirement that exempt employees exercise “discretion and independent judgment.” Executive employees must “customarily and regularly exercise[] discretionary powers,” administrative employees must “customarily and regularly exercise[] discretion and independent judgment,” and the work of professional employees must “require[] the consistent exercise of discretion and judgment.” N.J.A.C. 12:56-7.1(a)(4) (executive); 12:56-7.2(a)(2) (administrative; 12:56-7.3(a)(2) (professional).

By contrast, Federal regulations require that the primary duty of administrative employees “include[] the exercise of discretion and independent judgment with respect to matters of significance,” but impose no express requirement concerning the discretion and/or independent judgment of executive or professional employees. Here again, elimination of the inconsistencies between the New Jersey and Federal regulations will avoid unnecessary confusion.

The New Jersey DOL’s proposal, if adopted, represents a substantial change in New Jersey’s overtime exemption rules. Employers with a presence in New Jersey should be mindful of the proposal in connection with any training, policy and/or classification efforts presently underway. Further, those employers vulnerable to class misclassification claims, such as the increasingly popular claim by assistant managers in retail and service establishments, may soon experience a positive shift in their level of risk.

The full proposal can be found at 43 N.J.R. 725(a). A public hearing is scheduled for April 15, 2011, and the 60-day comment period ends May 20, 2011.