Oct 19, 2011

New Jersey Eliminates Exemption for Commissioned Sales Employees

The New Jersey Department of Labor and Workforce Development recently amended its wage and hour regulations to follow the federal regulations. However, in doing so, it inadvertently eliminated the exemption for sales employees paid on commission.

Like the federal Fair Labor Standards Act (“FLSA”), New Jersey’s overtime statute includes exemptions for executive, administrative, professional and outside sales employees (often referred to as “white collar” exemptions). The FLSA’s “white collar” exemptions are listed at 29 C.F.R. Part 541. In addition to the “white collar” exemptions, Section 7(i) of the FLSA exempts employees from overtime if (1) the employee is employed by a retail or service establishment as defined by the Department of Labor, (2) the employee’s regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and (3) more than half the employee’s total earnings in a representative period consist of commissions. This additional exemption is often referred to as the “inside sales” exemption.

Although New Jersey’s overtime statute does not contain an “inside sales” exemption, New Jersey’s overtime regulation defined the administrative exemption to include any employee “whose primary duty consists of sales activity and who receives 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week.” Therefore, “inside sales” employees paid on commission were exempt from receiving overtime pay. However, with the recent amendment, New Jersey changed the language of its regulations to adopt only the FLSA’s “white collar” exemptions located at 29 C.F.R. Part 541. The regulation now reads: “Except as set forth in (b) below, the provisions of 29 C.F.R. Part 541 are adopted herein by reference.” Because Part 541 does not cover the FLSA Section 7(i) exemption for commissioned sales employees of retail or service establishments, the New Jersey commissioned sales exemption was eliminated by the amendment.

The New Jersey Department of Labor and Workforce Development stated that this change was inadvertent, and that the Department is working on a solution to incorporate the section 7(i) exemption. Nevertheless, until the regulation is amended, employers face the risk of private suits from employees based on the current regulation.

If you have any specific questions regarding this new regulation, please contact your employment counsel at Smith, Gambrell & Russell, LLP.


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