Brent Pohlman, Partner in the Labor and Employment Practice Group at Mandelbaum Barrett PC, emphasizes the importance of correctly classifying employees to avoid hefty penalties and fines, in his latest article for New Jersey Automotive Magazine, the full article can be found here.
Misclassification of employees can lead to significant financial liabilities. As Brent explains, many businesses operate under the assumption that titles such as general manager, production manager, operations manager, office manager, office administrator, and parts department manager automatically qualify employees for overtime exemption. This assumption is a common pitfall that can lead to serious consequences.
Increased Enforcement: A Growing Concern
Over the past two years, both the United States Department of Labor (USDOL) and the New Jersey Department of Labor (NJDOL) have ramped up enforcement regarding employee misclassification. Pohlman notes that this trend underscores the urgency for businesses to ensure compliance with the Fair Labor Standards Act (FLSA) and the New Jersey Wage and Hour Law (NJWHL).
Misclassifying an employee as exempt and paying only a flat salary exposes employers to significant liabilities. This includes payment for any unpaid regular and overtime hours, liquidated damages up to 200 percent of the unpaid wages, and possibly the employee’s legal fees if the claim is brought through private counsel. The NJDOL can also levy fines up to $1,000 and an administrative penalty of up to 20 percent of the wages owed.
Criteria for Overtime Exemption
Pohlman outlines the essential criteria for an employee to be classified as exempt:
- Salary Basis: The employee must be compensated on a salary basis, earning no less than $684 per week. The USDOL has proposed increasing this threshold to $1,059 per week in 2024.
- Salary Payment: The employee must receive their full salary for any week they perform work, regardless of hours worked, with limited exceptions such as unapproved absences or overuse of sick/vacation time.
Exemption Categories
Understanding the specific duties that qualify an employee for exemption is critical. Pohlman highlights two primary exemption categories relevant to an automobile repair shop: the Executive Exemption and the Administrative Exemption.
Executive Exemption
To qualify for the executive employee exemption, the following duties must be met:
- Primary Duty: Managing the enterprise or a recognized department or subdivision.
- Supervision: Regularly directing the work of at least two full-time employees or their equivalent.
- Authority: Having the authority to hire or fire employees, or their recommendations must carry significant weight in personnel decisions.
Typically, only one or two employees in a smaller shop, such as a general manager or office manager, may meet these criteria.
Administrative Exemption
For the administrative employee exemption, the criteria include:
- Primary Duty: Performing office or non-manual work related to management or general business operations.
- Discretion and Independent Judgment: Exercising discretion and independent judgment on matters of significance.
- Pohlman warns that the second prong often trips up employers. Discretion and independent judgment imply authority to make choices free from immediate supervision. Factors such as policy implementation, major assignments, financial commitments, and resolving significant issues are considered.
Best Practices for Compliance
To avoid misclassification, Brent recommends creating and maintaining accurate job descriptions reflecting specific duties and responsibilities. For non-exempt employees, even if salaried, employers must maintain precise records of all hours worked and pay overtime for hours exceeding 40 per week.
Proper classification today can save your business from costly penalties tomorrow.
For more information, contact Brent Pohlman at 93-243-7997 or via email at bpohlman@mblawfirm.com
You can read Brent Pohlman’s latest article for the New Jersey Automotive Magazine, here.