New Jersey Inadvertently Eliminates Inside Sales Exemption

Written by Robert G. Brody on November 25, 2011

New Jersey inadvertently changed the status of “inside sales” employees who were being treated as exempt from minimum wage and overtime requirements.  This mistake could cost employers thousands of dollars if they do not make immediate changes to their payroll practices. 

New Jersey law originally had its own tests for whether or not an employee was exempt from overtime.  Among other exemptions, an employee whose primary duty consisted of sales activity and who was paid at least $400 per week, with at least 50% of their compensation coming from commissions, was exempt from overtime.  This “inside sales” exemption was used by many employers. 

However, recently New Jersey repealed its exemption laws and simply adopted by reference the exemptions under the Fair Labor Standards Act (“FLSA”).  There’s only one problem; they forgot that the FLSA does not have an inside sales exemption.  Therefore, potentially hundreds, if not thousands, of New Jersey inside sales employees just lost their exempt status.  This means instead of earning a salary and commission, they need to be paid at least minimum wage, and receive overtime for all hours worked over 40.  In addition, employers’ recordkeeping requirements will have to change for those employees. 

The New Jersey Department of Labor and Workforce Development confirmed this inadvertent deletion and said they are working to correct the problem.  However, a change in the law could take over six months.  For now, employers need to decide on a risk-management strategy.  You may want to wait out the revision and continue treating those employees as exempt – but this is not compliant with current law.  Alternatively, a more cautious, but incredibly burdensome alternative is to switch inside sales employees to nonexempt status, at least for now. 

Employers affected by this decision should keep a very close eye on the developments to this law.  For now, you should consult with counsel on how to best handle the issue.  Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.

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About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More