What Every Business Needs to Know About Wage and Hour and Pay Equity in New Jersey
Over the last few years, New Jersey has enacted robust wage theft and pay equity laws designed to ensure that New Jersey employees are paid all wages due and compensated in a fair and equitable manner. CPAs are often consulted for guidance on navigating these complex laws to ensure that companies’ pay practices are legally compliant and to minimize the potential for costly litigation. It’s important to be aware of the core legal issues impacting New Jersey employers in order to navigate these complex compensation issues.
New Jersey Wage Theft Act
New Jersey’s Wage Theft Act (WTA) is one of the toughest in the country and was amended nearly three years ago to criminalize certain wage and hour violations and significantly increase exposure to damages, penalties and fines. Liability can be assessed not only against an employer but successor entities or successor firms of the employer.
If an employee files an action for unpaid wages, the WTA provides for liquidated damages of 200 percent in addition to the payment of wages owed to an employee. There is an affirmative defense available to employers to avoid these treble damages if they promptly correct wage errors. To take advantage of the affirmative defense, the employer must: 1) demonstrate that it acted in good faith with reasonable grounds for believing that the action was not a violation; 2) admit the violation; and 3) pay the amount owed within 30 days’ notice of the employee’s claim. Absent a good faith defense, a wage and hour violation exposes an employer to unpaid wages, liquidated damages, attorney’s fees and costs.
Given the potential exposure, it is critical to ensure that companies pay their employees full wages when due. Consult with an attorney if there are any questions about whether an employee is properly classified as exempt; independent contractor issues likewise require detailed analysis under the wage and hour laws, and misclassification errors are very costly. Keep up to date with the increases to minimum wage, which is currently $13 per hour for most New Jersey employers and will continue to increase to $15 over the next couple of years. Accurate recordkeeping is critical to ensure that non-exempt employees are paid for all time worked and to defend against any potential litigation and avoid significant potential damages and penalties.
Pay Equity Considerations
Pay equity is another area where New Jersey leads the country in having one of the most progressive laws favorable to employees. Under the Diane B. Allen Equal Pay Act, it is an unlawful employment practice for an employer to pay any member of a protected class at a rate of compensation less than the rate paid to employees who are not members of the protected class for substantially similar work. Whereas the federal Equal Pay Act requires equal pay for equal work regardless of gender, New Jersey expands this protection to all 17 protected categories recognized under the state’s Law Against Discrimination.
New Jersey employees who perform substantially similar work must be paid the same compensation. The exceptions are limited to pay disparities based on a seniority system, merit system or a bona fide factor (e.g., training, education, experience or the quantity or quality of production) so long as the bona fide factor does not perpetuate a differential in compensation based upon a characteristic of a protected class. An employee who succeeds on an equal pay claim in New Jersey may be awarded compensatory damages, attorney’s fees and costs, as well as punitive damages if the conduct is deemed willful.
CPAs may be asked for assistance in conducting a pay audit. It is a best practice to partner with an attorney when conducting a pay audit so that the results are cloaked by the attorney-client privilege and protected from public consumption. Accountants and attorneys make a great team when it comes to a pay-equity analysis. Attorneys provide advice regarding legal compliance and may make recommendations about where to make changes to close apparent pay gaps; CPAs are best positioned to crunch the numbers and advise clients on how to budget and plan for the financial impact of pay equity issues.
This article appeared in the Spring 2022 issue of New Jersey CPA magazine. Read the full issue.