Are My Business’s Workers In New Jersey Employees Or Independent Contractors For Purposes Of Overtime Pay And The Minimum Wage?

The federal Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §§ 201-219 (the “FLSA”), and its corresponding regulations, 29 C.F.R. § 510 et seq.,  require nearly all employers to pay most employees not less than the federal minimum wage of $7.25 per hour for all hours worked and overtime pay at 1½ times the regular rate of pay for all hours worked in excess of 40 hours in a workweek.

Likewise, the New Jersey Wage and Hour Law, N.J.S.A. §§ 34:11-56a – 34:11-56a30 (the “NJWHL”), and its implementing regulations, N.J.A.C. § 12:56 et seq., mandate that most employees in New Jersey be paid not less than the New Jersey minimum wage of $7.25 per hour for all hours worked and overtime pay at 1½ times the employee’s “regular hourly wage” for all hours worked in excess of 40 hours in a workweek.

In contrast, neither federal law nor New Jersey law compels companies to pay, to independent contractors, either the minimum wage or or overtime compensation at 1½ times the contractor’s regular rate.  As a consequence, the factors used in determining, under New Jersey law, whether a person is engaged as an employee or as an independent contractor are highly important to businesses in the Garden State.

The FLSA and the New Jersey Wage and Hour Law each state that the term ” ‘Employ’ ” includes “to suffer” or “permit” to work.  29 U.S.C. § 203(g); N.J.S.A. § 34:11-56a1(f).  The FLSA and the New Jersey Wage and Hour Law each provide that the term ” ‘Employee’ ” means or includes “any individual employed by an employer.”  29 U.S.C. § 203(e)(1); N.J.S.A. § 34:11-56a1(g).

The New Jersey courts have not addressed the issues of who is an employee and who is an independent contractor under the NJWHL.  See Chen v. Domino’s Pizza, Inc., Docket No. 09-107, 2009 U.S. Dist. LEXIS 96362 (D.N.J. Oct. 16, 2007) (observing that “New Jersey has not addressed the issue of who is an employer under the NJWHL”).

However, the U.S. Court of Appeals for the Third Circuit — the federal court of appeals whose precedents bind federal trial courts in, among other states, New Jersey — utilizes a version of the ‘economic reality’ test to determine if an employment relationship exists under the FLSA for purposes of overtime pay and the minimum wage.  The goal of this test is to determine “whether, as a matter of economic reality, the workers at issue ‘are dependent upon the business to which they render service.’ ”  Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376, 1382 (3d Cir. 1985) (citations omitted).  If so, then the workers are employees; if not, then the workers are independent contractors.

In applying the economic reality test to determine whether an employment relationship exists under the FLSA, the Third Circuit considers six factors:

1. The degree of the alleged employer’s right to control the manner in which the work is to be performed.  A high degree of control supports determining the worker to be an employee.
2. The alleged employee’s opportunity for profit or loss depending upon his managerial skill.  That the worker can lose money (because he buys equipment or incurs costs for which the company does not reimburse him) weighs in favor of determining the worker to be an independent contractor.
3. The alleged employee’s investment in equipment or materials required for his task, or his employment of helpers.  An independent contractor is more likely than an employee to purchase costly equipment or to retain other workers.
4. Whether the service rendered requires a special skill.  That the worker is particularly skilled tends to show that he or she is an independent contractor.
5. The degree of permanence of the working relationship.  A high degree of permanence supports finding the worker to be an employee.
6. Whether the service rendered is an integral part of the alleged employer’s business.  That the service rendered by the worker is integral to the business militates in favor of employment status.

See DialAmerica Marketing, 757 F.2d at 1382-1383.

Call the Law Offices of David S. Rich, LLC at (347) 941-0760 to talk with a knowledgeable labor and employment lawyer about ensuring that your company complies with overtime pay and other wage and hour laws, or to retain a skilled labor and employment attorney to defend your company in unpaid overtime lawsuits or other wage and hour litigation.