New Jersey Department of Labor Proposed Regulations Clarify Requirement That Temporary Workers Be Paid the Same as Clients’ Employees

Earlier this year, on February 6, 2023, the New Jersey Governor signed the Temporary Workers’ Bill of Rights into law.

On August 21, 2023, the New Jersey Department of Labor and Workforce Development (NJDOL) Division of Wage and Hour and Contract Compliance published Proposed Regulations to govern the new law. The Department will be accepting public comments regarding the Law until October 20, 2023. While the Bill of Rights has wide-sweeping consequences for temporary laborers and third-party clients, it is also notable for making New Jersey the first state to require equal pay for temporary workers.

Specifically, the law prohibits paying temporary laborers less than the average rate of pay and average cost of benefits, or cash equivalent, of third-party client employees performing the same or substantially similar work. Illinois recently passed a similar law.

The NJDOL’s Proposed Regulations would require third-party clients to determine the “comparator employees” whom they employ to perform the same or substantially similar work, and provide the temporary staffing company with a list of comparator employees with their hourly rate of pay and the cost per hour of the benefits they each receive.

If a comparator employee is paid on a salary basis, the Proposed Regulations would require the third-party client to divide their annual salary by 2,080 hours to arrive at an hourly rate of pay estimate, and divide their annual cost of benefits by 2,080 hours to arrive at benefits cost per hour estimate.

In order to calculate the appropriate hourly rate of pay for the temporary worker, the temporary help service firm must:

• Take the sum of the hourly rates of pay of the comparator employees identified by the third-party client and divide it by the number of comparator employees to arrive at the average hourly rate of pay of the third-party client’s comparator employees;

• Take the sum of the cost per hour of benefits of the comparator employees identified by the third-party client and divide it by the number of comparator employees to arrive at the average cost per hour of benefits of the third-party client’s comparator employees;

• Subtract the cost per hour of benefits provided by the temporary help service firm to the temporary laborer, from the sum of the average hourly rate of pay of the third-party client’s comparator employees and the average cost per hour of benefits of the third-party client’s comparator employees;

The product of the subtraction in the final step is the hourly rate of pay that the temporary help service firm must pay the temporary laborer for their worked performed at the designated placement.

One of the unintended consequences of the formula used to calculate the appropriate rate of pay for temporary laborers is that, by averaging the rate of pay of all of their comparator employees regardless of experience, it is foreseeable that a newly engaged temporary laborer may make more than the third-party client’s entry level full-time employees performing the same work.  Because of this disparity, the Temporary Workers’ Bill of Rights may actually provide a strong disincentive for employers to use temporary laborers.

The Proposed Regulations also provide a list of 12 principles to consider when determining whether a temporary laborer and a third-party client are performing substantially similar work:

• Substantially similar work should be viewed as a composite of skill, effort, and responsibility performed under similar working conditions;
• Functions and duties need not be identical in order to be substantially similar;
• Occasional, trivial, or minor differences in duties that only consume a minimal amount of the employee’s time will not render the work dissimilar;
• Job titles and job descriptions are relevant, but not dispositive, of whether two individuals are performing substantially similar work;
• The determination should focus on an analysis of the actual job duties performed, not the specific person performing the work;
• The analysis should be applied to a full work cycle, not just a snap shot of a particular time period or day;
• Skill is measured by factors such as the experience, ability, education, and training required to perform a job;
• Effort is the amount of physical or mental exertion needed to perform a job;
• Responsibility is the degree of accountability and discretion required to perform a job;
• The number of years of service (that is, seniority) of a particular employee is not relevant to the determination of whether two jobs are substantially similar, even where the third-party client’s employee compensation system is seniority based; but rather, what is relevant is the number of years of experience that are required to perform a job;
• The third-party client’s use of a merit system for the compensation of its employees is not relevant to the determination of whether two jobs are substantially similar; and
• Working conditions, for the purpose of determining whether two jobs are being performed under similar working conditions, means the physical surroundings and hazards, but does not include job shifts.

New Jersey employers that contract with temporary help service firms should immediately begin analyzing their workforce to determine their potential comparator employees in order to comply with the Proposed Regulations regarding the law’s pay equity provisions, in addition to ensuring that their staffing contracts are consistent with the other provisions in the Bill of Rights.

Staffing companies doing business in New Jersey should establish internal procedures for requesting the necessary pay data from third-party clients and calculating the appropriate rate of pay for their workers.