Operational Gaze:
How to Run Payroll in New Jersey?

April 11th 2024

Effectively managing payroll in New Jersey involves ensuring your employees receive proper compensation while adhering to the state’s unique laws. In this article, we present a step-by-step guide tailored to assist New Jersey businesses in handling payroll. Running payroll goes beyond merely issuing paychecks; it involves caring for your employees and staying up-to-date with the continually changing payroll regulations, which can pose particular challenges for new companies.

Our guide is designed to provide guidance for streamlining your payroll procedures. You will discover valuable insights to guarantee the smooth operation of your payroll and full compliance with the essential regulations, regardless of your level of experience.

This Article Covers

Laws That Affect Payroll Procedures in New Jersey
Worker Classifications in New Jersey
Payroll Forms and Relevant Bodies in New Jersey
Applicable Taxes in New Jersey
Key Pay Elements That Impact Payroll in New Jersey
Step-by-Step Guide to Payroll in New Jersey

Laws That Affect Payroll Procedures in New Jersey

New Jersey Laws

  • New Jersey Labor Code: The New Jersey Labor Code comprehensively addresses several employment-related matters, notably including wage payments, sick leave policies, and workers’ compensation regulations.
  • Overtime Pay: Overtime compensation in New Jersey is determined based on the daily and weekly hours an employee works and the total days they’ve worked in a given period. This means that additional pay is provided for hours worked beyond the standard workweek.
  • Minimum Wage: Employers in New Jersey must adhere to the minimum wage rate established by the state’s regulations. It’s important to note that this rate is subject to change and may differ from the federal minimum wage, underlining the state’s autonomy in setting wage standards.
  • Paid Time Off and Leaves: Federal labor laws dictate the rules in New Jersey concerning compensation for various types of leave, including sick leave, holiday leave, jury duty leave, voting leave, and bereavement leave. Employers in New Jersey are not legally obligated to provide compensation for any form of leave, even though they may choose to do so.
  • Paid Breaks/Lunch: Although there is no specific legal requirement in state or federal wage and hour laws for employers to offer paid breaks or meal periods, many employers do provide short rest breaks, usually lasting less than 20 minutes. Importantly, if such breaks are offered, the Department of Labor mandates that they must be compensated, ensuring fair treatment for employees.
  • Unemployment, Disability, and Workers’ Compensation: New Jersey mandates that employers participate in the state’s unemployment fund. Additionally, employers are legally required to provide disability and unemployment insurance to their employees, demonstrating the state’s commitment to the financial well-being and job security of its workforce.
  • Payment Records: Employers in New Jersey must keep payment records of their employees. These pay stubs must include essential information such as the employer’s identity, address, deductions, and other details specified by law, ensuring transparency in wage transactions.
  • Final Paycheck: In cases of employee termination, New Jersey labor laws mandate that individuals should receive their final wages, including any accrued vacation pay, in a prompt and timely manner. This provision safeguards employees’ rights as they conclude their employment with an organization.

Federal Laws

  • The Federal Insurance Contributions Act (FICA): Under FICA, both employers and employees share the responsibility of contributing to Social Security and Medicare. Employers must withhold 6.2% for Social Security tax and 1.45% for Medicare tax from each employee’s earnings. Additionally, employers are obligated to match these deductions, resulting in a total FICA payroll tax rate of 15.3% for each employee.
  • The Federal Unemployment Tax Act (FUTA): FUTA requires employers to make contributions to support unemployment benefits for eligible employees who experience job loss. Although it’s not a direct payroll deduction for employees, FUTA contributions need to be recorded in each payroll cycle by employers. The general expectation is a 6% tax on the first $7,000 paid to an employee annually, with some potential exceptions based on the industry.
  • The Fair Labor Standards Act (FLSA): The FLSA sets rules and guidelines for minimum wage, extra pay for overtime work, maintaining records, defining exemptions, and managing child labor in various industries. This applies not only to private companies but also to government entities at the federal, state, and local levels.

HR Laws

  • New Employee Reporting in New Jersey: In New Jersey, employers are legally required to inform the relevant state department about the hiring, recall, or rehiring of any new employee within a seven-day timeframe. This mandatory notification must include specific information for each newly hired, recalled, or rehired individual, such as their full name, address, social security number, and their date of employment. Employers must also provide their own information, including the company’s name, address, and state and federal identification numbers.
  • Workplace Notification Requirements in New Jersey: The New Jersey Department of Labor mandates that all businesses operating within the state and employing workers must display a comprehensive set of labor law posters within their workplace. These posters cover a wide range of essential subjects, including health and safety guidelines, and various other critical labor laws.

Worker Classifications in New Jersey

Employees and Independent Contractors

In the state of New Jersey, as in many other regions, categorizing workers appropriately is of utmost importance for employers. A clear understanding of the differences between employees and independent contractors is critical to ensure adherence to labor laws and tax regulations. Here is an overview of these worker classifications in New Jersey:

Employees

  • Control: Typically, employees operate under the direct control and supervision of their employers. Employers specify when, where, and how employees perform their job responsibilities.
  • Tax Deductions: Employers bear the responsibility of deducting federal and state income taxes, Social Security, and Medicare taxes from employees’ earnings.
  • Benefits: Employees may be eligible for employment benefits, including health insurance, retirement plans, and paid time off, in accordance with their employment agreements.
  • Labor Regulations: Employees are covered by a range of labor laws, encompassing minimum wage, overtime, and workplace safety regulations. Employers are obliged to comply with these regulations when dealing with their employees.

Independent Contractors

  • Control: Independent contractors enjoy greater independence in their work approach. They are typically contracted for specific projects or tasks, and employers exert less direct control over their methods.
  • Tax Obligations: Independent contractors are accountable for paying their own federal and state income taxes, along with self-employment tax, which covers contributions to Social Security and Medicare.
  • Benefits: Independent contractors are not entitled to employment-related benefits, as they are considered self-employed individuals.
  • Labor Laws: Independent contractors are exempt from many labor laws that safeguard employees. They do not qualify for minimum wage, overtime, or other employment-related advantages.

The ABC Test

It is imperative for New Jersey employers to accurately classify their workforce, as misclassification can result in legal repercussions and penalties. In New Jersey, the ABC Test is used for worker classification, workers that fall under independent contractors should meet the following criteria of the test:

  1. The worker operates independently, free from the control and guidance of the hiring entity regarding job performance.
  2. The worker performs duties outside the ordinary scope of the hiring entity’s business.
  3. The worker is engaged in an autonomously established trade, occupation, or business related to the nature of the work performed.

For more details on the rights of salaried and hourly employees, you can check out our guides on your rights as a salaried employee in New Jersey and your rights as an hourly employee in New Jersey.

Payroll Forms and Relevant Bodies in New Jersey

New Jersey Payroll Forms

  • NJ-W4 Form: This form is used to calculate the state income tax that needs to be deducted from employees’ paychecks.
  • NJ-927 Form: Employers use this form to report and send the state income taxes withheld from their employees’ earnings on a quarterly basis.
  • NJ-165 Form: New Jersey employers use this form to confirm that they have collected and transmitted the correct amount of state income tax on behalf of their employees throughout the year.
  • New Jersey New Hire Reporting Form: Employed by both public and private employers in New Jersey to report any newly hired or returning employees working in the state.

Federal Payroll Forms

  • W-4 Form: This form assists employers in determining the accurate amount of tax to withhold from their employees’ paychecks.
  • W-2 Form: It reveals the total annual earnings of each employee.
  • W-3 Form: This form serves as a summary of the combined pay and taxes for all employees.
  • Form 940: It is used to report unemployment taxes to the IRS.
  • Form 941: This form reports income and FICA taxes withheld from paychecks on a quarterly basis.
  • Form 944: It reports annual income and FICA taxes withheld from paychecks.
  • 1099 Forms: These forms provide independent contractors with the necessary information to calculate the taxes they owe to the IRS based on their earnings.
  • Form I-9: This form is employed to verify the identity and work eligibility of individuals employed in the United States.

Federal and New Jersey Payroll/ Tax Bodies

  • Internal Revenue Service (IRS): The IRS, as the principal federal tax agency, is entrusted with the task of collecting federal income tax and upholding adherence to federal tax laws. Employers are responsible for deducting federal income tax from their employees’ earnings and forwarding it to the IRS.
  • Social Security Administration (SSA): The SSA takes on the role of overseeing the receipt and distribution of Social Security and Medicare taxes, often referred to as FICA taxes. Employers are mandated to withhold these taxes from their employees’ wages, report them, and remit the collected amounts to the SSA.
  • Department of Labor (DOL): The U.S. Department of Labor looks over a wide spectrum of labor-related matters, encompassing wage and hour regulations, family and medical leave provisions, and employee protections. It diligently enforces federal labor standards and statutes.
  • New Jersey Division of Taxation: This state agency is responsible for the collection of New Jersey state income tax. Employers are required to subtract state income tax from their employees’ salaries and transmit these sums to the division.
  • New Jersey Department of Labor and Workforce Development: This department takes charge of unemployment taxes and matters related to workers’ compensation in the state of New Jersey. Employers are obliged to send in unemployment taxes to this particular department.
  • New Jersey Department of Treasury: The Department of Treasury in New Jersey oversees various financial and tax-related functions within the state, including the administration of tax collection and revenue management.

Applicable Taxes in New Jersey

Employer Contributions

Federal Unemployment Tax Act (FUTA): The State of New Jersey adheres to the regulations outlined in the Federal Unemployment Tax Act (FUTA). Currently, this act establishes a uniform federal rate of 6.0% applied to the initial $7,000 of wages for each employee.

Withheld from Employee’s Wages

  • New Jersey Income Taxes: In New Jersey, a flat income tax rate of 5% is applied to the total earnings of every employee. Furthermore, certain New Jersey municipalities may levy local income taxes on both residents and non-residents, with the specific tax rates varying from one city to another.
  • Workers’ Compensation in New Jersey: New Jersey employers are obligated to provide workers’ compensation insurance when they have a minimum of one employee working more than 35 hours per week for a duration of at least 13 weeks within a single year. They must have a workforce that includes at least three employees at any given time, including part-time personnel.
  • Social Security (FICA) Withholding: Social Security withholding, commonly known as the FICA tax, entails the deduction of 6.2% from an employee’s earnings. However, this deduction only applies to income up to the initial $137,700. The maximum withholding is capped at $8,537.40. Additionally, a separate deduction is made for Medicare, specifically the Hospital Insurance portion, which amounts to 1.45% of all employee earnings.

Additional Relevant Subtractions to Withhold on Behalf of Employees

In addition to income tax withholding, employers in New Jersey may need to withhold certain additional relevant subtractions on behalf of their employees. These subtractions can include:

  • Local Taxes: Some localities in New Jersey may have their own local taxes in addition to state taxes. Depending on the municipality, employers may be required to withhold and remit local income taxes on behalf of their employees.
  • Retirement Contributions: If your business offers retirement plans such as 401(k) or 403(b), employees may authorize deductions for retirement contributions from their paychecks. Employers must withhold and ensure these contributions are appropriately deposited into the retirement accounts.
  • Garnishments: Employers may be required to withhold a portion of an employee’s wages to satisfy court-ordered garnishments, such as child support or creditor judgments.
  • Union Dues: If employees are part of a union, employers may be required to withhold union dues from their paychecks and remit these dues to the respective union. These deductions can only be made with consent from employees.

Key Pay Elements That Impact Payroll in New Jersey

Minimum Wage

The current minimum wage in New Jersey is set at $15.13 per hour. Employers are required to comply with minimum wage laws to avoid facing legal repercussions. Employers must also stay informed on wage laws, as the minimum wage requirements may change.

Overtime

New Jersey is in compliance with overtime laws and provisions specified in the federal Fair Labor Standards Act (FLSA). When an employee works more than 40 hours in a workweek, they are entitled to overtime pay at a rate equivalent to 1.5 times their regular hourly wage. With the minimum wage currently at $15.13 per hour, this would result in an overtime rate of $22.70.

Workers’ Compensation Insurance

The workers’ compensation programs in New Jersey provide a protective safety net for employees who experience injuries or illnesses directly related to their job. Moreover, these programs offer disability benefits to employees who become incapacitated due to work-related causes, helping to alleviate the financial burdens when employees need to take time off from work.

Pay Stub Laws

Employers in New Jersey must provide employees with pay stubs containing essential information, such as the employer’s name, address, deductions, and other mandated details.

New Jersey Payday and Minimum Pay Frequency

New Jersey law prescribes the frequency of paydays and the minimum pay frequency. Employers must abide by these regulations, ensuring employees are paid on time and according to state laws. All employees must pay wages at least twice a month.

Paycheck Deduction

Employers may make certain deductions from employees’ paychecks, but these deductions must comply with federal and state laws and be authorized by employees. Examples include tax withholdings, benefit contributions, and legally mandated deductions.

Final Paycheck

When an employee’s employment is terminated, they are entitled to receive their final paycheck, which should include all wages earned, including any accrued vacation pay. New Jersey law specifies that after the termination or voluntary leaving of employment, the payment must be completed within 10 days from the end of the work period.

Step-by-Step Guide to Payroll in New Jersey

  • Understand New Jersey Payroll Regulations: Familiarize yourself with specific regulations relevant to your business, which can vary based on factors such as industry, employee count, and worker classifications.
  • Register Your Business as an Employer: Obtain your Employer Identification Number (EIN) and create an account in the Electronic Federal Tax Payment System (EFTPS). Ensure that you secure an EIN before developing a payroll process flowchart. EIN is a unique identifier used by the IRS.
  • State Registration in New Jersey: If your business operates in New Jersey, you must register with the state. New businesses can complete this process through the New Jersey Division of Revenue and Enterprise Services. Additionally, any business compensating employees in New Jersey must register with the New Jersey Department of Labor and Workforce Development.
  • Determine Employee Classification: Properly classify your workers as employees or independent contractors, as it significantly affects tax and wage reporting. Misclassification can lead to legal repercussions and penalties.
  • Collect Employee Payroll Documents: During employee onboarding in New Jersey, ensure that specific forms are completed, including the I-9 verification and the state’s equivalent of the W-4, known as the Employee’s Withholding Tax Exemption Certificate (Form NJ-W4).
  • Track Time and Attendance: Implement a comprehensive system to monitor employee time and attendance, covering workweeks, overtime calculations, break times, and leave entitlements. You can use online tools like time and attendance software to help you track time accurately.
  • Establish a Payroll Schedule: Set up consistent pay periods and ensure that employee paychecks are distributed within these intervals, following state regulations.
  • File Federal and State Payroll Taxes: Follow IRS regulations for federal taxes, including unemployment tax, and comply with the schedule assigned to you (monthly or semiweekly).
  • Maintain and Archive Payroll Records: Retain records for all employees, including former employees, for an extended period in accordance with federal and state guidelines.
  • Process Annual Payroll Reports: Annually, complete payroll reports, including W-2 Forms and 1099 Forms. Furnish these forms to employees no later than January 31 of the following year, in compliance with federal and New Jersey state regulations.

Final Thoughts

Managing payroll in New Jersey requires a lot of legal knowledge and compliance with laws. Employees must ensure they adhere to New Jersey’s payroll regulations. To make the process of managing payroll easier, consider exploring our list of the top 6 applications tailored to streamline payroll responsibilities in the United States. If you’ve already established a payroll system, we’ve provided ten tips to enhance your payroll procedure within the United States.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.

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