Payroll Scheme to Avoid Overtime Backfires: $457K Payout

What happens when an employee works 50 hours per week, but payroll makes it look like 25 hours for each of two companies to avoid overtime premiums? That was the setup allegedly devised by the owner of two janitorial companies in New Jersey. 

Now the companies must pay $457,500, according to the New Jersey Department of Labor and Workforce Development (NJDOL).

2 Janitorial Companies, 1 Owner

Affordable Quality Cleaning LLC (AQC) provides janitorial services for residential and commercial properties.

NJDOL began investigating AQC after receiving employee complaints that the company wasn’t paying overtime. The investigation revealed that AQC employees were receiving paychecks from two related companies – AQC and Affordable Quality Property Management Corp (AQPM) – both owned by the same individual. 

Investigators soon learned that, in addition to sharing a common owner, AQC and AQPM also shared an office, clients and dozens of employees, including management.

Payroll Scheme to Avoid Overtime

According to the investigation, employees received paychecks from both companies, with hours divided between the two. For example, a worker who put in 50 hours in a single workweek could receive one paycheck for 25 hours from AQC and a second check for the remaining 25 from AQPM. The result: Workers weren’t paid the time-and-a-half overtime premium for working more than 40 hours.

Dozens of employees were affected by the practice over multiple pay periods, NJDOL said. 

NJDOL also found a second wage issue: The companies didn’t pay employees for time spent traveling between job sites during the workday. 

The companies disputed NJDOL’s findings, and the case went to the New Jersey Office of Administrative Law. 

Ruling for NJDOL Leads to Settlement

An administrative law judge ruled that NJDOL established AQC and AQPM had engaged in an unlawful paycheck-splitting scheme to avoid paying overtime and had also failed to comply with state recordkeeping requirements. 

In addition, the companies acted as joint employers, the judge found. When two companies are found to be joint employers, both can be responsible for unpaid wages and overtime, among other obligations.

The judge issued a partial summary judgment in favor of NJDOL. After the ruling, the parties settled on July 6, 2026. Under the agreement, the companies must pay:

• $357,500 to 68 affected workers for unpaid overtime and travel time, and
• $100,000 in fines and penalties to NJDOL.

Going forward, the companies must also compensate employees for qualifying travel time between job sites and maintain required time and payroll records.

Payroll Takeaways

• Setting up separate companies won’t shield you from joint employer status. Regulators can find related companies to be joint employers when they share common control or when one company exercises significant control over the employee, regardless of how the companies are structured or how payroll is set up.
• Paycheck-splitting between related companies is risky. Using two related payrolls to keep each paycheck under 40 hours can be viewed as a scheme to avoid paying overtime.
• Combine employees’ hours across both companies once joint employer status applies. Build systems and policies that add up all hours so overtime is calculated on the real weekly total.
• Don’t forget travel time between job sites during the workday. Time spent moving between job sites can be compensable and must be included in the overtime calculation where state law requires it.
• Weak records amplify risk. If you can’t prove how hours were worked and split, you’ll have a harder time defending your overtime calculations in an audit or enforcement action.

More info: NJDOL Press Release