You Learn Something New Everyday

by Michael Haberman on February 14, 2011 · 0 comments


I generally learn something new everyday. The older I have gotten the more I know how much I don’t know. I thought I knew alot about the FLSA, and I do. But not everything. An example is that inside sales positions are not mentioned in the FLSA. Outside sales positions are specifically mentioned as being exempt from the OVERTIME provisions of the law, but not INSIDE SALES. This lead me to the conclusion that inside sales positions are not EXEMPT  positions. But then I ran across this paragraph as I was wandering around the USDOL website: 

The Fair Labor Standards Act (FLSA) exempts certain sales employees of retail car dealerships from overtime pay. In addition, commissioned sales employees of many other retail or service establishments are exempt from overtime when certain conditions are met. If more than half of the employee’s earnings are from commissions and the employee’s average rate of pay is more than one and one-half times the minimum wage for each hour worked, the employee is exempt from the overtime provision of the FLSA.
Well reading that paragraph made me go “hmmm”.  (Hmmm usually means “oh crap, that is something I didn’t know.”) So I called a trusted friend, Joe Chancey of Drew Eckl & Farnham, and asked him what he knew. Being the great attorney he is he had a ready answer for me. He sent a link to an opinion letter that laid out the guidelines the USDOL uses to determine if an inside sales rep is exempt from overtime pay.
Three standards have to be met according to the USDOL for an inside sales rep to be an exempt employee. These are:
  1. The employee must be employed by a retail or service establishment;
  2.  The employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage under section 6 of the FLSA; and
  3.  More than half of the employee’s total earnings in a representative period must consist of commissions on goods or services.

The standard for whether an establishment is a retail or service oriented is as follows: 

 ” the establishment “(a) [m]ust engage in the making of sales of goods or services; and (b) 75 percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry; and (c) not over 25 percent of its sales of goods or services, or of both, may be sales for resale.”  

The USDOL then also defines what an appropriate commission structure is for the inside sales person. For the person to be exempt they must be paid a “bona fide” commission, defined thusly: 

 A commission rate is not bona fide if the formula for computing the commissions is such that the employee, in fact, always or almost always earns the same fixed amount of compensation for each workweek (as would be the case where the computed commissions seldom or never equal or exceed the amount of the draw or the guarantee). Another example of a commission plan which would not be considered as bona fide is one in which the employee receives a regular payment constituting nearly his entire earnings which is expressed in terms of a percentage of the sales which the establishment or department can always be expected to make with only a slight addition to his wages based upon a greatly reduced percentage applied to the sales above the expected quota.

 The conclusion to this tale is that if you can prove that your INSIDE SALES REPRESENTATIVE can meet these standards then you designate them as an EXEMPT employee. However, if you cannot meet these standards then you must pay them overtime regardless of whether they are earning commission or not. One thing is for certain and that is you CANNOT rely on the OUTSIDE SALES EXEMPTION. 

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