Changes in the sales world are outpacing the FLSA

by Michael Haberman on October 11, 2016 · 0 comments

Inside sales positions are by law most frequently nonexempt positions.

Inside sales positions are by law most frequently nonexempt positions.

As I wrote yesterday the FLSA overtime regulations are changing, subsequently increasing the number of employees considered non-exempt. However, that is not the only change occurring that will increase the number of nonexempt employees.

Outside sales positions disappearing

Technology is changing the nature of the sales position. How things are sold has moved from the “door-knocking” sales rep of old (the outside sales position that is considered exempt from overtime) to a more sophisticated technology driven sales position. These inside sales positions often sell through computer interface by holding demos and communicating by email.

According Mary Shea, Ph.D. principal analyst with Forrester Research*, sales is no longer the sole provider of information to the buyer. As a result the sales force in the U.S. will contract in size by a million positions by 2020. Much of that sales effort will be, and has been, taken over by inside sales. According to Shea, inside sales growth has outpaced outside sales 15 to 1 in the last three years. Data is supplying the information needed to make a sale and outside representatives are no longer needed to collect the data.

What does this have to do with the FLSA?

You may ask what does the increase in inside sales reps have to do with the FLSA and nonexempt positions. The FLSA says that inside sales positions have to meet tough standards to be considered an exempt position. The FLSA specifically says:

If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, three conditions must be met:

  • the employee must be employed by a retail or service establishment, and
  • the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
  • more than half the employee’s total earnings in a representative period must consist of commissions.

Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay.

With a lot of sales done over the computer and phone in many companies such as industrial goods and computer software, the representatives would not qualify as exempt since they do not meet the definition of the law, a law whose definitions were developed in a time without computers and product demos performed on the computer.

The law is outpaced

Once again the FLSA is outpaced by technology and changes in the way work is done. The law will require that all these new nonexempt employees be paid on the basis of the time they work and not the quantity or qualify of the work they produced. We are seeing this same effect in companies trying to become Results Only Work Environments (ROWE).

As companies adopt inside sales techniques they will have to step back and adopt antiquated compensation practices of paying for time rather than paying for results. If you are currently using insides sales and equating them to outside sales, you are making a big mistake and may owe backpay to those employees.

* Comments made in a presentation made at #InsideView in San Francisco, Oct. 5, 2016

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