Many employers classify their sales force as exempt from minimum wage and overtime requirements. However, employers should be aware that not all sales employees are exempt. In fact, only certain sales employees are considered exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”) and the Minnesota Fair Labor Standards Act (“MFLSA”).
The FLSA recognizes several exemptions that may apply to a salesperson, including an exemption for certain commissioned sales employees of retail establishments (see 29 U.S.C. § 207(i); 29 C.F.R. Section 779; DOL Fact Sheet “Employees Paid Commissions By Retail Establishments Who are Exempt Under Section 7(i) from Overtime Under the FLSA“), and certain salespersons in specific industries (e.g., aircraft salespeople, farm implement salespeople, truck and trailer sales people, and auto dealer salespeople). Of course, an employee who does not satisfy the requirements of the outside sales exemption or fall within a particular exempt industry may still qualify as an exempt employee under another exemption (e.g., administrative exemption) as long as all of the criteria of the exemption is met.
In addition to the exemptions listed above, the FLSA also recognizes an exemption for outside sales employees that many employers rely upon to classify sales employees as exempt. The FLSA and the MFLSA each have a different test that employees must meet in order to qualify for the outside sales exemption.
The Outside Sales Exemption under the FLSA
In addition to the exemptions listed above, the FLSA also recognizes an exemption for outside sales employees that many employers rely upon to classify sales employees as exempt. The FLSA and the MFLSA each have a different test that employees must meet in order to qualify for the outside sales exemption.
In order to qualify for the outside sales exemption under the FLSA, the employee must meet the following test:
- The employee’s primary duty is making sales or obtaining orders or contracts for services for the use of facilities for which consideration will be paid by the client or customer; AND
- The employee is customarily and regularly engaged away from the employer’s place of business.
See 29 C.F.R. §§ 541.500 to 541.504; DOL Fact Sheet “Exemption for Outside Sales Employees Under the Fair Labor Standards Act.”
“Customarily and regularly” engaged away from the employer’s place of business means greater than occasional, but does not need to be continuous. “Customarily and regularly” means work that normally occurs during every workweek, and does not include isolated or one-time tasks. See 29 C.F.R. § 541.701. An outside sales employee is one that makes sales at the customer’s place of business or through door-to-door sales. Outside sales do not include “sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.” 29 C.F.R. § 541.502. A fixed site, whether at the office or at the employee’s home that is used as a headquarters or used for telephone sales is considered one of the employer’s places of business.
The Outside Sales Exemption under the MFLSA
The test under the MFLSA is somewhat different that the test under the FLSA. In order to qualify for the outside sales exemption under the MFLSA, the employee must meet the following:
- The employee makes sales of, or obtains orders or contracts for, materials, services, or the use of facilities for which payment will be made; AND
- The employee is hired for the express purpose of performing such duties away from the employer’s place of business; AND
- The employee conducts no more than 20% of sales on the employer’s premises; AND
- The employee’s hours of non-sales work do not exceed 20% of the employee’s total work hours.
What Employers Should Know
If sales employees are not regularly and customarily engaged in sales away from an employer’s place of business, the sales employee is likely not going to be exempt from minimum wage or overtime under the FLSA or the MFLSA. Misclassification of employees as exempt can cause many problems. On the one hand, misclassification of employees can open an employer up to risks associated with unpaid overtime and minimum wage for sales employees. On the other hand, re-classifying an employee as non-exempt can be a large administrative burden on the employer. A non-exempt employee is entitled to minimum wage and overtime. As a result, the employer will need to start tracking employee work time, pay at least minimum wage for this time, and pay overtime if necessary. Calculating the employee’s regular rate of pay and overtime pay can become complicated for the employer if the sales employee earns base pay (whether in the form of a salary or hourly rate) plus commissions. While commission payments often fluctuate, these payments must be included when calculating the employee’s regular rate of pay. As a result, an employee’s regular rate of pay can change from workweek to workweek, which means that an employee will earn overtime pay at a different rate each workweek. For these reasons it is imperative that employers make sure that any sales force is properly classified and that the employer has an appropriate strategy for tracking and calculating the regular rate of pay and overtime pay.
If your company has a sales force it is currently classifying as exempt and you would like assistance conducting an internal audit of your salesperson classification system, or if you would like help creating a strategy to track and calculate employee pay, contact any of the Trepanier MacGillis Battina P.A. employment law attorneys.
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Featured Attorney:
Minnesota employment law attorney Craig W. Trepanier has extensive experience representing employers and employees in matters involving wage and hour regulations, overtime pay, and misclassifications under the FLSA and MFLSA. Craig may be reached at 612.455.0502 or craig@trepanierlaw.com. Trepanier MacGillis Battina P.A. is a Minnesota wage and hour law firm located in Minneapolis, Minnesota.