Are sales representatives exempt from overtime under the Fair Labor Standards Act (FLSA)?

In this video, HR.BLR.com Legal Editor Susan Prince discusses the overtime exemption from the FLSA to employees of retail and service establishments who are paid on commission and what three conditions must be met to be eligible for the exemption.

Hi. I’m Susan Prince, a Legal Editor at HR.BLR.com. We recently received an Ask the Expert question from a subscriber asking "Are inside sales representatives considered non-exempt?"

The Department of Labor issued a fact sheet that addresses this topic—it&rsqo;called Fact Sheet #20: Employees Paid Commissions By Retail Establishments Who Are Exempt Under Section 7(i) From Overtime Under The FLSA.

This fact sheet provides general information concerning the application of the Section 7(i) overtime exemption from the FLSA to employees of retail and service establishments, who are paid on a commission basis in whole or part.

Retail and service establishments are defined as establishments 75% of whose annual dollar volume of sales of goods or services–or of both‐is not for resale and is recognized as retail sales or services in the particular industry.

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

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 for every hour worked in a workweek in which overtime hours are worked, and
3. 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.

The representative period for determining if enough commissions have been paid may be as short as one month, but must not be greater than one year. The employer must select a representative period in order to determine if this condition has been met.

If the employee is paid entirely by commissions, or draws and commissions, or if commissions are always greater than salary or hourly amounts paid, the-greater-than-50%-commissions condition will have been met. If the employee is not paid in this manner, the employer must separately total the employee’s commissions and other compensation paid during the representative period. The total commissions paid must exceed the total of other compensation paid for this condition to be met.

Susan E. Prince, J.D., is a Legal Editor for BLR’s human resources and employment law publications. Ms. Prince has over 10 years of experience as an attorney and writer in the field of human resources and has published numerous articles on a variety of human resources and employment topics, including compensation, benefits, workers’ compensation, discrimination, work/life issues, termination, and military leave. Ms. Prince also served as an expert on several audio conferences discussing the 2004 changes to the federal regulations under the Fair Labor Standards Act. Before starting her career in publishing, Ms. Prince practiced law for several years in the insurance industry and served as president of a retail sales business. Ms. Prince received her law degree from Vermont Law School.

Follow Susan Prince on Google+