“Are sales employees affected by the new overtime regulations?” is one of the most common questions we have received from clients since the release of the final rule in May changing the “white collar” overtime regulations.
Many business owners are concerned that their salaried or commissioned outside sales employees will have to receive a pay increase or be paid overtime. According to all of the research we have found, the changes to the law only affects the salary requirement for executive, administrative and professional employees, which would mean that outside sales employees would not be affected.
The following website is a Q&A following an overtime webinar by the Department of Labor: https://www.dol.gov/whd/overtime/final2016/webinarfaq.htm
Question 12 on this web page is:
Q. Straight Commission Employees: How do we handle outside sales staff who are paid straight commissions?
A. Consistent with the current regulations, neither the old or new salary requirements will apply to the outside sales employee exemption.
Question 22 on this same web page is:
Q. Just wanted to verify that any person employed as an outside sales person does not need to have their salary increased?
A. Correct. Outside sales employees are not subject to the salary basis or salary level requirements, so they are not affected by this Final Rule.
There are a few other questions on this page relating to outside sales and several times the DOL states that the outside sales exemption does not have a salary requirement.
Also, according to the Department of Labor Fact Sheet on the website: https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf
Outside Sales Exemption
To qualify for the outside sales employee exemption, all of the following tests must be met:
- The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
- The employee must be customarily and regularly engaged away from the employer’s place or places of business.
The salary requirements of the regulation do not apply to the outside sales exemption.
Now the caveat we have to this position is that the person you deem as “outside sales” must meet the duties requirement for this exemption. That means that the employee’s primary duty (“primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.) must engage in sales outside of the office. The outside sales exemption does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Sales made from the employer’s location (inside sales) do not qualify as outside sales.
If your company has an inside sales team, that does not travel away from your worksite, the outside sales exemption does not apply for these employees. An inside sales employee would generally be classified as non-exempt and would need to be paid overtime for any hours worked over 40 in a week. There are some exceptions to this for commissioned inside sales employees in retail establishments that can be found here. This is one of the most common mistake by companies when it comes to exempt vs. non-exempt. There is often a preconceived notion that a sales employee, no matter if they are inside or outside sales, should be exempt from overtime, but that is not the case.
It is hard for us to say with all certainty that your outside sales employees would be considered exempt from overtime because we do not know the ins and outs of their daily work. In the end, it comes down to your ability to defend your position should an outside sales employee ever file a wage claim against your company asserting that they should be paid overtime, or if you are ever investigated or audited by the Department of Labor.
We would suggest you take a look at the job duties of your outside sales employees and make that determination of each individual in question. In fact, now is a great time review the duties of all employees you are currently classifying as exempt to ensure they meet FLSA requirements. If you need help, please contact an HR Business Partner at A Plus Benefits at 1-800-748-5102 or firstname.lastname@example.org.