Written by: Marianna Michael
In three recent letters, the Department of Labor (“DOL”) offered guidance on the outside sales exemption and the retail or service establishment exemption.
An employer qualifies for the outside sales exemption if its employee’s: (i) primary duty is to make sales (as defined in the Fair Labor Standards Act “FLSA”) or obtain orders or contracts for services or making the use of facilities for which a consideration will be paid by the client or customer and (ii) are customarily and regularly engaged away from the employer’s place or places of business.
The retail or service establishment exemption applies if: (i) the employee is employed by a retail or service establishment; (ii) the employee’s regular rate of pay exceeds one and one-half times the minimum hourly rate; and (iii) more than half of the employee’s compensation for a representative period (not less than one month) consists of commissions on goods or services.
Determining Who Qualifies for the Outside Sales Exemption
In FLSA 2020-6, the requester sought advice as to whether salespeople who use “stylized” trucks to travel to high-population areas and events to sell products fall within the outside sales exemption of the FLSA. The DOL determined that the exemption includes incidental sales work, such as preparing displays and deploying their employers’ sales trucks. Specifically, the DOL found that the exemption applied because the salespersons’ primary duty was selling products and service contracts while only a small percentage of their time was used in activities directed toward furthering their sales efforts. In its second letter addressing the outside sales exemption, the DOL determined that salespeople at retail operations, such as home and garden shows, trade shows, state and county fairs, and big-box stores, qualify for the outside sales exemption because they spend over 80 percent of their workweek making sales directly to customers, and are paid commissions and bonuses based on those purchases. The DOL contrasted this by saying that employees who perform the same services in big box stores do not qualify for the exemption since customers at big box stores make the purchase through the store itself and not through the employees. The letter emerges as a warning to employers that the exemption is based on a fact intensive analysis that turns on which legal entity makes the final sale in a given transaction.
Determining When the Retail or Service Establishment Exemption Applies
FLSA 2020-10, the DOL’s final letter, addressed whether the retail or service establishment exemption applies where more than half of an employee’s earnings during a representative period does not consist of commissions. The letter addresses two primary scenarios where the exemption may apply. The first scenario is the opening of a new store where the sales volume is unknown. The second scenario is the hiring of a new salesperson with no sales-performance record. Referencing a previous letter, the DOL explained that an employer may use the retail and service establishment exemption simultaneously with the commencement of the representative period, but if the employee’s commissions do not constitute more than half of his or her compensation at the end of the initial representative period, the employer must pay for any overtime hours worked during that period. The employer may again attempt to establish a representative period going forward and claim the exemption as long as the requirements are satisfied after the initial representative period.
For more takeaways from the letter, click here.