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Are Your Commissioned Sales Employees Entitled to Minimum Wage and Overtime?

March 31, 2014

Many employers use commission payments to increase the productivity of their sales force.  Commissioned sales people can earn significant compensation.  But, are commissioned sales people also entitled to minimum wage and overtime?

The federal Fair Labor Standards Act(FLSA) establishes a minimum wage and requires that employers pay overtime, or 1.5 times the employee’s regular rate of pay, to employees who work more than 40 hours in a workweek.  The FLSA’s minimum wage and overtime requirements apply to all employees, including commissioned employees, unless the employee comes within one of the statutory exemptions to the FLSA.

Many commissioned sales employees come within one of two statutory exemptions to the FLSA, the “outside sales exemption” or the “inside/retail sales exemption.”  An employee is exempt under the outside sales exemption if the employee’s primary duty is making sales or obtaining orders or contracts for services or the use of facilities from paying clients or customers, and the employee is customarily and regularly engaged away from the employer’s place of business.  Qualified outside sales people are exempt from both minimum wage and overtime requirements.

Commissioned sales people employed by a retail or service establishment are exempt from overtime (but not minimum wage) under the inside/retail sales exemption if (1) the employee’s regular rate of pay (including commissions) exceeds one and one-half times minimum wage and (2) more than half the employee’s total earnings are in the form of commissions.

If a commissioned sales employee does not come within one of these two narrowly defined exemptions (sales people will usuallynotqualify for other FLSA exemptions) the sales employee is not exempt and is entitled to overtime on top of commissions.

For help determining whether your sales force is exempt, or for more information on this topic, please contact a member of our Employment Law Group.