US Department of Labor Extends Commission Sales Exemption to Federal Overtime Requirements | Foley Hoag LLP
On May 18, 2020, the Wages and Hours Division of the United States Department of Labor (DOL) released a final rule eliminating a list of companies prohibited from taking advantage of the commission sales exemption from the Fair’s overtime requirements. Labor Standards Act (FLSA). As a result, more employees paid on commission will be considered exempt from the FLSA overtime requirements. However, employers in many states, including Massachusetts, will not be able to take advantage of the rule change because overtime laws in many states do not recognize such an exemption.
Under the FLSA’s sales commission exemption, an employee is exempt from the FLSA’s overtime requirements – which require employees to be paid time and a half for all hours worked beyond 40 in a work week – if that employee (1) is employed in a “retail or service” establishment, (2) earns at least 1.5 times the minimum wage, and (3) earns more than half of all of his remuneration for a representative period through commissions. An employee is employed in a “retail or service” establishment if he or she works in a company which generally sells goods or services to the general public, meets the day-to-day needs of the community in which he is and is located. at the very end of the distribution flow. However, in 1970, the DOL published a list of 89 companies that could not claim this exemption from sales commission because they were considered to lack a “retail concept”. These businesses included banks, accounting firms, dry cleaners, tax preparers, law firms, travel agencies, and medical clinics, among others. The repeal of this list by the DOL will allow these companies to classify certain employees currently considered non-exempt and eligible for overtime as exempt from the overtime pay requirements of the FLSA, and thus avoid having to pay overtime to these employees.
Employers who were not eligible to use FLSA’s sales commission exemption should analyze whether they qualify as a “retail or service” establishment according to the standards set out above. . At the same time, however, employers should be sure to consider state overtime requirements before classifying commission sales employees as exempt. Many states, including Massachusetts, do not recognize a commission sales exemption from its overtime requirements. In those states, employers will have to continue to pay overtime to employees even if they meet the criteria for the federal exemption.