Introduction.
Inside & Outside Commissioned Sales Exemptions are complex, and present traps for the unsophisticated employee. The outside sales exemption is a hard reality for many. Outside sales people working on commission only are exempt from minimum wage. You may be not only shocked but exhausted: Long hours, few sales, and no commissions, and no guaranteed minimum. It looks a lot like slavery. Except it isn’t. You can walk away from the inflated promises of big commissions. If the employer’s business model isn’t working for you, the sooner you leave the better.
This article examines: what is an outside sales person? What is an “exemption,” and when will the exemption no longer apply? How can you protect yourself from unscrupulous employers who make inflated promises of compensation, while you end up working for free?
The Inside Sales Overtime Exemption.
This area of law is confusing at times because writers do not use the correct terms:
1. Inside commissioned sales employees are exempt from overtime, but are entitled to their rest and meal breaks.
2. Employers are required to keep time records for inside commissioned sales employees.
3. Inside commissioned sales employees are exempt from overtime only if their rate of earnings is less than 1 1/2 times the applicable minimum wage for every hour actually worked in the workweek, and . .
4. Inside commissioned sales employees are exempt from overtime only if more than one-half (1/2) the employee’s total earnings during the relevant work week are derived from commissions. To know what is an average non-commission source of earnings, the employer must use a “representative period” of not less than one month duration by which to measure “regular hourly rate.” [But for CA employees, there is no “representative period.” A California Court has ruled that the only period that matters is the last pay period. In that pay period, the “1 1/2 times regular pay” is by reference to the pay actually paid in the last pay period. See Peabody Supreme Court Decision.
5. The inside commissioned sales employee must work in one of the listed industries of
“retail and service” [federal law]. In California the categories expand to: ” mercantile (retail), professional, technical, clerical, mechanical. [CA Wage Orders 4 & 7]”
6. In California, our Supreme Court in Peabody held that commissions earned in a pay period must be applied to the pay period in which earned, and cannot be deferred to a later pay period so as to disqualify the employee from overtime pay in that later period. Basic lesson: California calculations are pay period to pay period, no manipulations allowed.
7. An inside sales person who is exempt from overtime must still be allowed rest and meal breaks accorded all non-exempt employees.
The Outside Sales Minimum Wage Exemption: A Harsher Reality.
The outside sales exemption, as the title implies, requires the employee to be employed outside the employer’s office, and to be engaged in sales. The outside sales exemption in both federal and state law can result in an employee working extraordinary hours with no pay, and without the protections of the minimum wage.
1. The outside sales commissions employee does not have to be paid during the non-exempt employees regular pay period.
2. The exemption covers both minimum wage and overtime.
3. There is no right to rest and meal breaks.
4. There is no employer duty to maintain time records.
5. “Outside” however means a) more than 50% of the time, b) the employee is outside of a fixed work location. [This often means the employee is “on the road” or “in the field.” So, an outside sales person who spends 51% of her time in her home office or at an employer’s satellite offices is not an outside commissioned sales person. “Outside sales” are not those made by internet, mail, or telephone, that is, the employee’s physical location and not the customers determines “outside.”
6. A driver whose primary duty is driving is not made an “outside sales” employee even if engaged in making sales while driving.
The Commissioned Sales Person Trap.
Commissions are contingent on sales. Sales may not happen because the product is unwanted, the employer’s business model is ineffective, the lead time for buyer decision is long, or the sales person is incompetent, untrained, or unmotivated. The trap for the outside sales employee working only on commission is especially great. Without a minimum wage, overtime, hours worked, or break time set of protections, a misguided employee can work long hours with no pay. There’s little risk to the employer who gains whatever sales the employee is able to make. Employee beware.
Conclusion:
The commissioned sales person exemption turns on the distinction between “inside sales” and “outside sales.” The inside sales commissioned employee has at least some protections, while the the outside sales commissioned employee has few. If you’re an outside sales commissioned employee, make sure going into the employment the employers promises of “great earning potential” are supported by clear evidence. Talk to both current and past employees on the same plan, if possible.