Commission-Paid Salespersons Entitled To Overtime Unless Specifically Exempted

Author:Mr Dennis McClelland
Profession:Holland & Knight LLP
 
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Given the complexity of the Fair Labor Standards Act, it is often difficult

for employers to determine whether commission-paid salespersons are entitled to

overtime pay when they work over 40 hours in a work week. If an employer

improperly denies an employee overtime pay in violation of the FLSA, it could be

liable for the unpaid overtime, liquidated damages, and the employee's

attorneys' fees.

The FLSA requires employers to pay workers who are not exempt from the FLSA's

protections (nonexempt employees) overtime pay in an amount of one and one-half

times their regular hourly rate for each hour they work over 40 in a work week.

This rule generally applies to all nonexempt employees, including those paid by

commissions instead of an hourly wage.

Employers often mistakenly believe that their commission-paid salespersons

are exempt (and, thus, need not be paid overtime pay) under the well-known and

commonly utilized exemptions for "white collar" professionals.

However, the white collar exemptions for executive, administrative and

professional employees are only available if the employee is paid on a salary

basis. That is, the employee regularly receives each pay period a predetermined

amount representing all or part of the employee's compensation that is not

subject to reduction based upon the quantity or quality of the employee's work.

Accordingly, strictly commission-paid employees, by their very nature, cannot

fall under the white-collar exemptions.

The FLSA provides three types of exemptions that could apply to

commission-paid salespersons. First, commission-paid salespersons could be

exempt from overtime pay under an industry-specific or job-specific exemption.

For example, the FLSA specifically exempts salespersons primarily engaged in

selling or servicing automobiles, trucks, farm implements, trailers, boats or

aircraft.

Second, commission-paid employees could be exempt as "outside"

salespersons. The exemption for outside salespersons is met if the person is

employed "for the purpose of and who is customarily and regularly engaged

away from his or her place or places of business" in making sales or

obtaining...

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