We’ve all heard the buzz encircling the new rules when it comes to overtime and salespeople. However, many of us are left with a variety of unanswered questions regarding all the details.
This overview will expose the facts of the recent changes in overtime laws. Let’s start with some initial terminology and background to ensure this issue is explained completely. Then we will get into the exemption for salespeople and how it affects your business.
The Fair Labor Standards Act (FLSA) establishes the minimum wage, overtime pay and age employment standards for the federal, state and local governments.
- Since 2009, the hourly minimum wage has been $7.25.
- FSLA overtime policies state that employees must receive overtime pay for each hour over a 40 hour workweek.
- Companies must display the FLSA official poster and accurately account for employee time and pay information.
The Secretary of Labor was asked to bring the FLSA up to date with overtime regulations in a way that modernizes the rules, making it simpler for businesses to apply. The final ruling will be effective as of December 1, 2016. Employers wonder what all this really means and how it will affect their businesses.
The final rule will be effective later this year. Employers have been given six months to strategize and prepare for the changes.
Details regarding the final rule:
- The salary amount specifying eligibility is from $455 per week to $913 per week, totaling $47,476 annually.
- The salary threshold will automatically update based on wage increase over three years.
- This rulings intent is to protect salaried workers that are currently eligible for overtime.
Options for Employers
Companies are curious about their options and how how they should respond to these changes.
Options for employers include:
- Pay time and a half when an employee works over 40 hours.
- Increase employees’ salaries to higher than the new specified threshold.
- Only allow employees to work a maximum of 40 hours in a workweek.
The Exemption – Outside Sales
The FSLA Section 13(a)(1) offers an exemption for minimum wage and overtime pay for several professions, including outside sales employees. To qualify for the outside salesperson exemption, employees have a couple of tests to meet.
Two tests to qualify include:
- The primary role of the worker is making sales and the FLSA clearly defines what that entails.
- Qualifying employees has to be regularly working away from the employer’s place of business.
The salary requirements of this ruling do not apply to the outside sales exemption. In other words, someone who may not meet all the requirements of the outside sales exemption could potentially be eligible as an exempt employee under a different exemption as described in Section 13(a)(1).
The Exemption – Commissioned Employees
The FLSA Section 7(i) explains the overtime exemption that includes employees being paid commissions by retail establishments. To define, these businesses are those where 75% of annual income comes from the sales of goods or services and aren’t for resale.
Required conditions include:
- The employee has to work at a retail or service establishment.
- The employee’s rate of pay has to be in excess of one and one-half times the minimum wage as prescribed in FLSA.
- The employee’s commissions for a specific pay period must equal more than half of their total earnings.
If an employee does not meet all three of these requirements then the exemption of Section 7(i) would not apply. Further, for such an employee, the overtime pay would have to be paid if the number of worked hours was over 40 in a week.
The new overtime rules for salespeople are just around the corner. Now is the time to educate your employees and implement an effective strategy for your company to make the laws and exemption work best for your business.
Need help with recruiting, staffing, employee engagement, or employee retention, call Henry Glickel, CPC, CERS at 603-770-7175.
*Seek own legal council concerning matters as needed related to overtime.