U.S. DOL Simplifies Analysis of Overtime Exemption for Commissioned Sales Staff in the Service and Retail Industries

By Katherine L. Wood, Esq.

New York State residents are excitedly awaiting the full re-opening of their favorite service and retail industry establishments.  While the top priority of employers in these industries is ensuring compliance with the State’s re-opening plan and CDC regulations, the Wage and Hour Division of the United States Department of Labor (“DOL”) has issued a non-COVID-19-related final rule that these employers should not overlook.

The DOL’s new final rule, issued on May 19, 2020, is intended to simplify the analysis of which employees in the retail and service industry are exempt from overtime payments.  Under the Fair Labor Standards Act (“FLSA”), retail and service industry employers can exempt employees who are primarily paid on a commission basis from overtime eligibility.  The new final rule broadens the scope of which employers can claim this exemption for their commissioned staff.

Previously, industries listed by the DOL as having “no retail concept” were ineligible to claim this exemption for their commissioned sales staff, while industries listed by the DOL that “may be recognized as retail” were potentially eligible to utilize the exemption.  The new final rule withdraws these two lists and enables more employers to claim the FLSA exemption.

Under the new final rule, the DOL will now apply a uniform analysis to all employers when determining if they qualify for the retail and service industry FLSA exemption.  Employers who were previously barred from seeking the exemption due to being listed as having “no retail concept” may now assert the exemption provided that they satisfy all other FLSA criteria.

In order for a business to avail itself of the Section 7(i) exemption, it must still meet the following three criteria:

  • The employee must be employed by a “retail or service” establishment, which is defined by the DOL as “an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or both) is not for resale and is recognized as retail sales or services in the particular industry.”
  • The employee’s regular rate of pay must exceed 1.5 times the applicable minimum wage under the FLSA.
  • More than half of the employee’s total earning in a representative period must be commissions.

Employers should assess whether their retail employees satisfy the overtime exemption outlined in Section 7(i) of the FLSA in light of the new rule.  Employers should always check applicable state laws—which may have overtime exemption criteria that conflict with the FLSA—to ensure they are complying with both federal and state law.

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