Written by Employment Attorney Joshua W. Carden
“I don’t have to pay him overtime, Josh. He’s my salesman! Everyone knows that salesmen don’t get overtime no matter how much they work – that’s the point, right?” Speaking with the aura of confidence one would expect from a Phoenix CEO, Clyde’s smile dared me to disagree with him. I sighed. “Actually, Clyde, I have to give you the classic lawyer answer – it depends.” Clyde’s smile lost some of its curve as he asked “Depends on what?” “First, it depends on whether he’s inside sales or outside sales,” I responded. “Inside,” he offered hesitantly. I shook my head regretfully, and Clyde’s smile and confidence quickly became lost relics of the past. “Clyde, we’re going to have to dig a little deeper to pull you out of this one…”
Got salesmen on your payroll? If so, you may have accidentally bought into the myth that salesman are automatically exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). Not true! Only outside salesmen are exempt if they meet the qualifications under the FLSA and its accompanying regulations. The handbook of the Wage and Hour Division (WHD) of the U.S. Department of Labor succinctly dispels the myth that snared Clyde (and many others): “Inside sales work does not qualify for the outside sales exemption.” In fact, even your outside salesmen have to meet two tests to qualify for the exemption:
1. The employee’s primary duty must be making sales, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
2. The employee must be customarily and regularly away from the employer’s place or places of business in performing his or her primary duty.
As you can safely assume with any federal law, practically every word in the test has its own unique definition or test found elsewhere. For example, “primary duty” generally – but not always – means “more than 50% of the time.” As to the second prong, I know you creative folks are already way ahead of me: “Aha! If the salesmen work from home, then they’re ‘away’ from my place of business.” Not so fast! The federal regulations say that any fixed site, whether home or office, used by the salesmen as a headquarters is part of the employer’s “place of business.” And the title of the job doesn’t matter – the law looks at what the employee actually does.
So, will Clyde’s company (and possibly even Clyde himself) be stuck with a lawsuit for unpaid overtime? Will he have to pay statutory penalties and attorney’s fees on top of time-and-a-half for every hour his inside salesmen worked exceeding forty hours a week during the last three years? Will Lassie pull Timmy from the burning barn? Sorry, I got carried away there for a second…let’s get back to the rest of Clyde’s story.
“Clyde, I’ve got good news for you.” He visibly relaxed. I went on, “you own a chain of furniture stores, right?” “25 years and counting!” he replied. I smiled and went on, “Do your inside salesmen make more than one-and-one-half times minimum wage?” He nodded affirmatively. “And does more than half of their income represent commissions on their sales?” “Yes, I’m sure it does,” he answered with hope growing in his voice. “Then you’re okay under the FLSA,” I pronounced. “The FLSA regulations exempt sales employees who work in qualifying retail or service establishments and meet those two qualifications I just asked you about.” He heaved a sigh of relief, thanked me, checked his watch, informed me that he was late for his next appointment, and left a much happier man. I was glad to have taken at least one burden off of his shoulders. It’s all in a day’s work at Davis Miles McGuire Gardner, PLLC
Joshua Carden is a partner with Davis Miles McGuire Gardner, PLLC and handles commercial litigation (trials and appeals), including business disputes, employment issues, and real estate, among others. This article is intended to provide general information about the law designed to help users safely cope with their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult Davis Miles McGuire Gardner, PLLC (or the law firm of your choice) if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.
 Okay, I confess “Clyde” is not actually a real person. I made him up as a composite of real life client situations, with a little bit of my second cousin thrown in for personality. You might learn from Clyde’s mistakes – unfortunately, he never calls us until he’s already made them. Don’t be like Clyde.