To be or not to be exempt? A look at the Outside Sales Exemption

Author: Theresa DeVries, HR Business Partner, HR Collaborative, LLC

“To me, job titles don’t matter. Everyone is in sales. It’s the only way we stay in business.” – Harvey Mackay

Let’s face it – almost every company engages in sales. Either business to business or business to consumer. So how are we supposed to compensate those employees that work for us who focus on Outside Sales? Are they eligible for overtime pay when they work more than 40 hours in a week? Let’s take a look at the Outside Sales Exemption to find out.

First, how does the Department of Labor (DOL) define Outside Sales? If you’ve been keeping up with our series, you know that the DOL utilizes “duties tests” for each overtime exemption under the law.  To qualify under the Outside Sales Exemption, an employee’s job duties must meet all of the following “duties tests”:

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The employee must be customarily and regularly engaged away from the employer’s place or places of business or other fixed site (e.g., satellite office, office in the employee’s home) for the purpose of selling the employer’s products, services or facilities.

Notice the phrases “primary duty”, “customarily and regularly”, “away from the employer’s place of business”, and “obtaining order or contracts for services or for the use of facilities”. Sounds like a sales job, right? Here are some helpful definitions for all of these abstract phrases.

Primary Duty:

Primary duty means the principal, main, major or most important duty that the employee performs. The determination of an employee’s primary duty must be based on all of the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole. While time spent is not the only test, as a guideline, an employee who spends more than 50 percent of his or her time performing a specific activity can generally be said to have that specific activity as his or her primary duty.

Making Sales:

Making sales includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.

Obtaining Orders or Contracts for Services or for the Use of Facilities:

Includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service. The actual performance of the services for the customer may be by someone other than the person taking the order.

Customarily and Regularly:

Customarily and regularly means a frequency that must be greater than occasional but may be less than constant. Tasks performed customarily and regularly include work characteristically performed every workweek and on a reoccurring basis; it does not include isolated or one-time tasks.

Away from the Employer’s Place of Business

An outside sales employee is an employee who makes sales at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is in connection with sales made by personal contact. Thus, any fixed worksite, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not the owner or tenant of the property. An outside sales employee who displays samples in hotel sample rooms during trips while traveling is considered to be away from the employer’s place(s) of business. Similarly, an outside sales employee who displays the employer’s products at a trade show is considered to be away from his employer’s place(s) of business. If selling actually occurs, rather than just sales promotion, trade shows of short duration (i.e., one or two weeks) should not be considered as the employer’s place of business.

Now for the Good News! There is NO salary basis test for Outside Sales!

Again, if you’ve been reading the previous articles in our series, you’ve learned that the salary test and threshold for exempt status will increase effective December 1, 2016 (the new threshold is $47,464 annually, or $913 weekly) for SOME of the various exemptions (e.g., Executive, Administrative, Professional) but this is NOT true for Outside Sales. There are NO salary or fee requirements for exempt outside sales employees and therefore the new regulations do not apply.

White collar workers not subject to the salary level test include teachers, academic administrative personnel, physicians, lawyers, judges, and outside sales workers. This means as long as you meet minimum wage requirements, you can pay outside sales workers that meet the duties tests and are therefore exempt from overtime pay, any salary you’d like. Of course, compensation packages for employees engaged in outside sales are a competitive endeavor. A successful sales person understands that, “A sale is not something you pursue; it’s what happens to you while you are immersed in serving your customer” and they are worth their weight in gold.

For more information on the Outside Sales Exemption, click here.

Want to learn more about the FLSA Final Regulations effective December 1, 2016?

HR Collaborative creates great places to work! We are a business consulting firm specializing in strategic human resource management.  We operate in partnership with our clients and as an extension of their HR department. We help organizations build their HR systems, offering assistance within the broad spectrum of Human Capital Management. Contact: 616.965.7860 or www.hrcollaborative.net.