Court Affirms Commissioned Salespeople Entitled to Overtime
One common mistake that employers make is to consider all commissioned salespeople to be exempt employees. Most companies employ inside salespeople, including those who make telesales or e-mail sales from remote locations. These inside sales people are generally not exempt. Only outside salespeople and retail salespeople are exempt. All other commissioned employees must be paid overtime if they work over 40 hours in a workweek, unless another exemption applies to them.
A recent Second Circuit decision reaffirms the above. The Court found that a Regional Director of Sales could be entitled to overtime in those weeks that she worked over 40 hours. Even though the employer tried to argue that she was an exempt administrative employee, the court found that her primary duty was making sales and not marketing activities. As a result, she could not be an exempt administrative employee and could therefore maintain her claims for overtime.
This decision emphasizes the need for employers to carefully examine the overtime eligibility of their sales staff. If the sales staff does not fit into one of the limited sales categories that are not entitled to overtime, it is very difficult for commissioned salespersons to fit into the other white collar exemptions.
How does one compute overtime for commissioed sales people since their compensation varies with their sales?
To compute overtime for commissioned salespersons, divide the total amount the salesperson earned in commissions for that workweek by the total number of hours the salesperson worked that workweek. Then take one-half of that figure, and multiply that by overtime hours worked. This can be paid when the commissions for that week are determinable. If the commissions cannot be calculated weekly, we should discuss that further.
Also, if the salesperson receives a set amount of base pay each week, then the salesperson should be paid one and one half times the weekly base pay rate for each overtime hour worked. This can be done with normal payroll even if commissions are not yet determinable for that work week.