New Rules on Overtime Exemptions for Employees Paid on Commission

By, Paul H. Farmer, Jr.

The overtime exemption for employees paid on commission in retail or services businesses may have been simplified. On May 18, 2020, the Department of Labor (“DOL”) withdrew previous rules that limited what the DOL considered as qualifying businesses. 

The exemption applies to retail employees making at least one and one-half times the federal minimum wage with more than half of the pay coming from commissions on goods or services. In simple terms, a commission-based employee at a retail business who makes at least $11.00 an hour may be exempt from federal overtime requirements. (NOTE: obligations under state minimum wage and overtime requirements may still apply)

The rub has always been what constitutes a retail or service business under the exemption. The test, generally, is whether the business had a “retail concept.” Since the 1960’s, the DOL has maintained lists of businesses it considered may be retail and those that definitively were not retail.

For example, DOL considered building contractors, insurance companies, painters, and real estate companies as definitively not retail. This meant that employees in these businesses would not qualify for the overtime exemption solely on being commission based. 

DOL’s withdrawal of these lists now means that all those businesses previously on the “not retail” list can now more easily make the case that they are qualifying retail businesses. This could allow new businesses to utilize the commission-based overtime exemption, reduce confusion and inconsistencies in the application of the exemption, and promote hiring through expansion of wage options. 

All businesses wishing to use the exemption now must meet the criteria for a retail or service establishment. These include selling or providing service to the public, selling or providing service in small quantities, and not being a part of the manufacturing process. 

With this change in the rules, now is an excellent time to conduct a wage and hour audit on your business. To ensure that your wage and hour policies are both compliant and capitalize on these recent changes, contact the attorneys at GJB today.