The Outside Salesperson Exemption (CA)

The Fair Labor Standards Act (FLSA) and the California wage orders are laws that govern wages and hours. They set the minimum wage for hours worked and set overtime rates at one-and one-half times the base rate for overtime hours. In California, the wage orders also require that nonexempt employees receive meal and rest breaks, as well as several other requirements. Employees who meet certain requirements are exempt from the provisions of the FLSA and wage orders. One such exemption to these provisions is the outside sales exemption. If your company has outside sales positions, your employees may qualify for this exemption. Unlike the White-Collar Exemptions (Executive, Administrative and Professional), this exemption has no minimum salary requirement and allows outside sales representatives to be primarily compensated on commission. Outside salespeople who meet this exemption are not required to be paid a minimum salary, are not eligible for overtime, are not required to be paid minimum wage, and are not required to track their hours.

The Outside Sales Exemption is one of the simpler exemptions to understand and only has two requirements. First, the employee must be at least 18 years of age. Secondly, they must be customarily and regularly work more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.

Outside sales does not include sales made by mail, telephone, or Internet, unless the contact is made in conjunction with a personal meeting. Pertinent terms are defined below.

·??????Selling: The most important duty the employee performs must be sales. Any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. Sales tasks could include duties such as driving to and from a customer site for the purpose of a sales meeting, attempting to solicit new customers or increase the sales of an existing customer, meetings with a customer that take place at the customers business location, stocking a car with the products the salesperson intends to present to the customer for purchase, and some promotional work.

·??????Away: The salesperson must make sales away from the employer’s business. Sales by phone, online, or from a home or remote sales office do not count as away. Away locations would include the customer’s place of business, the customer’s home, or other location. Outside salespeople are typically selling to their customers face to face.

·??????Customarily and regularly: The employee must regularly spend more than half of their working time engaged in sales activities outside of the workplace.

Any fixed site, whether home or office, used by a salesperson as a headquarters is considered one of the owner’s places of business, even when the employer is not the owner or tenant of the property. This means that salespeople who work mostly from home, their employer’s worksite, or a satellite sales office are still considered to be “in the office” and are not eligible for the exemption.

Promotional work may or may not qualify. Promotion work done in conjunction with an

employee’s own outside sales or solicitations is exempt. For example, if an outside salesperson’s duties included setting up or refreshing a display or reorganizing merchandise as part of making sales to their customer, these duties would be considered exempt work. Promotional work that is incidental to sales is not exempt. Therefore, an employee who maintains store displays but has no direct responsibility for selling to the customer is performing nonexempt duties. Delivery, collection repair and maintenance are not sales duties under California law.

Here are specific examples to illustrate when the exemption would apply.

·??????Yes: A salesperson for a temporary staffing agency that canvases a business park, meeting with different business owners, would likely meet the outside sales exemption if this is the normal method they use to make sales. An employee who sells solar by going door to door in a neighborhood would also meet the exemption.

·??????No: An employee who works in a call center and sells computer support services primarily through phone and email communications with customers would not meet the outside sales exemption. A retail salesperson who sells furniture in a home furnishing store would not be exempt under the outside sales requirements.

An employee who does not qualify for the outside sales exemption may qualify under a different exemption. A commission-based employee may qualify under the Commissioned Sales (also known as the Inside Sales exemption). This is exemption is tricky and not like the other exemptions. If you intend to use this exemption, get some help to verify you are doing it correctly. Other possible exemptions that should be reviewed include the administrative exemption. Remember job duties, not Job titles determine exempt status.

Here are some guidelines to ensure your employee meets the outside salesperson exemption criteria.

·??????Make sure your employee’s primary duty is selling and that advertisements for the position and job descriptions are focused on employee’s sales responsibilities.

·??????Provide sales training and emphasize sales methods to employees in the position. Reinforce the focus on sales activities.

·??????Require the employee to independently solicit new business.

·??????Limit administrative, clerical, and non-sales work.

·??????Emphasize having the work done at the customers location.

·??????Use a compensation structure that is commission-based.

·??????Minimize direct supervision of outside sales employees.

·??????Track sales goals versus hours worked.

·??????Minimize work from the office or a fixed location, including a home office. Ensure the work is done outside the employer’s place of business and is done face to face with customers.

·??????Have promotional work done in conjunction with sales.

Salespeople are frequently misclassified and treated as exempt employees. Sales methods have drastically evolved in recent decades. Sales agreements that previously required personal visits are now accomplished by phone, internet, video conferencing, text, and email exchanges. The percentage of salespeople who customarily make sales away from the employer’s place of business is low. Employers considering classifying employees as outside sales representatives to take advantage of this exemption should know the regulatory stipulations or risk penalties for misclassification, including years of back pay. If you have not audited your sales classifications lately, it may be time to review them.

When state law does not have additional exemption requirements the federal / FLSA applies. Many states have exemption requirements that are more stringent than the FLSA. This article is based on the California Wage orders requirements. An employer must comply with the standard most protective to employees. Links to your state labor department can be found at https://www.dol.gov/agencies/whd/state/contacts.

This publication is for general information only and is not to be considered legal advice. For assistance with proper exempt nonexempt determination or other HR topic, contact Laura Henderson at North County HR (www.northcountyhr.com).

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