There are generally two types of employee classification; exempt and non-exempt. Exempt usually means the employee is being paid a salary, and it also usually means the employee is not entitled to protections such as overtime pay, meal and rest breaks, etc. Non-exempt employees are generally entitled to, at the least, minimum wage, overtime pay, specified rest breaks and specified meal breaks.
Correctly classifying employees helps determine things like the applicable minimum wage, the required rest periods and meal periods, the correct pay periods, the requirement to pay overtime, the employee's total hours worked, and other important rules and regulations surrounding workers and their expected working conditions.
Normally, in order to be properly classified as an exempt employee under California law, an employee needs to fall under one of the defined exemptions: Executive, Administrative, or Professional. If the employee does not fall under one of these exemptions or is not otherwise specifically exempt, then the employee should be classified as non-exempt, and certain rules and regulations apply in terms of what they are entitled to under the law. One such specific exemption under both California and federal law is the Inside Salesperson Exemption.
To be properly classified as an Inside Salesperson, all of the following requirements must be met:
If all of these elements are satisfied, then the employee qualifies for the overtime exemption.
The time frame, or "representative period", for determining if the employee had earned enough commission to qualify as an exempt inside sales representative can be as short as one month, but cannot be more than one year. This also means that an employee may qualify for the exemption during one pay period, and not qualify for another.
California Wage Orders issued by the Industrial Welfare Commission of California (IWC) is part of the state law governing employment regulating wages, hours worked, and working conditions. These wage orders are broken up by different industries and professions.
The inside salesperson exemption applies to employees who work in industries outlined in IWC Wage Order No. 4 (professional, technical, clerical, mechanical, and similar occupations), and IWC Wage Order No. 7 (mercantile industry).
Under California law, if an employee is accurately classified as an inside salesperson, then that employee is exempt from being paid overtime wages.
However, inside salespersons are still entitled to meal and rest breaks. This equates to either one or two 30 minutes, duty free, uninterrupted meal breaks for up to a 14-hour workday, and equates to one or up to three ten-minute, duty free, uninterrupted rest breaks for up to a 14-hour workday.
Inside salespersons are also entitled to compensation for rest breaks and non-sales work that the employee is required to complete.
In contrast, an "Outside Salesperson" means "any person, 18 years of age or over, who customarily and regularly works 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 requires a person to be away from the employer's place of business for the majority of their day. Whereas, inside sales is the person working from the employer's place of business (or home office is that is the employee's designated workplace) and selling goods. Telephone-based sales generally have to be analyzed under the inside sales exemption.
Yes. The Fair Labor Standards Act (FLSA), can apply to employees engaged in sales. Specifically, the inside sales exemption applies only to employees who:
(1) earn more than 150% of the minimum wage,
(b) derive at least 50% of their income from commissions, and
(c) work in a retail or service establishment.
To qualify as a “commission” within the meaning of the inside sales exemption, incentive-based compensation must be roughly proportional to an employee’s sales productivity. This means that if an employee earns a fixed amount of incentive compensation for achieving a particular milestone, the compensation does not count as a “commission” and more likely should be categorized as a "bonus", and the employee will not qualify for the inside sales exemption. Incentive compensation need not be calculated purely as a percentage of sales to constitute a commission but must be roughly proportional to the employee’s sales productivity.
Employers are engaged in the retail and service industry within the meaning of the FLSA if they derive at least 75% of their annual sales revenue from goods or services not for resale and are recognized as a retail or service establishment in their industry.
Certain aspects of the inside salesperson exemption can often be misconstrued and lead to misclassification. For example, if an employee regularly received additional pay for reaching particular milestones, what could perceived as "commission" is actually classified as a "bonus". Therefore, the employee may fail to satisfy the minimum of 50% commission derived income requirement for the inside sales exemption.
Misclassification as an inside sales representative can normally mean the employer has failed to pay for overtime hours, i.e. at least 1.5 times the employee's regular rate of pay for each hour worked in excess of eight in a single day or in excess of 40 hours in a single week.
If the employee has also not been afforded the requisite meal and rest breaks, then the employer can be liable to pay one hour of pay at the employee's regular rate of compensation for each day such a failure occurs. If both a rest break and meal break is not provided in a single day, then the employer must pay two hours of pay at the employee's regular rate of compensation.
It is important to speak with employment lawyers if you suspect you are being misclassified.
The confidentiality and privileges of an attorney-client relationship will allow you to determine if you truly have been misclassified and have therefore been deprived of certain rights afforded to you under federal and California law.
If you or loved ones suspect misclassification, i.e. classified as an inside salesperson then they should not have been, were entitled to overtime pay, rest breaks and/or meal breaks that were not provided for, and wish to discuss your case confidentially in a free consultation with one of our skilled California employment law attorneys, do not hesitate to contact us at Freeburg & Granieri.
Are you classified as an inside salesperson but unsure if it’s accurate? Misclassification can result in lost wages, missed meals and rest breaks, and denied overtime. At Freeburg & Granieri, APC, we specialize in ensuring employees are properly classified and compensated for their hard work. Don’t let confusion over exemptions cost you your deserved earnings.
If you believe you’ve been misclassified, reach out today for a free consultation. Our experienced employment attorneys will review your case and fight for the compensation and protections you’re entitled to with our employment law services. Contact us now!
Our clients become friends, confidants, and repeat customers. Former clients are our best referral source.
Do not be a commodity, find an attorney who treats your legal issue with the care it deserves.
