The Outside Salesperson Exemption

Employees are usually classified as either exempt or 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.

But it's not always quite so simple as that.

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.

Correctly classifying employees helps determine things like applicability of minimum wage laws, 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.

What is the Outside Salesperson Exemption?

Under the California Labor Code and California Wage Orders, 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."

Think of that salesperson who travels selling door to door, spending most of the time away from their employer's place of business and instead takes the goods or services right to the customer's home or customer's place of business.

"Customary and Regularly Works"

This phrase means greater than occasional, but less that constant. This includes tasks normally done during the workday/work week and does not include one-off tasks or special assignment. To qualify for the outside sales exemption, the employee has to be spending most of their time engaged in sales.

"More than Half the Working Time"

This phrase means more than 50% of the total hours the employee worked, i.e. more than 50% of the employee's time must be spent actually selling goods and/or services away from the employer's office or a home office.

"Away from the Employer's Place of Business"

This phrase includes the employer's primary place of business, i.e. the storefront, main office, or headquarters. If the employee works from a home office, the home office is also considered the "employer's place of business." More than 50% of the employee's time must be spent away from these types of places in order to qualify for the exemption.

No Minimum Wage Requirement for Outside Sales Employees

Unlike other exemptions under California law, outside sales persons do not have to be paid a minimum wage per hour or on a salary basis to qualify. The outside sales exemption is a duties test only.

A properly classified outside sales person can be paid on a commission-only basis and does not have to be paid in hourly wage.

What are Wage Orders and How do they Apply to an Exempt Outside Sales Employee?

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. For example, there is a Wage Order for the Manufacturing Industry (IWC Order # 1), or for the Mercantile Industry (IWC Order #7).

Outside salespersons are specifically excluded from the provisions of these orders, i.e. they are exempt from things like minimum wage requirements, overtime pay/overtime hours, meal and rest breaks, and a number of other requirements set forth in each particular wage order.

Does Federal Law Also Apply to Outside Salespersons?

Yes. The Fair Labor Standards Act (FLSA), exempts certain employees from the minimum wage and/or overtime pay requirements. This includes "Outside Sales" employees.

The FLSA generally applies to employees of employers who have an annual gross volume of sales made or business done totaling $500,000 or more, and to employees individually covered by the law because they are engaged in interstate commerce (across state lines) or in the production of goods for commerce. In addition, employees of certain entities are covered by the FLSA regardless of the amount of annual sales revenue or business done. These entities include: hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not-for-profit); and public agencies.

To qualify for the outside sales employee exemption under FLSA, the following duties requirements must be satisfied:

• The employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. “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; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Keep in mind that a job title or job description alone do not determine the applicability of this exemption, but the actual day-to-day job duties and requirements of an employee do and should be analyzed on a case-by-case basis.

If the employee passes this test, then the employee is exempt from overtime payment and minimum wage requirements under the FLSA.

How do the Federal Laws and State Laws Interact?

Generally speaking, federal law sets the minimum rights a person has. A state may grant more rights than the federal government prescribes, but never less.

California law provides slightly more specific requirements for outside salespersons, such as requiring that the employee customarily and regularly work more than "half the working time" away from the employer's place of business, as opposed to the FLSA requirement that the employee be "customarily and regularly engaged away from the employer's place or places of business."

In short, a properly classification under the California outside salesperson exemption will almost always satisfy the FLSA requirement, but a classification that fails to satisfy the FLSA requirement for an outside salesperson exemption will never satisfy the California requirement.

How to Know if an Employee is Misclassified

The IWC Wage Orders are the best place to match the regulations to your specific situation, but as a general guide, employers who want to check where an employee appears misclassified, or employees who believe they may be misclassified should:

• Determine what industry the employer/employee falls under and which IWC Wage Order applies;
• Determine which, if any, exception applies to the employee's position, i.e. executive, administrative, or professional;
• Determine if any other exception apply, such as the outside salesperson exemption or if the employee is the parent spouse, child, or legally adopted child of the employer.

If none of the exemptions apply, then the employee likely should be classified as a non-exempt employee and is entitled to, at the minimum, be paid state minimum wage, be paid overtime, be provided with at least two ten minutes duty-free uninterrupted rest breaks per 8 hour workday, and be provided with an least one 30 minute duty-free uninterrupted meal break before the 5th hour of work in an 8 hour workday.

What are the Consequences of Being Misclassified?

If an employee was incorrectly classified as exempt, then they have likely been subject to missed rest breaks, missed meal periods, minimum wage payments, overtime payment, all of which can also cascade into even more violations such as failure to pay all wages due and failure to furnish accurate wage statements.

Employment law and wage and hour laws allow misclassified employees to seek general and special damages, including waiting time penalties and interest on wages not paid.

Employment Lawyers

It is important to speak with a lawyer who specializes in employment law 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 outside salesperson when they should have been, believe you were entitled to overtime pay, rest breaks and/or meal breaks that were not provided, and wish to discuss your case confidentially in a free consultation with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Freeburg & Granieri.

Understanding the Outside Salesperson Exemption: Protect Your Rights

If you've been classified as an outside salesperson, you may not be entitled to protections like overtime pay or rest breaks—but is that classification correct? At Freeburg & Granieri, APC, our experienced employment attorneys will thoroughly review your job duties to ensure you're not being misclassified and missing out on the wages and breaks you're entitled to under California law.

Think you've been misclassified? Contact us today for a confidential consultation. Let our skilled attorneys help you navigate your employment rights and secure what’s rightfully yours with our services!