This blog post provides information on the exemption from minimum wage laws and overtime pay provided by the Fair Labor Standards Act (FLSA) and California law, as applied to outside sales employees.
California and Federal law require that most employees in the United States be paid at least minimum wage for all hours worked and paid overtime at not less than time and one-half the regular rate of pay for all hours worked over 8 hours in a day or 40 hours in a workweek.
However, California law and the FLSA provide an exemption from both minimum wage and overtime pay for employees employed as outside sales employees. Unlike other exemptions from minimum wage, outside sales employees are exempt regardless of the compensation they earn.
Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must satisfy the exemption criteria under both state and federal law to be treated as exempt employees.
California law defines an outside salesperson as:
A person 18 years of age or over, who regularly spends more than half their working time away from the employer’s place of business, and who sells items, or obtains orders or contracts for products, services, or the use of facilities.
Below, we define some terms used to satisfy the exemption criteria under both state and federal law to be treated as exempt employees.
“Primary duty” means the principal, main, major, or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with a significant emphasis on the character of the employee’s job as a whole.
“Sales” includes any sale, exchange, contract to sell, consignment for sales, 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.
Exempt outside sales work includes not only the sales of commodities but also “obtaining orders or contracts for services or for the use of facilities for which the client or customer will pay a consideration.”
Obtaining orders for “the use of facilities” includes selling time on radio or television, soliciting advertising for newspapers and other periodicals, and soliciting freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service that may be performed for the customer by someone other than the person taking the order.
The phrase “customarily and regularly” means greater than occasional but less than constant; it includes work normally done every workweek but does not include isolated or one-time tasks.
Outside sales employees must be regularly engaged “away from the employer's place or places of business.” An outside sales employee makes sales at the customer’s place of business or, if selling door-to-door, at the customer’s home.
This may include being away from the employee’s home office, a company’s headquarters, a field office, or a modular building not representing the employer's place of business.
Outside sales do not include sales made by mail, telephone, or the Internet unless such contact is used merely as an adjunct to personal calls. Any fixed site, whether home or office, used by a salesperson as a headquarters or for sales calls is considered the employer’s place of business, even though the employer is not in any formal sense the owner or tenant of the property.
An outside sales employee must spend more than half of their working time away from their office and in the field actually selling or obtaining orders for products and/or services. This is determined by looking at the actual number of hours that employees work and how employees spend their time. Quantitively, outside sales employees must be away from the employer's place of business for more than half their working hours and actually selling.
If an employee spends more than half of their work time away from the employer’s place of business but spends less than half of their overall work hours selling, the employee cannot be classified as an exempt outside salesperson.
Unlike other exemptions from minimum wage or overtime, the outside sales employee exemption does not have a salary requirement or minimum earnings requirement.
To qualify for the outside sales employee exemption, all of the following tests must be met:
The salary requirements of the regulation do not apply to outside sales exemptions like those for highly compensated employees or administrative exemptions. An employee who does not satisfy the requirements of the outside sales exemption may still qualify as an exempt employee under one of the other exemptions allowed by the FLSA if all the criteria for the exemption are met.
The term “employee employed in the capacity of an outside salesman” in section 13(a)(1) of the FLSA shall mean any employee whose main duty is 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; who is commonly engaged away from the employer's place or places of business in performing their duty.
Unlike California law, in determining the primary duty of an outside sales employee under the FLSA, work performed incidental to and in conjunction with the employee's outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales position. Other work that furthers the employee's sales efforts also shall be regarded as exempt work, including, for example, writing sales reports, updating or revising the employee's sales or display catalogue, planning itineraries, and attending sales conferences.
Promotion work may or may not be exempt outside sales work under the FLSA, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. However, promotion work that is incidental to sales made or to be made, by someone else is not exempt outside sales work.
For example, a manufacturer's representative may perform various promotional activities such as putting up displays and posters, removing damaged or spoiled stock from the merchant's shelves, or rearranging merchandise. Such an employee can be considered an exempt outside sales employee if the employee's predominant duty is making sales or contracts.
Promotion activities directed toward the consummation of the employee's own sales are exempt. Promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work
Drivers who deliver and sell such products may qualify as exempt outside sales employees under the FLSA only if the employee has a primary duty of making sales.
Several factors should be considered in determining whether a driver has a principal duty of making sales, including a comparison of the driver’s duties with those of other employees engaged as drivers and as salespersons, the presence or absence of customary or contractual arrangements concerning amounts of products to be delivered, whether or not the driver has a selling or solicitor’s license when required by law, the description of the employee’s occupation in collective bargaining agreements, and other factors outlined in the regulation.
For example, a driver who may qualify as exempt outside sales employees would be a driver who provides the only sales contact between the employer, and the customers visited, who calls on customers and takes orders for products, who delivers products from stock in the employee's vehicle or procures and delivers the product to the customer on a later trip, and who receives compensation commensurate with the volume of products sold.
Employers who believe that some of their employees may qualify for the outside sales exemption should proceed with caution before classifying an employee as exempt under the FLSA and/or California law. In determining whether or not an exemption applies to your employees, consult with an attorney about those employees’ specific job duties to decide how your employees should be classified.
Sometimes an employer may misclassify a worker. If this happens, then the employee may be able to file a wage and hour lawsuit against the company and collect any unpaid wages - including minimum wage, overtime pay, missed meal period, and rest break penalties.
If you are an employee engaged in sales activities and believe you qualify as an exempt outside salesperson or have questions about any of the above, contact us at Freeburg & Granieri, APC, today!
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