Compliance April 4, 2006

DoL: FLSA Exemption Depends on Pay Scheme

April 4, 2006 (PLANSPONSOR.com) - Workers paid a commission amount for their sales activities may be exempt from federal salary laws if their commission amount is a percentage of what is charged to the customer, the Department of Labor (DoL) has indicated.
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However, the exemption from the Fair Labor Standards Act (FLSA) overtime provisions is not applicable to employees paid through a flat fee,  the DoL said in the letter prepared for an unidentified representative of a professional organization of US health and athletic clubs.

DoL Deputy Administrator Alfred Robinson, Jr., who prepared the opinion letter, advised the health association representative that qualifying for the section 7(i) exemption from the overtime provisions of the FLSA requires meeting three conditions:

  • the employee must be employed by a retail or service establishment,
  • the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage under section 6 of the FLSA, and
  • more than half of the employee’s total earnings in a representative period must consist of commissions on goods or services.

The employer wanted to know whether some of its employees – such as personal trainers, aerobics instructors and tennis professionals – who are paid a commission, may be exempt from overtime pay under the FLSA’s exemption for “inside sales” employees. However, Robinson wrote that because employees of the organization’s members are paid differently, an exemption decision had to be made on a case-by-case basis.

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