Sales Reps Do Not Receive Overtime Pay – Right? Well . . .

October 2, 2017

Topics: Pay Practices

A misconception that many employers have is that sales representatives are not entitled to overtime pay for working over 40 hours in a work week.  After all, many sales representatives are paid on commissions and the more they work the more money the reps can earn through commissions.

Unfortunately, the law has not kept up.  Wage and hour law generally divides sales representatives into two categories:

  1. inside sales reps who work at their desks and who are entitled to overtime pay, and
  2. outside sales representatives who are on the road, and who are not.

Certain retail sales representatives (who work on the floor in a retail store) may also be exempt from overtime pay, but that will not be addressed, here.

In order for a sales representative to be categorized as an outside sales rep that is exempt from the federal overtime pay requirements, both of the following must be met:

  1. 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; and
  2. The employee must be customarily and regularly engaged away from the employer’s place or places of business (which would include an employee’s home office).

An individual’s “primary duty” is the main or most important duty the employee performs. Sales people may perform other tasks, such as maintaining an inventory of samples, relaying contracts, updating a data base, maintaining promotional materials, and networking.  As long as these tasks are only incidental to the employee’s main job of selling, they would not alter the employee’s primary duty of sales.

The Department of Labor says that “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.”  A sales person who attends sales meetings, or relays contracts from a desk can therefore still be an outside sales person.  A person who “customarily and regularly” sits at their desk making sales calls, however, is not “customarily and regularly” away from the employer’s place of business.

Other factors are considered to view the entirety of the situation and consider the arguments an employer may have to support the employee’s overtime pay classification.  It is important to also be mindful that state law may use different definitions.

Consult with employment counsel if you are uncertain as to whether your sales representatives should be provided with overtime pay.