Moses & Singer LLP

New Labor Department Rule Expands Overtime Exemption for Commissioned Retail and Service Workers

May 20, 2020

By: Shari A. Alexander

More commissioned employees in the retail and service industry will be exempt from overtime requirements as a result of the U.S. Department of Labor (“DOL”) expansion of the commission exemption.  The DOL final rule, issued May 19, 2020, eliminates the two lists of establishments previously deemed ineligible or potentially ineligible for exemption as retail and service establishments under Section 7(i) of the Fair Labor Standards Act (“FLSA”).  By doing so, the DOL has expanded certain employers’ ability to avoid paying the overtime premium for hours beyond 40 in a week. 

Many viewed the lists, which contained establishments that the DOL previously considered lacking a “retail concept,” as arbitrary.  The lists included accounting firms, broadcasting companies, building and other contractors, dentists’ and doctors’ offices, employment agencies, engineering firms, finance companies, hospital and laboratory equipment dealers, lawyers’ offices, newspaper and magazine publishers, real estate companies, title companies, transportation companies, and travel agencies.

The lists were first created in 1961 when federal regulations were adopted outlining a partial list of establishments that lack a “retail concept” and were therefore unable to claim the Section 7(i) exemption, as well as a separate list of establishments that “may be recognized as retail”.  The new rule, which takes effect immediately, withdraws these lists in favor of a “generally applicable analysis” that “is better suited to account for development in industries over time regarding whether they are retail or not.”

While the new rule makes clear that the DOL and courts are no longer bound by categorical lists, the criteria to qualify for the retail or service exemption remains the same.  A retail or services employer seeking to use the Section 7(i) exemption for commissioned employees must meet the following 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 for every hour worked in a workweek in which overtime hours are worked.
  • More than half the employee’s total earnings in a representative period must consist of commissions.

DOL regulations still in effect define a “retail or service establishment” as one having at least 75% of its annual dollar volume of sales of goods or services (or both) not for resale and “recognized as retail sales or services in the particular industry.” In addition, it must have a “retail concept,” meaning that it typically “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.”

Moses and Singer lawyers can help you determine whether commissioned employees should be reclassified.  For more information, please contact Shari Alexander at (212) 554-7631 or salexander@mosessinger.com.

 

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