Producer Status Under FLSA-An Update

My last post concerned the legal requirements that must be satisfied by agencies before they can reopen their offices.  The length of that post indicates how many such requirements there are.  Before addressing the subject raised in the title to this post, I wanted to let my readers know about a checklist for those and other requirements that has been developed by a human resources company.  It can be found here and provides a good overview of what needs to be done by all agency and other business owners who are considering reopening their offices.

On May 18, 2020, the Wage and Hour Division (“WHD”) of the U.S. Department of Labor announced a final rule that opens the door for producers to be classified as exempt from the overtime pay requirements of the Fair Labor Standards Act under the commissioned sales person exemption.   That final rule announced the withdrawal of two regulations, one of which had foreclosed any possibility that producers could be classified as a commissioned sales person.  Only the employees of a “retail or service establishment” are eligible for such a classification.  Many years ago the WHD issued a regulation that included businesses that sell insurance among those businesses that are not such an establishment.   That regulation has now been withdrawn.

Going forward, the WHD will decide on a case by case basis whether a particular business satisfies the criteria for a “retail or service establishment.”  That criteria is both very specific and vague.  According to the WHD, such an establishment is one that engages in the sale of goods or services of which at least 75% by dollar volume must be goods or services that are “recognized as retail in the particular industry.”

While the 75% of sales criteria is an objective standard, what constitutes goods or services that are recognized as “retail in the particular industry” is much more subjective and in some ways circular.  Generally speaking, sales to members of the general public who are the end users of the goods or services sold are considered “retail” sales, if what is sold serves the everyday needs of the community in which the sales occur and the transaction is normally considered to be a “retail” one.   Unfortunately, in giving examples of what are not normally considered to be “retail” transactions, the regulations refer to insurance companies, along with sellers of electricity and similar commodities.

However, a good argument can be made that the sale of personal lines insurance is a “retail” sale, since such sales are made to members of the general public for their own private use and serve the everyday needs of the community in which they live.  If the WHD can be convinced that the sale of an insurance policy in general  is a “retail” sale, then agencies that sell predominantly commercial lines insurance would also be considered a “retail or service establishment.”  This as long as at least 75% of their annual revenue is from sales to the end users of the policies sold.

Once this hurdle is overcome, the remaining requirements for a producer to be exempt as a commissioned sales person are relatively easy to satisfy.  The producer’s total compensation for a “representative period” of at least one month, but no longer than one year, must exceed the overtime pay rate (at this time $10.88) for every hour worked during that period and more than half of the producer’s total compensation during that period must be from commissions.

These two requirements should not be a problem for most producers, especially if they are paid commissions only.  Assuming a fifty hour work week on average, a producer’s total monthly compensation would only have to be around $2,400 to meet the first remaining requirement and $1,201 of that sum would have to be from commissions.

The bigger problem for agencies would be the necessity to track the number of hours worked by a producer to make use of this exemption.  In the event of an audit by the WHD, an agency would have to be able to prove the number of hours worked by the producer in question during the relevant time period so it could show the total compensation paid to the producer during that time period was in excess of the minimum required amount.

 

 

 

 

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