A few weeks ago I wrote a post about action taken by the Wage and Hour Division (“WHD”) of the U.S. Department of Labor that created the possibility for producers to be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) as a commissioned sales person. The WHD has recently issued two opinion letters that make it easier for producers to qualify for exemption from those requirements as an outside sales person. It issued another opinion letter at the same time that reduces the risk for those agencies who may want to use the commissioned sales person exemption for some or all of their producers.
OUSTIDE SALES PERSON EXEMPTION
In my previous posts about exemptions available for producers under the FLSA, I discounted the use of the outside sales person exemption based on an opinion letter regarding life insurance sales people. The language of that letter implied the sales people in question spent most of their time outside the office meeting in person with current or potential customers. In the two latest opinion letters regarding the requirements of this exemption, the WHD has indicated that to qualify for this exemption it is not necessary for an employee to spend a majority of their time engaged in such activities. It is enough that they meet with current or potential customers outside the office for some period of time every week. This may be for as little as “one or two hours a day, one or two times a week.”
However, the purpose of these meetings with current and potential clients must be the sale of insurance products to them, and the making of such sales must occur, for the most part, outside the agency’s offices or any office the producer may have in their home. Producers can perform administrative and other activities in such offices and even meet with current or potential customers, but those activities must be related to and in furtherance of the producer’s sales efforts that take place outside the office. They cannot be in support of the sales efforts of others.
Under the approach taken by the WHD in its two latest opinion letters, the focus now falls on where the sales made by producers occur. If a producer routinely meets with customers in the agency’s or their home office and concludes the sale of an insurance product there, instead of in the customer’s home or office or in another outside location, such a producer will not meet the requirements for the outside sales person exemption.
A best practice would be to obtain the customer’s consent to a quote provided for their insurance business in a meeting with the customer at some location other than the agency’s or the producer’s home office. It would also be a good idea to obtain a significant amount of the information required for the quote and subsequent application from the customer in a similar location. Over the phone or via e-mail while the producer is in the agency’s or producer’s home office will not satisfy the exemption’s requirements.
COMMISSIONED SALES PERSON EXEMPTION
For those agencies who may want to use the commissioned sales person exemption for their producers, the latest WHD opinion letter creates a safe harbor if it turns out a particular producer’s commission compensation does not satisfy that exemption’s requirements. A major requirement of this exemption is that the employee receive over half their total compensation during the specified measuring period from commissions.
For producers just starting out, who are not being paid on a straight commission basis, it can be difficult to predict how much commission income they will generate. In its latest opinion letter, the WHD recognizes this problem. The letter states that if the commission compensation requirement is not met during a specified period, no violation of the FLSA will occur if the employer pays the employee more than one and half times the current minimum wage (over $10.88) for each hour worked during that period and overtime pay (over $16.32) for each hour worked in excess of 40 hours during any one work week.
Agencies that decide to use the commissioned sales person exemption can now rely on that exemption from the beginning of a producer’s employment without having to worry about what happens if the commission compensation requirement is not satisfied during any specified period. The agency will get the benefit of the exemption for every specified period during which that requirement is satisfied and be able to avoid problems under the FLSA for any specified period it is not satisfied. However, as noted in my previous post on this exemption, the agency will be required to keep track of the hours worked by its producers during every specified period, in case the commission compensation requirement is not satisfied during that period.