I was recently asked to assist a client in drafting various onboarding documents including offer documentation for commissioned and non-commissioned sales personnel. This particular client happened to be a service establishment and as we began review of the client’s documents, it became immediately apparent that the client had not taken advantage of the “Overtime Exemption” under the Fair Labor Standards Act, which allows alternative compensation structures without consideration of overtime pay.
The FLSA Exemptions from Overtime Pay
While most remember that the FLSA requires employers to offer compensation in accordance with set minimum wage standards and similarly requires that overtime compensation be offered to non exempt employees working more than 40 hours in any given workweek, too few remember that the FLSA includes several “Exemptions” including Exemptions from Overtime Pay under certain defined circumstances including:
- Certain commissioned employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft sales-workers; or parts-clerks and mechanics servicing autos, trucks, or farm implements, who are employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers;
- Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans;
- Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations;
- Domestic service workers living in the employer’s residence;
- Employees of motion picture theaters; and
We find that many business owners that are otherwise able to make use of the exemption under #1, neglect to do so, thereby inadvertently hampering their ability to drive commission based or alternative based compensation structures. Remember to stay apprised of all options when considering how to compensate employees and don’t be afraid to be “different”, particularly when you can do so without concern of running afoul of the FLSA.
SMART Tip: Remember to have your onboarding documents reviewed by legal counsel at least once a year. Talking through your business needs in terms of how to incent employees to “sell” or “promote the business”, helps your counsel draft documents aligned with your key business objectives as opposed to just creating standard documents, universally applicable to nearly all businesses, but perhaps not yours.