Many California employers are confused about the â??inside salesâ? exemption. If an employee can qualify for this exemption, it means they are not eligible for overtime compensation. However, this exemption is only available to employers in limited circumstances. An â??inside sales representativeâ? sells merchandise in a store or sales lot or sells products or services via a company telephone. The basic rules are:
â?¢ Total compensation must exceed 1.5 times the minimum wage for each hour worked during the pay period; and
â?¢ At least 50% of the total compensation must come from commissions.
In addition, under California law, the commissioned insides sales exemption can only apply if the business is covered by Wage Order 4 or Wage Order 7.
Wage Order 4:PROFESSIONAL, TECHNICAL, CLERICAL, MECHANICAL and SIMILAR OCCUPATIONS
This wage order covers businesses that include professional, semiprofessional, managerial, supervisory, laboratory, research, technical, clerical, office work, and mechanical occupations.
Wage Order 7:MERCANTILE INDUSTRY
This wage order covers any industry, business, or establishment operated for the purpose of purchasing, selling or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities.
Does either of those descriptions cover your place of business? It is important to note that what matters is not what an employee’s job may be. What matters is the primary purpose of the business for which the employee works. For example, a person who sells parts for a retail auto parts store such as Pep Boys would likely be governed by the mercantile industry’s commissioned salesperson exemption under Wage Order 7. A person who does the same work for an automotive repair shop would not. Auto repair shops are governed by Wage Order 9. That wage order contains no commissioned salesperson exemption.
Similarly, someone paid a commission to increase sales for a graphics business would be exempt under Wage Order 4 while someone who the same for a hotelâ??s banquets hall which is covered by Wage Order 5 would be not entitled to overtime pay.
Keep in mind that since the compensation must exceed $12 per hour (1.5 x $8) for every hour worked, you must keep very accurate records of all time worked.
Whether the sales commission structure is comprised of a base salary plus commissions, pure sales commissions, a draw provided against future commissions or some combination of these, on average, at least 50% of compensation must come from commissions and the representative period a company chooses to establish the plus-50% commissions and minus-50% salary ratio must be at least one month and not longer than one year.
Furthermore, the employer thus must maintain adequate records that clearly indicate
â?¢ The amount paid to employees exempt under this category
â?¢ The breakdown of base salary and commission payment for each week
â?¢ The number of hours worked each week.
In order to implement the exemption, the employer must also maintain:
â?¢ A symbol, letter or other notation placed on the payroll records identifying each employee who is paid under this inside sales exemption; and
â?¢ A copy of the policy or the specific written agreements with particular employees that lay out the terms of the sales commission structure, including the chosen representative period, the date the agreement was entered and how long it remains in effect.
Do you have employees doing inside sales? Are they eligible for overtime? Do you know what wage order your business falls under? As you can see, this exemption is very complex and confusing. Getting it wrong can cause your business to incur significant costs.