Section 7(i) Overtime Exemption – Commissioned Sales Employees

In my last blog (if you missed it, you can check it out here!), I talked about the major exemptions for overtime and minimum wage. Today, I want to discuss the section 7(i) exemption to OVERTIME ONLY. What this means is that even though these employees are not due overtime, they are due at least minimum wage for every hour worked. As you will see below, they are actually paid more than minimum wage.

Commissioned Sales Employees

Overtime is not typically due to commissioned sales – people. However, the Department of Labor does (again) require certain conditions to be met in order for these types of employees to be exempt from overtime.

1.       The employee must be employed by a retail or service establishment.

a.       The employee must be performing commissionable work.

b.       This does not include sales instructors (employees that primary job duty is training).

2.       The employee’s regular rate of pay must EXCEED one- and one-half times the applicable minimum wage of the FLSA.

a.       Total earnings for the pay period divided by total hours worked for the pay period. As long as this is 1.5 times greater than the minimum wage the condition has been met.

b.       Tips are not considered commission, however, mandatory service charges that are paid to service employees can be considered commission.

3.       More than half (50%) of the employee’s total earnings in a representative period must consist of commission on goods and services.

a.       Employees paid entirely by commissions or draw against commissions or if commissions are ALWAYS greater than salary or hourly amounts paid, this condition will be met.

b.       Employers pay commissions in a different manner must ensure that commissions in the representative do meet this requirement. Commissions must be totaled separately from other pay. The representative period must be less than a year and no shorter than a month.

Accurate records of hours worked, earnings and wages paid for all hours worked are essential to ensure all requirements have been met to use this exemption. It is a best practice to implement a time keeping policy for commissioned employees. Initial implementation may present challenges, but consistent enforcement of the time keeping policy will lessen the challenges over time. Additionally, there is a variety of timekeeping products available either through payroll system or separately.

Pay plan design can significantly complicate or simplify meeting certain requirements of this exemption. Leaders should collaborate with payroll and human resources to ensure that the pay plan design is not overly complicated to process and meets the requirements of this exemption. Small, midsize and start up organizations can utilize human resources consultants on a fractional basis to assist in pay plan development.