Retail Sales (Inside Sales) Exemption
As opposed to outside traveling salespeople, the retail (or inside) sales exemption is intended to apply to those sales employees who work at an employer’s store and are paid primarily on the basis of sales commissions. To qualify for this overtime exemption, an employer must demonstrate each of the following:
- The employee is employed by a “retail or service establishment”
- The employee’s regular rate of pay is at least 1.5 times the minimum wage (or $10.88)
- More than half of the employee’s total earnings come from commissions
The employer must actually be a retail or service establishment – not an unrelated entity such as a manufacturer, distributor or wholesaler.
In calculating the regular rate of pay, all hours of work must be considered: i.e. if there was “off-the-clock work” that would drag the employee’s regular rate of pay below $10.88, the employer cannot rely on this exemption.
Any unreimbursed expenses (i.e., cellphone, uniform, mileage) must also be factored into the regular rate of pay.
The employer may not count tips as “commission” income, but it may, for example, count mandatory service charges as commission income.