Overtime Pay Rules for California Salespeople
Overtime Pay Rules for California Salespeople
Generally, unless an employee is exempt, he or she is entitled to overtime pay. The default rule is that overtime is calculated at 1.5 times an employee’s regular rate of hourly pay, or “time and a half,” for each hour worked beyond 8 hours per workday or 40 hours per workweek.
For salespeople, two potential exemptions from overtime may apply in California: “commission pay” or the “outside sales” exemption.
Commission Pay
This exemption applies to employees who are paid on a commissioned basis. A salesperson is exempt and not entitled to overtime if more than half of his or her pay is from commissions, so long as the hourly earnings of that employee are greater than 1.5 times the minimum wage. For example, if the California minimum wage is $11 per hour, the employee must earn at least $16.50 per hour for each hour worked and receive more than one-half of his or her pay from commissions.
However, “commission” has a specific meaning under California law. In other words, an employer may designate pay as a “commission” when in fact it is something else. A “commission” is a payment that is based on the amount or value of the sale of the employer’s goods or services that are sold by the salesperson. “Commission” pay may be based on the number of sales made by the salesperson, the value of the sales, or the employer’s profit on the sales. As a contrast, a payment based on production of a good or rendering of a service is not a “commission” even if an employer calls it that. Thus, for example, a construction employee who receives a percentage of a fee charged by the contractor for performing the job is not being paid a “commission”. Similarly, a mechanic who received a percentage of a fee charged by the shop to a customer is not being paid a “commission”.
Outside Sales
An “outside salesperson” is an employee who “customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” In other words, for this exemption from overtime to apply, a salesperson must spend more than half of her working hours (1) engaged in exempt sales activity (selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities) while (2) outside (away from the employer’s place of business).
Whether something is a “sales activity” isn’t always a straightforward question. Tasks that are “incidental to sales” do not count towards the one-half threshold. Thus, for example, delivering a product already sold is “incidental” and doesn’t count. Thus, depending on the nature of the job, whether something is direct selling activity as opposed to incidental to sales requires in depth legal analysis.
Whether an employee is working “outside” is a less complicated question generally. An employee who works at the employer’s office, whether permanent or temporary, is not working “away from the employer’s place of business.” Further, an employee who works from a home office is often also not working “outside” if that employee spends most of their time at the home office.
Generally, the outside sales exemption is intended to apply to salespeople who spend more than half of their time visiting a customer's place of business or selling door-to-door. See, e.g., 29 C.F.R. § 541.502 [“Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.”].
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