We wrote earlier in the month about the Department of Labor’s changes to overtime exemptions, which take effect on December 1 of this year. If you have executive, administrative, professional, or computer employees making less than $913 per week ($47,476 annually), you should have a look at that post to learn some steps you can take to ensure that you’re compliant and protect your business from costly increases to your labor budget.
But what if your employees don’t fall so neatly into those four so-called “white collar” categories? What if they earn half of their total earnings from commissions? What if they spend over half their time selling or servicing cars and trucks (or farm implements)?
In other words, what if you own or operate an auto dealership?
As you may have guessed, these situations are handled a bit differently under Department of Labor regulations. An auto dealership may well have employees to whom the new “white collar” rule applies. But they may also have commissioned employees and other sales and service staff whose exemptions are handled differently.
Commissioned Employees Exemption
The Section 7(i) overtime exemption covers commissioned employees of retail or service establishments–defined as establishments “75% of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.” This exemption applies to an employee if all three of the following conditions are met:
- The employee must be employed by a retail or service establishment.
- The employee’s regular rate of pay must exceed one-and-one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked.
- More than half the employee’s total earnings in a representative period must consist of commissions.
This exemption is not changing under the new rule. The Wage and Hour Division fact sheet on Section 7(i) has more information to help ensure that these conditions have been met.
Salespersons, Parts, and Mechanics Exemption
Recognizing the incentive method of compensation employed by auto and other equipment dealerships, the Section 13(b)(10) exemption applies to salespersons, mechanics, or “partsmen” (in some states, not including Illinois) who spend more than 50% of their time in selling or servicing cars, trucks, or farm implements. Also:
- In order for this overtime exemption to apply, the dealership’s annual dollar volume of sales made or business done must come from sales of automobiles, trucks, or farm implements.
- The employee is exempt from overtime pay requirements but must be paid at least minimum wage.
- The employee can be paid on an hourly, salaried, or commissioned basis. There’s no requirement here for commissions to make up more than half of the employee’s compensation.
The Outside Sales Exemption
Though it may not apply to most auto dealerships, it’s worth mentioning one more overtime exemption, Section 13(a)(1) that isn’t covered by the “white collar” exemption. The outside sales exemption applies to sales employees who regularly and customarily perform their sales duties away from the employer’s place of business. For more information to ensure that these conditions are met, see the Wage and Hour division fact sheet on the outside sales exemption.
If You’re Not Sure, Don’t Guess
Mistakenly classifying an employee as exempt can be a costly mistake. If you’re unsure of how to classify your employees, or if you need advice on dealing with the impact of the new FLSA rule, contact your friendly advisors at Axiom for guidance.
