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Federal - DOL Narrows Commissioned Sales Overtime Exemption

On May 18, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) modified its former interpretation of the Fair Labor Standards Act’s overtime exemption for primarily commission-based employees of retail or service employers (§ 7(i) exemption). To meet the commissioned sales overtime exemption:

  • Workers must be employed in a “retail or service” establishment;
  • Earn at least 1.5 times the minimum wage; and
  • More than half the employee’s compensation for a representative period (not less than one month) must represent commissions.

In 1961 and 1970, the DOL released two interpretive rules with long lists of businesses that were not retail (“no retail concepts”) or might be retail (“may be recognized as retail”). These lists, although not binding on the courts, created flexibility in commissioned employees’ overtime entitlement by more broadly interpreting whether the employee was actually working for a “retail or service” employer (and thus entitled to overtime compensation). Under the DOL’s modification it eliminated the aforementioned lists and instead will apply a single standard when determining whether an establishment is “retail or service”:

Retail or service establishments sell goods or services to the general public, serve the everyday needs of the community, are at the very end of the stream of distribution, dispose their products and skills in small quantities, and do not take part in the manufacturing process. (29 C.F.R.§ 779.318(a))"

The WHD issued this rule without notice, without comment, and it took immediate effect.

Read the final rule and fact sheet