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Compensation  >>   Inside Sales Exemption Status Search Discussion Posts
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Inside Sales Exemption Status  
Posted: 02/11/2010 05:45pm   405 Views

We have several inside sales teams at my company. In general, these sales teams are entry level: no degree required, less than 2 years minimum experience, clear sales process/guidelines with very little room for interpretation/influence, product being sold is a subscription service with average monthly rates of $30-350/month. Based upon FLSA guidelines, I have consistently classified these positions as non-exempt. I am now being told to "make them exempt."  I have 2 questions:

1) given FLSA guidelines and recent court cases (9th circuit preferred), can someone help me reconcile how a position such as this can be classified as exempt from the protection of the FLSA (and related state laws)?

2) I'd be willing to consider a salaried non-exempt status for these teams (i.e. pay them a flat salary for up to 50 hours of work per week), but then struggle with the fluctuating calculation of their base rate each week given the commission component and how this impacts their use of our various paid leave sources. Does anyone have any examples of how they've implemented this in their own companies?

Thank you.


Inside Sales Exemption Status  
Posted: 02/11/2010 06:51pm  

1.  No.  Nearly impossible.  (My long answer was eaten by the ethernet monster.)

2.  Yes.  That's conventional best practice.


Inside Sales Exemption Status  
Posted: 02/11/2010 06:58pm  

Are you and your management aware of this? 

This particular aspect of the FLSA has made HR Directors very nervous about violating the FLSA where I have worked. Two sources (law firms) are cited for your consideration.

Personal Liability in FLSA lawsuits      

In most lawsuits, even those involving employment-based claims, the existence of a corporation provides protection for owners, corporate officers, and employees from personal liability.  One significant exception is when the suit is brought under the Fair Labor Standards Act.  Owners, officers, and high-level managerial employees who exercise some control over employment matters often find, to their dismay, that they have been included as a defendant in an FLSA lawsuit along with the corporate employer. 

The reason for this potential personal liability arises from the extremely broad definition of employer found in the FLSA:  “‘Employer’ includes any person acting directly or indirectly in the interest of an employer in relation to an employee …”


Under the federal Fair Labor Standards Act ("the FLSA"), employers must follow the FLSA requirements or be liable for damages and even criminal penalties for violating FLSA provisions. The FLSA defines "employer" to include "any person acting directly or indirectly in the interest of an employer in relation to an employee". See 29 U.S.C. §203(d). Federal courts have routinely held that this definition of employer is to be broadly interpreted. The logic is that "employer" should be broadly construed in order to achieve Congress's intent to provide a remedy to employees for their employers' wage and hour violations. Even with such a broad definition, courts have declined to find that any person who has supervisory power, without more, is automatically an employer. Instead, courts generally look at the "economic reality" of an individual's status in the workplace before judging liability. This is determined by analyzing a number of factors, such as: (a) the person's job description; (b) his or her financial interest in the enterprise; and (c) the degree to which he or she is involved in hiring and firing employees. Other factors include the individual's involvement in day-to-day operations as they relate to defining the terms of employment, workplace conditions, and the level of compensation to be received by employees.



Prosecutions by the Department of Justice

The Department of Justice ("DOJ") can bring criminal actions for "willful" violations of the FLSA. A violation is "willful" if it is deliberate, voluntary, and intentional.

Enforcement actions by the DOJ can be brought instead of or in addition to lawsuits by the Secretary of Labor for back wages or injunctive relief. So, in cases involving willful violations, an employer can be ordered to pay liquidated damages and back-pay, as well as any criminal fine or penalty that is imposed by a court.

Criminal penalties under the FLSA are:


Inside Sales Exemption Status  
Posted: 02/11/2010 07:01pm   Revised: 02/11/2010 07:10pm  

Not sure about the legality of this practice. Don't you have to pay these people overtime for work over 40 hours?

"I'd be willing to consider a salaried non-exempt status for these teams (i.e. pay them a flat salary for up to 50 hours of work per week)"

This DOL reference may help with the commissions question you have:



Inside Sales Exemption Status  
Posted: 02/11/2010 07:14pm   Revised: 02/11/2010 07:15pm  

I would build the overtime premium into their salary. Basically I would pay them for 40 hours at their regular rate, plus 10 hours at time-and-a-half. I would pay them for 50 hours each week regardless of hours worked (unless it's over 50...in which case I'd owe/pay additional overtime). My main struggle is with the overtime calculation as this varies from week to week based upon commissions earned.


Inside Sales Exemption Status  
Posted: 02/11/2010 07:29pm  

Thanks for the explanation. See Claudia Elmore's comments in this string for help with the overtime issue:


I believe that Claudia is commenting in reference to this W@W white paper: 

Overtime Calculations for Non-Exempt Employees Due to Bonus:  http://www.worldatwork.org/waw/adimLink?id=17207&nonav=yes

Hope this helps.

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