Overview of the FLSA Exemptions - Outside Sales

Fair Labor Standards Act

Many salespeople who earn their livings through commissions are entitled to the payment of  minimum wages and overtime pay unless they meet the specific exemption requirements of the Fair Labor Standards Act (“FLSA”). In this post, we will discuss the requirements for the Outside Sales exemption.

The Outside Salesperson

In order to qualify for the Outside Sales exemption, the FLSA requires that the following requirements are met:

  1. The Outside Saleperson’s primary duty must be to make sales or obtain orders or contracts for the sale of services or the use of facilities for which the customer will pay some form of consideration; and
  2. The Outside Salesperson must be “customarily and regularly” engaged to perform his or her sales activities “away from the employer’s place or places of business.” See 29 C.F.R. 541.500.

Unless each of these requirements are met, the worker will be entitled to overtime and minimum wages. In the paragraphs that follow, we will provide you with an overview of the analysis that must go into determining whether these requirements are met. One key point to remember while reading is that it is the employer’s burden to prove that its employee is exempt from the minimum wage and overtime pay provisions of the Act.

First, the employer must show that the worker’s primary duty is to make sales or obtain orders or contracts for services or for use of facilities. A sale involves any transfer of tangible property ownership and any transfer of tangible proof of ownership to intangible property. 29 C.F.R. 541.501.  One should note that the sales or obtaining contracts requirement is not satisfied unless an actual enforceable contract for sale or transfer of property actually occurs. For example, pharmaceutical sales representatives do not ordinarily satisfy this requirement because they are not legally capable of selling drugs, nor are doctors legally permitted to purchase such drugs. The primary duty of such pharmaceutical sales representatives is to promote their employer’s product line and encourage the physician to prescribe these drugs to the ultimate consumer. At best, the pharmaceutical sales representative receives a unenforceable promise to prescribe a particular drug to patients who may or may not follow the doctor’s orders and ultimately purchase the product. Therefore, when determining whether or not you qualify as an outside salesperson, you must first determine whether you are actually obtaining enforceable promises to purchase or transferring property ownership.

Second, the employer must demonstrate that the employee is “customarily and regularly” engaged away from the employer’s place of business.  An outside salesperson is engaged to make sales at the customer’s place of business or home. 29 C.F.R. 541.502. The reasoning behind the exemption is that employers are not generally able to track the time spent working of employees who are engaged to make sales at a customer’s home or business. It is not intended to prevent the payment of minimum wages and overtime to salespeople who perform their sales activities in a fixed location such as the employee’s home or office. Note that even though a salesperson may perform their sales activities out of the comfort of their own home, they will not be considered to have performed such work “away from the employer’s place of business.” For example, new technology allows many call center sales workers to work out of their own home. The employee logs into a computer or phone system set up by their employer in the employee’s home and then begins making or receiving calls which may result in sales or contracts for sales. These employees are not exempt and are entitled to both minimum wages and overtime pay for their labors.

Many employers misunderstand the requirements of the Outside Sales exemption and deny minimum wages and overtime pay to salespeople who perform work out of their home or another fixed location or deny minimum wages and overtime pay to workers who, rather than actually making sales or obtaining orders or contracts for sales, are engaged in promotional activities which are not exempt. Determining whether a worker is an exempt Outside Salesperson often requires the detailed analysis of an attorney. If you are not paid overtime and have questions about how you are being compensated, contact an experienced wage and hour employment lawyer today.