Mass-Peculiarities: An Employers Guide to Wage & Hour Law in the Bay State 2022 Edition

© 2022 Seyfarth Shaw LLP Massachusetts Wage & Hour Peculiarities, 2022 ed. | 115 2. Federal Commissioned Inside Sales Exemption Under the FLSA, certain retail and service employees who work on commission are exempt from federal overtime requirements. 634 Massachusetts law does not contain a similar exemption for inside sales employees. Retail and service employers should consider whether employees who satisfy the federal exemption satisfy a different state exemption. To qualify for the federal exemption, a business must be considered a “retail or service establishment.” 635 In order for a business to meet this requirement, (1) the business must be recognized as a retail sales or service provider in its particular industry; and (2) 75 percent of its annual dollar volume of sales of goods or services must not be for resale. 636 Additionally, retail and service employees must satisfy the following two requirements: (1) their regular rate of pay must be at least one and one-half times the federal minimum wage; 637 and (2) more than half of the employee’s compensation for a “representative period” of not less than one month must derive from commissions on goods or services. 638 In making the latter calculation, an employer must begin by choosing a “representative period”—ranging from one month to one year—that fairly and accurately reflects the fluctuation in the employee’s commission earnings over time. 639 The employer may then calculate the proportion of the employee’s pay derived from commissions over the course of the representative period to determine whether the majority of the employee’s salary comes from commissions. 640 The employer is required to document its reasons for choosing that representative period in its records. 641 634 29 U.S.C. § 207(i); 29 C.F.R. § 779.414. The federal inside sales exempt ion was enacted to relieve employers from the requirement of paying overt ime to retail and service employees who are paid primarily on commission. These employees generally work in “big-t icket” department s or establishment s where commissions have t radit ionally been used to compensate employees. Examples include department s or establishment s selling furniture, bedding and home furnishings, floor coverings, draperies, major appliances, musical inst rument s, radios and televisions, men’s clothing, women’s ready to wear clothing, shoes, corset s, home insulat ion, and various home custom orders. 29 C.F.R. § 779.414. Addit ional examples of retail and service establishment s include grocery stores, coal dealers, restaurant s, hotels, watch repair establishment s, and barber shops. 29 C.F.R. § 779.318. See also DOL Wage & Hour Opinion Let ter FLSA2006-33 (Sept . 14, 2006) (propane gas dealers); DOL Wage & Hour Opinion Let ter FLSA2006-22 (June 23, 2006) (plumbing repair service companies); DOL Wage & Hour Opinion Let ter FLSA2006-9 (Mar. 10, 2006) (health club/fitness facilit ies); DOL Wage & Hour Opinion Let ter FLSA2005-44 (Oct . 24, 2005) (carpet and upholstery cleaning services). 635 29 C.F.R. § 779.411. 636 29 C.F.R. § 779.411. 637 29 U.S.C. § 207(i)(1); 29 C.F.R. § 779.412(a). The regular rate of pay is computed by dividing the total number of hours worked into st raight -time earnings for those hours. 29 C.F.R. § 779.419. For example, if an employee earns $400.00 andworks forty hours, the regular rate of pay is $10.00 per hour. 638 29 U.S.C. § 207(i)(2); 29 C.F.R. § 779.412(b). Moreover, the commissions must be earned as part of a bona fide commission plan. See Crawford v. Saks & Co. , No. H-14-3665, 2016 WL 3090781, at *5 (S.D. Tex. June 2, 2016) (employing four-factor test to find that commission plan where salespersons’ pay exceeded draws between 21 and 35 percent of t ime was bona fide plan). 639 29 C.F.R. § 779.417. 640 Id .; 29 C.F.R. § 779.414. 641 29 C.F.R. § 779.417(d).