Question: I have been reading about Massachusetts retail sales and automobile sales employees suing their employers for overtime pay. I pay my New Hampshire sales employees on commission, and with the holiday season upon us, many will choose to work overtime. Am I at risk?
Answer: In May 2019, Massachusetts’ highest court decided Sullivan v. Sleepy’s LLC, SJC-12542, a class action by individuals who sold mattresses on commission. The law in Massachusetts is a bit different than in New Hampshire, which follows federal law when it comes to exemptions.
New Hampshire automobile dealers and other businesses who pay employees on commission for retail sales should review the law with their employment counsel to make sure they are properly taking advantage of exemptions which might apply.
However, inside sales persons outside of the consumer retail context are not exempt and are entitled to receive time and one half their regular rate of pay for each hour worked in excess of 40 in a workweek.
Many businesses incorrectly assume that commissioned salespeople are exempt from the minimum wage and overtime provisions of the Fair Labor Standards (“FLSA”). This is not the case. Only bona fide outside sales employees are exempt.
Outside sales employees are those who are customarily and regularly away from their place of work making sales. These are employees who are primarily traveling to customers’ locations to peddle the wares, whether products or services, of their employers.
Employees who make sales or take orders by phone or computer, whether from their employer’s brick-and-mortar location or from their home office, are not exempt. They must keep track of their hours of work and report the hours to their employer. They must receive minimum wage for every hour of work, even if they earn no commission in that work week. They must also receive time and one half their regular rate of pay for overtime. The regular rate is calculated by adding all wages (hourly pay, salary, commissions and non-discretionary bonuses) and dividing by the number of hours of work. This can be a complicated analysis with several alternative methods of calculation.
All employers who pay employees on commission should review their pay practices to make sure they are in compliance with state and federal law. This is a complex area of the law with significant risk of error, and consultation with counsel is recommended.