by Stephanie Amin-Giwner
Generally under the Fair Labor Standards Act ("FLSA") an
employer must pay its employees overtime compensation of one and one-half times
the employee's regular rate of pay for hours worked in excess of forty hours
per week. 29 U.S.C. § 207(a)(1). This requirement does not apply to individuals
who (1) work at a retail establishment (75% of the establishment's gross annual
revenues must be sales to an end user vs. wholesale); (2) regularly receive
more than half of his or her compensation from commissions; and (3) receive at
least 1-1/2 times the minimum wage for all hours worked. However, qualifying
for this exemption can be more difficult than employers realize. In addition,
the wage payment structure required for this exemption is quite complex and
often misapplied by employers.
To rely on this overtime exemption under the FLSA,
employers must demonstrate that more than half of the employee's compensation
for a representative period of at least one month represents commissions on
goods or services. See 29 U.S.C. § 207(i). In order for compensation to
be considered a commission, the amount paid to the employee must be based on a
"bona fide commission rate." 29 U.S.C. § 207(i). Accordingly, in determining
whether more than half of an employee's compensation came from commissions, a
court must also determine whether the commissions paid to Plaintiff were the
result of "the application of a bona fide commission rate." Id. Courts
have interpreted this phrase to require an inquiry into "whether the employer
set the commission rate in good faith." Erichs v. Venator Grp., Inc.,
128 F. Supp. 2d 1255, 1259 (N.D. Ca. 2001).
While "the case law on the meaning of 'commission' under the
retail commission exception is sparse," Parker v. NutriSystem, Inc., No.
08 Civ. 1508, 2009 WL 2358623, at *4 (E.D. Pa. July 30, 2009), the United
States Department of Labor has provided some guideposts for analyzing
compensation plans in which "the employee will be paid [a guaranteed]
stipulated sum, or the commission earnings allocable to the same period,
whichever is the greater amount." 29 C.F.R. § 779.416(a). The DOL regulations
offer two examples of what is not a "bona fide commission rate." First,
a commission rate is not bona fide if the formula for computing the
commissions is such that the employee, in fact, always or almost always earns
the same fixed amount of compensation for each workweek (as would be the case
where the computed commissions seldom or never equal or exceed the amount of
the draw or guarantee). Another example of a commission plan which would not be
considered bona fide is one in which the employee receives a regular
payment constituting nearly his or her entire earnings which is expressed in
terms of a percentage of the sales which the establishment or department can
always be expected to make with only a slight addition to his wages based upon
a greatly reduced percentage applied to the sales above the expected quota. 29
C.F.R. § 779.416(c).
subscribers can access enhanced versions of the opinions and annotated versions
of the statutes cited in this article:
U.S.C. § 207
v. Venator Grp., Inc., 128 F. Supp. 2d 1255 (N.D. Ca. 2001)
v. NutriSystem, Inc., No. 08 Civ. 1508, 2009 U.S. Dist. LEXIS 66597 (E.D. Pa.
July 30, 2009)
C.F.R. § 779.416
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