Employers in the retail space long have struggled to determine whether their business is considered a “retail or service” establishment according to the U.S. Department of Labor’s Wage and Hour Division. This important distinction determines whether the company qualifies for the Fair Labor Standards Act overtime pay exemption related to commission-based employees. Fortunately, the Wage and Hour Division recently made answering this question easier by announcing a final rule for employers.
Before this change, there was a complicated process of checking lists and cross-referencing information in order to see if the employer could claim the overtime exemption and avoid paying time-and-a-half for over 40 hours in a workweek. Now, instead of all these lists, the federal Wage and Hour Division will use a single rule to determine whether a company is a “retail or service” establishment. Changing to one simplified rule provides more clarity and flexibility, so it’s a good thing.
Now, a company will be considered a “retail or service” establishment based on the current definition of “retail” plus a set of criteria, which includes whether:
- The employer pays a regular wage of at least 1.5 times higher than the federal minimum wage which currently is $7.25/hour;
- Commission is more than half the employee’s compensation for a pay period; and
- 75% of the sales of goods and/or services are considered “retail” according to that line of work.
Employers now can explore whether the commission-based model makes sense for them, their employees, and their kind of business.
If you have any questions regarding your business and its needs, contact The Coppola Firm. Our team of experienced attorneys would be happy to help you.