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Exempt b/c of commissions North Carolina

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  • Exempt b/c of commissions North Carolina

    I originally posted this in response to another message discussing whether or not the ee was exempt.

    What if the terms of employment don't specifically state the number of hours you is compensation calculated then? A timeclock is punched daily in and out, and lunches are automatically deducted but rarely taken because of how they schedule the runs (back to back with only minimal travel time).

    ex. base pay of $9.00 plus commission on sales % depending on amount of sale (has different brackets) but they clock in at 7am and work until the jobs are done. Could be 5 hours could be 12 and the total hours are always over 40 and often 6 days a week. Overtime has never been paid but commissions may not amount to 1/2 of total compensation.

    I'm sorry if this is explained but those codes are hard for me to understand as they refer to other sections that I cannot find.

    Edit/Delete Message

    ps- I just found an overtime thread...should I have posted this in there? Can it be moved?
    Last edited by nckrystalblue; 07-13-2009, 06:34 PM. Reason: wrong thread?

  • #2
    Don't worry about it; it's fine right here.

    Inside salespersons are, by definition, nonexempt and must average at least minimum wage for all hours worked. "Terms of employment" don't mean much, if anything. It's what is actually worked, not what is scheduled to be worked, that counts. The .5 premium pay for overtime hours may very well have to be paid. My understanding is that one week of commissions being less than half the compensation for the workweek would not necessarily invalidate the exception. I have read articles regarding this issue that state the DOL looks at a "representative period" to make this determination; at least a month.

    I would also note that, although it is perfectly legal for a time system to automatically clock an unpaid meal period, it is illegal to dock pay for it if the meal period was not actually taken.

    Hope I understood the questions correctly. It's early.
    I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


    • #3
      side question...

      If an employee is paid by commissions why do they need to record hours worked? Is that up to the company or is that part of the exempt law?


      AT - I think I'm going to have to post the section from the handbook to see if anyone can explain if this particualr scenario falls within exempt or not. Somewhere either me or the ee is missing something regarding how they calculate the commissions.
      Last edited by nckrystalblue; 07-14-2009, 06:47 AM. Reason: added afterthought


      • #4
        "Commission" is just a payment method and does not mean much by itself. Patty asked the key question early. Are we talking about Inside Sales or Outside Sales? Inside Sales are non-exempt, period, subject to minimum wage and some sort of overtime (possible excetion here). Paying on a commission basis does not change that. Employers must keep time accounting records for all non-exempt employees.

        If we are instead talking about an employee who actually qualifies for the Outside Sales exception, then you are correct that there is no hard legal requirement that hours worked be recorded.

        Of course a careful read of the rules for this exception talk about time spent on "primary duty", "customarily and regularly" and "away from employer's place of business". If I was an employee who felt that I was spending too much time at the office to qualify for this exception, I would file a wage claim, and if the employer choose to not keep time accounting records, then the employer also choose to hurt themselves in court.

        Sometimes keeping time accounting records is a good idea even when not hard required to law.
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)


        • #5
          I'm not really sure what they are legally classified as and what the company considers them. I guess they are considered exempt outside salesmen but they are service personnel or technicians first and salesmen 2nd. Their job title is Technician or Crew Chief not salesman.

          The client must call the office to setup an appointment and make the initial sale based on what the customer thinks they need. The tech goes out, performs the service and recommends additional products that were not offered or accepted at the time of the initial call. In my view, the sales are 2ndary as the office personnel make the appointments and discuss what is needed. The commissions for the techs are only paid on what is added to the initial sale by them while they are in the home. Should the customer call for some reason or the management has to discount the "sale" in any way the commission is reduced even if it's not a problem with the tech or his work or related to what he added to the sale.

          Are there rules for how commissions are paid or calculated and reduced?
          I've heard of a base + commission method such as 9.00 ph plus 10% of what you sell. Is it legal to say your base rate is a % of the sale with a tier level for add ons? I'll have to get the handbook to show exactly how they structured it because I really don't understand it and it doesn't seem right to me.

          They way the ee explains it he's not getting the full amount based on their rule of you get the higher of your hourly rate or your commissions. The catch is that they don't calculate on a set basis. If overtimes is calculated on a weekly basis, shouldn't commissions be as well?

          for example:
          week 1 you work 40 hours @ =400 commission is 300
          week 2 you work 40 hours @ =400 commission is 800
          earnings for pay period is 800.00 total commission is 1100
          they tell you the higher value is the commission for that pay period.

          However - based on the "higher of..." wording
          week 1 higher value is 400 hourly pay
          week 2 higher value is 800 commission
          total higher pay value is 1200

          According to the ee, if you take the commission in one week you get it for the entire period. In this example that puts an extra 100 in the boss' pocket.

          My concern is whether or not he's rightfully classified as a salesman in the first place since his main job is to perform the service not sell things. This is where that more than 1/2 of earnings rule confused me a little. It was easier to see in the original post where the ee was only earning 20 or 30 a month in commissions so he was not exempt.

          Hopefully this is enlightening to many and not just me. This is one of the more difficult laws I've run across in my journey so far.



          • #6
            Originally posted by DAW View Post
            If we are instead talking about an employee who actually qualifies for the Outside Sales exception"
            Ok I read over that page you linked. I'm not sure if he meets this part of the rule:
            Obtaining Orders or Contracts for Services or for the Use of Facilities
            Obtaining orders for “the use of facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.
            If it's of any help, this is for the cleaning industry. He would meet the away from employer's location as the work is done in the client's home. More time is spent on the average performance of service than the upsell. Technically he is hired to perform the service, the upsell is extra. I don't know if anyone's been "fired" for not "selling". I know he's never been reprimanded for it and there were times he had 0 commissions.

            Here's another thought. If his "primary" job was selling even though he performed a service, and he was on medical light duty work assignment, couldn't he still do the sales part of his job simply by going along with other techs or switch to inside sales?

            Last edited by nckrystalblue; 07-14-2009, 01:30 PM. Reason: added another thought


            • #7
              Based on what you have said the employee does NOT qualify for the Outside Sales exception. You are describing a Non-Exempt employee subject to the record keeping, minimum wage and paid overtime rules. Using a commission based pay structure is not inherently illegal as long as all normal Non-Exempt requirements are meant. But paying someone on a commission basis by itself does not make the normal Non-Exempt rules go away.
              "Reality is that which, when you stop believing in it, doesn't go away".
              Philip K. **** (1928-1982)


              • #8
                Thank you for your help in clarifying this. I think we will need to get in touch with the DOL and begin to really look into this. There is something not right and I can't seem to understand the exempt vs non exempt payments with their commission schedule.

                Maybe some sleep will help... but I'm not sure.


                • #9
                  It's not exempt vs. nonexempt payments. It's either that the employee meets the criteria for an exempt status or he is automatically nonexempt.
                  I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


                  • #10
                    Agreed. Any employee can be Non-Exempt. In fact all employees are legally non-exempt until/unless the employer can prove otherwise. It is the actual job duties, plus sometimes the industry that supports the Exempt classification (if any). In your example the employee is performing a service at the customer's location. This does not fit any of the Exempt classifications, so by definition, the employee remains Non-Exempt. All Non-Exempt employees are subject to record keeping requirements of actual hours worked, must be paid at least minimum wage based on the workweek, and must be paid overtime (if applicable) based on the workweek.

                    Hourly, salaried, piece work and commissions are all examples of payment methods. Each of these payment methods mean very little by themselves. They are all legally the "tail", not the "dog". Saying that someone is paid by commission by itself means next to nothing legally.

                    Federal law (FLSA) is mostly concerned with making sure that minimum requirements are complied with. It is certainly possible for an employee to work for more then minimal requirements and it is certainly possible for an employee to have a claim for more then minimal requirements.

                    HOWEVER all law is not labor law. FLSA mostly loses interest once minimal requirements have been meet. This means that when an employee has a claim for more then minimal requirements, they must look to state law. This could be state labor law. This could be state contract law. Not all law is "labor" law. There is no one-size-fits-all answer applicable to all states, and not all states are equally employee friendly legally. FLSA on the other hand only does a few things, but is applicable everywhere.
                    "Reality is that which, when you stop believing in it, doesn't go away".
                    Philip K. **** (1928-1982)


                    • #11
                      I think I got it now...

                      I agree that from what we know of the position and the job duties, he appears to be non-exempt. Unless there is some unknown exemption criteria they use that I haven't discovered.

                      Now the issue seems to be the way I am understanding how he was actually paid vs how the hours + OT + commission (non-exempt method) would value out. He seems to think he was paid more than the non-exempt method will allow.

                      He didn't have a base plus commission pay to easily transfer over to the non-exempt method. His earnings were based on 13% of sales as booked plus an additional 1% for all upsells, an extra 1% for no re-do's and 1% for something else. Total possible commission could be as high as 15%, which he often met. I guess what's confusing me is how we translate that to the non-exempt method or would the employer have to pay him different amounts such as the internal sales people who get 9.00 per hour plus 3% commission and OT.

                      I'm still not convinced that what they're doing is kosher but it's possible that with all the problems, I'm just not willing to believe they did something good even if they technically misclassified the job status.

                      Is it possible that even with the "wrong" status he still made more money?
                      If that's the case should the matter even be brought up to the DOL? Not everyone had the sales he did he did so some may have made more with the non-exempt method.



                      • #12
                        I'm not sure I'm understanding your example, and I've read it more than once.

                        However, the law only requires minimum wage free and clear for nonexempt employees. You do not need legally to try to equalize what he was making when he was (apparently, wrongly) being treated as exempt.

                        If all the inside sales associates make $9.00 per hour plus commissions, then you can pay him that also.
                        I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


                        • #13
                          Assuming that the employee is non-exempt and assuming that the employer is using an exotic payment method (commissions, piece work, flag rates, sunspot activity, whatever-dippy-method-that-the-employer invented), then a two step calculation method MUST be used. For each workweek:

                          1. Figure out what was due based on whatever method the employer is using.

                          2. Figure out what was due based on minimum wage against all hours worked during the workweek.

                          3. The larger of the two answers are base wages due the employee for this workweek.

                          4. Overtime premimum (if any) is calculated on this answer.

                          Minimum wage is a floor, not a ceiling. The employer cannot legally ever pay less then minimum wage. The employer can legally pay more then minimum wage, so whatever odd method the employer chooses to use is legal as long as the result is not less then minimum wage for the workweek.


                          Not your question, but someone who knows what they are doing (me or Patty for example), would pay exactly minimum wage, with an optional bonus for good performance, however "good performance is measured. This is the method that is the easiest to handle and causes the fewest potential problems. Other methods can be legal assuming the minimum wage floor is meet, but always involve the multistep method describe. Alternatively, we could structure something using the Retail/Service Establishment exception method.
                          "Reality is that which, when you stop believing in it, doesn't go away".
                          Philip K. **** (1928-1982)


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