For those of you craving a non-COVID-19 issue to chew upon, the Department of Labor opened the floodgates of debate by withdrawing the partial lists of establishments that could either be “recognized as retail” or “having no retail concept” under the FLSA’s overtime exemption for certain commissioned employees. Of course, we are being sarcastic (kind of). However, this slight change should encourage employers who use commissions as part of their wage system to re-examine whether they meet the exemption.
It’s All About the Commissions
Under the FLSA, certain commission-paid employees in retail and service industries are exempt (and not eligible for overtime). To qualify for the exemption, (1) the employee’s pay has to be in excess of one and a half times the minimum wage and (2) more than half the employee’s pay in a month has to be paid in commissions on goods and services. This exemption, however, is only available for employees employed by a “retail or service establishment.” There’s the rub: What does that mean?
In its regulation, the DOL defined “retail or service establishment” as having a “retail concept” and “selling goods and services to the general public.” Such an establishment performs skills and dispenses goods in “small quantities” and “does not take part in the manufacturing process.” If the employee works for a business that meets that definition and the employee’s wages meet the other requirements, the employer does not have to pay them overtime.
Give Me an Example!
Since 1961, the regulation’s somewhat muddy definition of retail or service establishment has been further explained by two non-exhaustive lists of businesses that don’t qualify. The first list contained 89 types of establishments that the DOL felt were “lacking in a retail concept” and therefore probably wouldn’t meet the exemption requirements. In 1970, DOL added another 45 types of businesses to the list. What sort of establishments presumptively didn’t qualify? Tax preparers, laundries, roofing companies and travel agencies are some examples. But the list didn’t stop there! Other “well-known” businesses such as “photostating establishments,” “stamp and coupon redemptions stores” and “telegraph companies” were also listed as not retail enough to claim the exemption.
However, the DOL didn’t feel that was even enough. The same rule also had a list of 77 establishments that “may be recognized as retail.” This list included storage shops, household refrigerator services and massage establishments. It also included “fur repair,” “reducing establishments,” “scalp-treatment establishments,” and taxidermists.
Strangely, the regulations provided no explanation of why any of the businesses were included on either of the lists.
End of the Lists
The DOL decided to withdraw both lists: those that had no retail concept and those that “may” have a retail concept. (You can hear the collective sigh of relief from the photostating and scalp-treatment industries.) Instead, the DOL will simply apply its own case-by-case interpretations to determine whether a business has a retail concept and qualifies for the exemption. The DOL stated that this will better suit how industries change over time. Another reason for dropping the lists were the growing number of courts that characterized them as an “essentially mindless catalog” or “without any rational basis explained in the regulations.” (Tell that to your local fur repairer!)
I’m Neither a Taxidermist nor a Telegraph Company – How Does This Affect Me?
If you have employees you are paying on commission, and you are not paying them overtime, this would be a good time to make sure that employees meet requirements for the FLSA exemption. Do they meet the amount of the wage required? Do they make half their pay in commissions? Can you make the argument that your business has a retail concept? Since the DOL has eliminated its long list of things it didn’t used to consider fitting the retail description, you may find some employees who now meet the exemption. Updating your job descriptions, especially if they haven’t been examined in a long time, may help in this process.