Inside Sales Exemption

“I have an inside sales person who is exempt and paid partially by a salary and partially by commission. Someone mentioned to me that I might be doing something wrong. Am I?”

My HR Survival Tip

There are very specific rules about this and, surprisingly, Federal law has an extra requirement over California law which severely limits the use of the inside sales exemption.

I’m assuming this person does not qualify for any other exemption. The Inside Sales Exemption is rarely used due to the standards that must be met:

• Counting both the wages and commissions, the employee must receive at least 1.5 times the minimum wage for all hours worked, which would currently be $13.50 per hour. This also means you still have to have a timecard completed so you can prove it.
• At least 51% of the employee’s total pay EVERY pay period must be from commissions. If you are paying employees twice per month, you need to calculate and pay that commission twice per month or that paycheck won’t be 51% commission.
• The killer is the Federal component that says this exemption can only be used in retail and service establishments.

Time Warner recently lost a lawsuit over this because they were not paying commissions with every paycheck. The commission can’t be stretched over multiple weeks or paychecks or it won’t meet the 51% requirement.

Save yourself the headache and make your inside sales employees non-exempt (hourly)! You can avoid the constant calculations and may find the costs are the same.