Legal Sales Reps

“I have a sales rep who is commission only. However, I heard something that made me wonder if I should also be paying wages. What is the rule?”

Your HR Survival Tips

California has very specific rules about sales reps so it’s good you’re asking. We often see sales reps misclassified and this can be very costly to the company.

Inside Sales Reps are any sales reps who spend more time in your office, their home office, or on the phone than they spend meeting face-to-face with clients and prospects.

• They must be paid hourly (not salaried) for all time worked.
• They are subject to meal and rest break rules.
• You cannot count commissions toward meeting minimum wage unless you pay that period’s commissions at the same time you are paying their wages for that period’s time. If commissions are paid, you must have a commission plan in place that meets California law. Commissions are a percentage of the sale but bonuses are flat amounts.
• There is a possible exemption that would allow you to avoid overtime but it’s tricky so ask questions before implementing this.

Outside Sales Reps must legally spend at least 51% of their time out and about visiting prospects. We call this “knocking on doors.” They cannot conduct sales from their phone, home, or office; they must be hitting the streets. You can’t count time spent delivering the product, setting it up, etc. toward that 51%.

• This position has no minimum salary required and can be paid commissions only.
• Any paid time off benefits are calculated by the number of hours the sales rep is expected to work.
• You must have a commission plan in place that meets California law.

Laws have not kept up with technology. Your sales reps may be much more productive when doing screen shares for demos or online meetings with prospects. However, based on current laws, this time does not count toward the 51% needed to qualify as an outside sales rep. Misclassifying an inside sales rep as an outside sales rep can result in a lot of penalties and fines.

Think about the difference between them this way… if they’re sitting down, that time probably won’t count toward the 51% the rep needs to qualify as an outside sales rep.