“I’d like to have someone on the phones selling for me but I only want to pay a commission on what they sell. How do I set this up?”
Your HR Survival Tip
You can’t, at least not legally or not this way. The person you’re defining would be classified as an inside sales rep and they must be hourly (non-exempt). That means you’ll be paying for their time on the phone, plus any promised commissions.
When your salesperson spends more time in the office, at a desk, or on the phone instead of having in-person meetings at the client’s site, they can’t earn only commissions. You must pay for all time worked. You can’t even count commissions toward meeting minimum wage unless you pay that period’s commissions at the same time you are paying for that period’s time.
There is a possible “inside sales rep” exemption that would allow you to avoid overtime, but the sales rep must be paid at least 1.5 times the minimum wage to qualify. The exemption is only for overtime; the sales rep would still need to follow meal and rest break rules. This is a tricky exemption and we don’t recommend using it.
Those “outside sales reps” who can be hired as commission-only must spend at least 51% of their time out and about visiting prospects. We call this “knocking on doors.” They cannot conduct sales from their 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%.
We are told too often that the laws have not kept up with technology. Your sales reps may find they are much more productive when doing screen shares for demos or Zooming with prospects but digital sales techniques only work for inside sales reps. Think about it this way… if they’re sitting down, that time probably won’t count toward the outside sales rep’s required 51%.
A final thing to remember is commissions only work if the amount is a percentage of the sale (net, gross, etc.) and the sales rep is actively involved in making the sale. If you just pay a flat amount, that’s a bonus rather than a commission.
Look closely at your requirements for any salesperson and how they are paid. Classify your sales reps properly so you don’t end up in front of the Labor Commissioner or worse.
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