The Fair Labor Standards Act requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. However, the law contains several exceptions or “exemptions” from these requirements, most of which turn on a combination of the employees’ pay and the nature of their job duties. For example, Section 13(a)(1) of the FLSA provides an “exemption” from both minimum wage and overtime pay for certain categories of so-called “white collar” employees — namely, employees working as bona fide executive, administrative, professional, or outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain categories of computer employees. For an employee to be exempt, her actual real-life job duties and pay must meet all the requirements of the FLSA and the Department of Labor’s implementing regulations.
This post will focus on the exemption for outside sales employees. The Department of Labor Fact Sheet #17F is an excellent resource for information about the outside sales employee exemption. The DOL’s implementing regulations with respect to the outside sales employee exemptions are generally located at 29 C.F.R. §§ 541.500-504.
Significantly, as explained below, a sales employee who works only remotely from a home office (telework), generally does not qualify for the outside sales employee because she does not meet the requirement that the employee be “customarily and regularly engaged away from the employer’s place or places of business.” Rather, the outside sales exemption generally requires sales at the customer’s place of business.
General Requirements for the Outside Sales Employee Exemption
FLSA regulations provide that for an employee to qualify for the outside sales exemption, two general requirements must be met. First, the employee must be an employee:
(1) Whose primary duty is:
(i) making sales within the meaning of section 3(k) of the [FLSA, 29 U.S.C. § 203(k)], or
(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer[.]
29 C.F.R. § 541.500(a). Second, the employee must be an employee:
(2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.
29 C.F.R. § 541.500(a). Therefore, the employee must have a primary duty of making sales or obtaining orders or contracts for services or the use of facilities for consideration, and in performing that primary duty must be customarily and regularly engaged away from the employer’s place or places of business.
Primary Duty Considerations
FLSA regulations define “primary duty” generally to mean:
[T]he principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
29 C.F.R. § 541.700(a). The outside sales exemption regulations further provide some specific guidance on determining an employee’s “primary duty” in the context of this exemption:
… In determining the primary duty of an outside sales employee, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts also shall be regarded as exempt work including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.
29 C.F.R. § 541.500(b). Therefore, work that is “incidental to and in conjunction with” the employee’s own sales, or “[o]ther work that furthers the employee’s sales efforts” can also qualify as exempt outside sales work for purposes of this “primary duty” determination.
The regulations further provide that there is no minimum salary requirement for the outside sales exemption:
(c) The requirements of subpart G (salary requirements) of this part do not apply to the outside sales employees described in this section.
Making Sales or Obtaining Orders
As noted above, to qualify for the outside sales exemption, the employee’s primary duty must be either:
(1) Making sales within the meaning of section 3(k) of the [FLSA], or
(2) Obtaining orders or contracts for services or for the use of facilities.
29 C.F.R. § 541.501(a). The regulations provide some additional guidance as to what these terms mean. With respect to “making sales”, this can refer to sales of tangible property or in some cases “tangible and valuable” evidence of intangible property:
(b) Sales within the meaning of section 3(k) of the Act include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Section 3(k) of the Act states that “sale” or “sell” includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.
29 C.F.R. § 541.501(b). The regulations also provide guidance on the alternative requirement that the employee’s primary duty be “[o]btaining orders or contracts for services or for the use of facilities.” 29 C.F.R. § 541.501(a)(2). Specifically,
(c) Exempt outside sales work includes not only the sales of commodities, but also “obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.” 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.
29 C.F.R. § 541.501(c). Thus, even if an employee is not selling commodities, obtaining orders or contracts for services of the use of facilities can meet the exemption’s “primary duty” criteria. Further, 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.” 29 C.F.R. § 541.501(d).
Selling from a Home Office is Not Outside Sales; Selling Must Take Place at the Customer’s Place of Business or Home.
In addition to meeting the primary duty test, an outside sales employee must be customarily and regularly engaged “away from the employer’s place or places of business.” 29 C.F.R. § 541.502. The regulations clarify that employees who make sales from home or make sales over a computer or by phone do not meet this requirement:
…The outside sales employee is an employee who makes sales at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property. However, an outside sales employee does not lose the exemption by displaying samples in hotel sample rooms during trips from city to city; these sample rooms should not be considered as the employer’s places of business. Similarly, an outside sales employee does not lose the exemption by displaying the employer’s products at a trade show. If selling actually occurs, rather than just sales promotion, trade shows of short duration (i.e., one or two weeks) should not be considered as the employer’s place of business.
29 C.F.R. § 541.502. Thus, the outside sales exemption generally does not apply to sales employees who only work from home, as the regulations consider a home office to be the employer’s place of business.
Promotion Work Must Relate to the Employee’s Own Sales
The regulations also explain the circumstances in which an employee who performs promotional work is engaged in outside sales work for purposes of the exemption:
(a) Promotion work is one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. An employee who does not satisfy the requirements of this subpart may still qualify as an exempt employee under other subparts of this rule.
29 C.F.R. § 541.503(a). For example, a manufacturer’s representative might put up promotional displays or posters at a merchant’s place of business. Whether this is exempt outside sales work depends on whether the employee’s primary duty is making sales or contracts:
(b) A manufacturer’s representative, for example, may perform various types of promotional activities such as putting up displays and posters, removing damaged or spoiled stock from the merchant’s shelves or rearranging the merchandise. Such an employee can be considered an exempt outside sales employee if the employee’s primary duty is making sales or contracts. Promotion activities directed toward consummation of the employee’s own sales are exempt. Promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.
29 C.F.R. § 541.503(b). Similarly, a company representative who visits chain stores to replenish stock, put up displays, and consult with the store manager, but does not obtain commitments for additional purchases, is not engaging in exempt outside sales work:
(c) Another example is a company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases. The arrangement of merchandise on the shelves or the replenishing of stock is not exempt work unless it is incidental to and in conjunction with the employee’s own outside sales. Because the employee in this instance does not consummate the sale nor direct efforts toward the consummation of a sale, the work is not exempt outside sales work.
Drivers Who Also Make Sales Must Have a Primary Duty of Sales
Finally, the regulations go into detail about circumstances in which a driver who both delivers products and sells those products may qualify for the outside sales exemption. 29 C.F.R. § 541.504. Such an employee qualifies for the exemption only if her primary duty is making sales:
(a) Drivers who deliver products and also sell such products may qualify as exempt outside sales employees only if the employee has a primary duty of making sales. In determining the primary duty of drivers who sell, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including loading, driving or delivering products, shall be regarded as exempt outside sales work.
29 C.F.R. § 541.504(a). Factors to consider in determining whether a driver has a primary duty of making sales may include:
- a comparison of the driver’s duties with those of other employees engaged as truck drivers and as salespersons;
- possession of a selling or solicitor’s license when such license is required by law or ordinances;
- presence or absence of customary or contractual arrangements concerning amounts of products to be delivered;
- description of the employee’s occupation in collective bargaining agreements;
- the employer’s specifications as to qualifications for hiring;
- sales training;
- attendance at sales conferences;
- method of payment; and
- proportion of earnings directly attributable to sales.
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