DOL expands availability of overtime exemption for commissioned-employees working for a “retail or service establishment”

The nation’s leading wage-hour law (FLSA, the Fair Labor Standards Act) has long recognized an exemption from overtime for employees who work on a commission. However, the exemption is only available if the employee is working for a “retail or service establishment.”

To be a “retail or service establishment” the company “(a) (m)ust engage in the making of sales of goods or services; and (b) 75 percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry; and (c) not over 25 percent of its sales of goods or services, or of both, may be sales for resale. ” 29 CFR 779.313. The DOL says that this means the business must have a “retail concept.” 29 CFR 779.316.

Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process. (See, however, the discussion of section 13(a)(4) in §§ 779.346 to 779.350.) Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. Illustrative of such establishments are: Grocery stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants, hotels, watch repair establishments, barber shops, and other such local establishments.

Quoting: 29 CFR 779.318

In addition to the definition of a “retail or service establishment,” the DOL had published a list of business that “may be recognized as retail” and another list that “may not be.” 29 CFR 779.317 and .320. The lists have been roundly criticized over the years. They were not internally consistent, they did not reflect changing realities of the business world, and they were formulated without first going through the formal regulatory process.

The DOL has withdrawn its lists. While the definition of “retail or service establishment” itself has not been affected, the withdrawal of the arbitrary unrealistic add-on lists is intended to make the commission exemption available to more businesses.

Employers who think they fit within the definition of “retail or service establishment” may now wish to consult with legal counsel about using the commissioned-employee overtime exemption, even if they previously were not on the “may be” list or even were previously on the “may not be” list.

Employers are reminded to confirm compliance with state and local law. For example in Colorado COMPS Order 36 has its own commissioned-employee exemption requirements (rule 2.4.2).

Source: DOL final rule, “Partial Lists of Establishments that Lack or May Have a ‘Retail Concept’ Under the Fair Labor Standards Act,” 85 Fed. Reg. 97 (May 19, 2020).