The U.S. Department of Labor (DOL) has issued a final rule for determining whether employers qualify as "retail or service" establishments for purposes of an overtime exemption for commission-based employees. The final rule takes effect immediately.
Background:
The Fair Labor Standards Act, (FLSA) generally requires employers to pay employees overtime pay whenever they work more than 40 hours in a workweek. However, the FLSA includes an exemption from the overtime pay requirement for certain employees of retail or service establishments paid primarily on a commission basis. To qualify for the exemption, an employee at a retail or service establishment must have:
- A regular rate of pay that exceeds 1.5 times the "federal minimum wage"; and
- More than half of their compensation for a representative period (no less than one month) be commissions on goods or services.
The DOL has interpreted "retail or service establishment" as requiring that the establishment have a "retail concept." In 1961, the DOL issued regulations that included a lengthy but non-exhaustive list of 89 types of establishments that it viewed as lacking a "retail concept" and categorically unable to qualify as retail or service establishments eligible to claim the exemption. The list included establishments in various industries, such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, and more.
The regulations also included a separate non-exhaustive list of 77 types of establishments that "may be recognized as retail." This list included establishments in industries such as coal yards, fur repair and storage shops, household refrigerator service and repair shops, masseur establishments, piano tuning establishments, taxidermists, and more.
Final Rule:
The final rule withdraws both of the above lists from the regulations. The DOL will no longer consider these lists, and instead will apply a single analysis to determine whether an entity qualifies as a retail establishment. This analysis will involve the interpretations set forth in 29 CFR § 779.318 and elsewhere in Part 779, which states that a "retail or service establishment" is typically one that:
- Sells goods or services to the general public.
- Serves the everyday needs of the community in which it's located.
- Is at the very end of the stream of distribution.
- Disposes its products and skills in small quantities.
- Doesn't take part in the manufacturing process.
- Sells its good to the public and performs incidental services on such goods when necessary.
- Provides the general public its repair services for the comfort and convenience of the public.
Any establishment may be recognized as retail if they satisfy these criteria, according to the DOL.
Compliance Recommendations:
Employers should ensure their business is properly classified, and those that were previously on the excluded list and now wish to assert the exemption should ensure that they satisfy the criteria set forth in 29 CFR § 779.318 and elsewhere in Part 779. Please contact your dedicated service professional with any questions.