The following tips are designed to help employers avoid the common mistake of misclassifying Minnesota sales employees as exempt under the "outside sales" exemption of the federal Fair Labor Standards Act (“FLSA”) and the Minnesota Fair Labor Standards Act (“MFLSA”).
Understand What Exemption May Apply to Your Employees
The FLSA and the MFLSA recognize several exemptions that may apply to a Minnesota salesperson – including the outside sales exemption. Keep in mind that other exemptions may apply to your Minnesota sales force as well, including an exemption for certain commissioned sales employees of retail establishments, and certain salespersons in specific industries (e.g., aircraft salespeople, farm implement salespeople, truck and trailer sales people, and auto dealer salespeople). Of course, an employee who does not satisfy the requirements of the outside sales exemption or fall within a particular exempt industry may still qualify as an exempt employee under another exemption (e.g., administrative exemption) as long as all of the criteria of the exemption are met.
Understand the Outside Sales Exemption under the FLSA
The FLSA recognizes an exemption for outside sales employees that many employers rely upon to classify sales employees as exempt. The FLSA and the MFLSA each have a different test that employees must meet in order to qualify for the outside sales exemption.
Is the Employee’s Primary Duty Making Sales?
In order to qualify for the outside sales exemption under the FLSA, the employee’s primary duty must be to make sales or obtain orders or contracts for services for the use of facilities for which consideration will be paid by the client or customer. See 29 C.F.R. §§ 541.500 to 541.504.
Is the Employee Customarily and Regularly Engaged Away from Employer’s Place of Business?
The FLSA also requires that the employee must be customarily and regularly engaged away from the employer’s place of business in order to qualify for the outside sales exemption. “Customarily and regularly” engaged away from the employer’s place of business means greater than occasional, but does not need to be continuous. “Customarily and regularly” means work that normally occurs during every workweek, and does not include isolated or one-time tasks. See 29 C.F.R. § 541.701. An outside sales employee is one that makes sales at the customer’s place of business or through door-to-door sales. Outside sales do not include “sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.” 29 C.F.R. § 541.502. A fixed site, whether at the office or at the employee’s home that is used as a headquarters or used for telephone sales is considered one of the employer’s places of business.
Beware: the Outside Sales Exemption under the MFLSA has Different Requirements
The test under the MFLSA is somewhat different that the test under the FLSA. In order to qualify for the outside sales exemption under the MFLSA, the employee must meet the following: (a) the employee makes sales of, or obtains orders or contracts for, materials, services, or the use of facilities for which payment will be made; (b) the employee is hired for the express purpose of performing such duties away from the employer’s place of business; (c) the employee conducts no more than 20% of sales on the employer’s premises; and (d) the employee’s hours of non-sales work do not exceed 20% of the employee’s total work hours. See Minn. R. § 5200.0220.
The Bottom Line for Employers in Minnesota
If sales employees are not regularly and customarily engaged in sales away from an employer’s place of business, the sales employee is likely not going to be exempt from minimum wage or overtime under the FLSA or the MFLSA. Misclassification of employees as exempt can cause many problems – opening up an employer to risks associated with unpaid overtime and minimum wage for sales employees. On the other hand, re-classifying an employee as non-exempt can be a large administrative burden on the employer. A non-exempt employee is entitled to minimum wage and overtime. As a result, the employer will need to start tracking employee work time, pay at least minimum wage for this time, and pay overtime if necessary. Calculating the employee’s regular rate of pay and overtime pay can become complicated for the employer if the sales employee earns base pay (whether in the form of a salary or hourly rate) plus commissions. While commission payments often fluctuate, these payments must be included