On Tuesday, May 19, the Department of Labor issued a final rule that streamlines the Fair Labor Standard Act’s Section 7(i) exemption for commissioned retail workers. Although the qualifying criteria remain the same, the new rule reinterprets these criteria in a way that will likely allow some previously ineligible employers to use the exemption for the first time.
To qualify for the 7(i) overtime exemption, three conditions must be met:
The employee must be employed by a retail or service establishment,
The employee’s regular rate of pay must be at least one-and-a-half times minimum wage, and
More than half of the employee’s regular rate of pay must come from commissions.
Tuesday’s rule does not change these three conditions, but instead offers a new, simplified test for determining whether the first condition is met. Since 1961, the United States Department of Labor has relied on non-exhaustive lists to help clarify what exactly a “retail or service establishment” is. One list provides examples of businesses that may be “retail or service establishments” and the other list names businesses that do not qualify. When a business is not included on either list, the DOL and courts would then have the unenviable task of trying to determine which list the business fits better with. Odd selections within the lists themselves made this task especially complicated – for example, how is it that coal yards and cemeteries are in the “retail or service” industry but print shops and laundromats aren’t?
Effective immediately, the DOL has scrapped both lists and will begin to use an open-ended analysis without looking to the lists as references. From now on, “retail and services establishments” are those that have a “retail concept.” Businesses with “retail concepts” are ones that sell goods or provide services to the general public and that serve the everyday needs of their communities. They should fall “at the very end of the stream of distribution” and should not take part in the manufacturing process. Businesses who meet this new, open-ended definition can now classify commissioned employees who meet conditions (2) and (3) as exempt from overtime pay under federal wage/hour law. As always, employers should be mindful of state (and in some cases, local) wage/hour laws that contain more employee-friendly exemptions and other rules.
We encourage you to reach out to any of our attorneys regarding specific questions about the potential eligibility of your employees for this exemption. As always, here at K|W|W, your workforce is our priority.
The K|W|W Team