What is Your Company’s Definition of Outside Sales?

As you know, the Fair Labor Standards Act (FLSA) requires most employees to be paid minimum wage and overtime, except for those that are exempt outside sales employees.

According to the FLSA, to qualify for the outside sales employee exemption, all of the following tests must be met:

  • The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
  • The employee must be customarily and regularly engaged away from the employer’s place or places of

Sounds simple enough, so why do so many employers miss the mark?

Many employers do not fully understand the outside sales exemption, which can prove to be extremely costly.

Many corporations have paid the price of this costly mistake. Some to the tune of millions of dollars in settlements, including Frito Lay, Sam’s Club, Xerox and Manpower.

How can you avoid the same mistake?

There are two steps companies can take to avoid making this mistake:

  1. Don’t ask your employees if they want to be exempt or not, and
  2. Don’t think you’ll “fly under the radar because you’re a small company”, if you get it wrong.

Employees have become quite savvy when it comes to wage and hour law.  A simple Google search can give them all the information they need to file a claim.

What trouble can you get into if an employee is misclassified?

Beside back pay of overtime, damages and penalties, the IRS will want their cut of the employer’s payroll tax on any back wages.

Breaking the definition down is critical. The Department of Labor gives the following guidance on each element of the tests.

 Primary Duty

“Primary duty” means the principal, main, major or most important duty that the employee performs.

Most importantly, when determining what exactly an employee’s “primary duty” is, an employer must base its determination on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

 Obtaining Orders or Contracts for Services or for the Use of Facilities

The phrase 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.

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.

Customarily and Regularly

The phrase “customarily and regularly” means greater than occasional but less than constant; it includes work normally done every workweek, but does not include isolated or one-time tasks.

Away from Employer’s Place of Business

An outside sales employee 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.

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.

Promotional Work

Promotional work 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. However, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.

Drivers Who Sell

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.

Several factors should be considered in determining whether a driver has a primary duty of making sales, including:

  • a comparison of the driver’s duties with those of other employees engaged as drivers and as salespersons,
  • the presence or absence of customary or contractual arrangements concerning amounts of products to be delivered,
  • whether or not the driver has a selling or solicitor’s license when required by law,
  • the description of the employee’s occupation in collective bargaining agreements, and other factors set forth in the regulation.

The Final Word

As you can see, the determination of whether an employee is exempt or nonexempt requires a detailed factual analysis of numerous factors, which must be performed on a case by case basis for each position and employee in question.  Don’t leave it up to chance.  We recommend that you seek the advice of legal counsel to assist you with this analysis.