Pub. 1 2013 Issue 3

By contrast, inside salespersons are exempt from overtime in narrowly defined industries or occupations[1] when more than half of their pay is in the form of commissions and their regular rate of pay exceeds one and one-half times the minimum wage, but unlike outside salespersons, inside salespersons are not exempt from timekeeping or meal and rest period requirements even when they are exempt from overtime in some businesses. Therefore, for inside sales employees the agreement should include language stating that the employee will be required to keep an accurate time record and will be provided with required meal and rest breaks. Commission agreements should adequately define other types of payments that could be earned, such as bonuses or other incentives, and the conditions for earning those payments. The commission agreement could also include provisions regarding vacation or holidays, and special provisions regarding perks such as automobile allowances (beyond what is required by law for expense reimbursable travel) or club memberships. The commission agreement should include reference to dispute resolution such as arbitration agreements that may have been signed by the employee. Any written commission agreement should contain employ- ment-at-will language reaffirming that either the employer or employee may terminate the employment relationship at any time for any reason, with or without prior notice. Action Needed This new law took effect on January 1, 2013. If you have com- mission-paid employees, you should determine whether you are in compliance with this law, and whether additional provisions should be added to your existing agreements to safeguard against employee complaints regarding compensation. At the very least, you must comply with the requirements of this new law with respect to commission-paid employees who are hired this new year, or for employees whose pay plans will change this year. For more information or answers to questions about commissions, compensation plans and wage & hour laws, contact Chris Hoffmann at 858-597-9600 or at choffmann@laborlawyers.com. ________________________________________ [1] The inside sales exemption applies only to Wage Order 4 (technical, professional) andWageOrder 7 (mercantile). Thatmeans that inside salespersons formanufacturing companies (Wage Order 1), personal-service businesses (Wage Order 2), hotels and hospitality businesses, (Wage Order 5), and transportation businesses (Wage Order 9) are not exempt. Overtime must be paid to inside salespersons in these industries, and commissions paid must be taken into account in determining the employee’s “regular rate” fromwhich overtime is calculated. If the agreement is silent on recovery of unmet draws, then the draws generallywill be deemed to be part of the employee’s base pay that will not be recoverable in subsequent reconciliation periods or upon termination. The agreement also should state the period for which commissions will be calculated (e.g., monthly), when draws are paid (e.g., weekly, semi- monthly, etc., if applicable), and when commissions will be reconciled and paid. 1 2 3 4 5 Provisions Not Required, But Recommended The new law addressing commission agreements provides an opportunity to improve or clarify compensation plans in other respects. Here are some we suggest: Exemption requirements may or may not impact how you draft your pay plans. In California, salaried exempt employees and outside salespersons (those spending more than half their working time out of the office making sales) are exempt from minimum wage, overtime, timekeeping, and meal and rest period requirements. If these exemptions apply, the elements should be referenced in the commission agreement.