FLSA Retail/Service Establishment Overtime Exemption Rule Broadened

Qualified employees in retail and service establishments may be exempt from overtime pay if they meet certain requirements under the Fair Labor Standards Act (FLSA). The U.S. Department of Labor (DOL) recently issued a final rule clarifying which employers are considered retail and service establishments for purposes of using the overtime exemption.

Generally, the DOL has interpreted “retail or service establishment” as requiring the establishment to have a “retail concept.” The establishment typically “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.” Over time, a non-retail list was created to identify which businesses do not have a retail concept, such as such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, etc. A separate list was developed to identify businesses that “may be recognized as retail,” such as coal yards, household refrigerator service and repair shops, masseur establishments, piano tuning establishments, etc.

The final rule withdraws these two lists – non-retail and “may be” recognized as retail – in order to promote greater simplicity and flexibility of taking advantage of the exemption. Establishments in industries that had been on the non-retail list may now assert that they have a retail concept if they meet the existing definition of retail and other criteria. Establishments in industries that were on the “may be” retail list may continue to assert that they have a retail concept.

Moving forward, the DOL will apply the same analysis to all establishments to determine whether they have a retail concept and qualify as retail or service establishments for purposes of using the overtime exemption.

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