U.S. DOL Clarifies Overtime Exemption for Commissioned Employees

Under the Fair Labor Standards Act (FLSA), commission-paid employees may be exempt from overtime pay if they meet certain conditions, including a compensation test, regular rate test, and if the employer is a qualified “establishment.”  As of May 19, 2020, the U.S. Department of Labor (DOL) clarified the “establishment” test by removing prior historical, and in some cases contradictory or confusing, interpretations of the exemption.

In order to qualify for the exemption, the commissioned employee must work for a retail or service establishment.  The DOL and various courts looked at a variety of factors to identify what establishments counted for the purpose of this exemption, creating lists of establishments that were “covered” or “not covered.”

In the May 19 update, the DOL withdrew these lists, emphasizing the importance of not relying solely on labels.  In the same way that an individual’s job title alone does not determine things like FLSA classification, employers will need to undergo fact-specific analysis of a particular establishment in order to determine if the establishment is not-retail.

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