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U.S. Labor Department Expands Types of Businesses That Can Claim Retail Overtime Exemption

    Client Alerts
  • May 22, 2020

Section 7(i) of the Fair Labor Standards Act provides an exemption from the usual overtime pay requirements for certain commissioned employees of retail or service establishments. For decades, the U.S. Department of Labor has maintained lists of types of businesses it believes fall within the definition of qualifying retail businesses. The lists include descriptions of businesses that DOL presumed to have no retail concept, therefore disqualifying them from claiming the exemption for their salespeople.

On Monday, DOL announced new final regulations that eliminate the industry lists, thereby broadening the types of businesses that potentially can claim the overtime exemption. Instead, DOL will apply the same concept of retail sales to all businesses regardless of their industry. In general, a retail business is one in which goods or services are sold to the public as the last step in the sales chain, and one that typically does not involve manufacturing.

This change will primarily affect the list of businesses presumed by DOL to lack a retail concept. These include banks, law and accounting firms, common carriers, and HVAC and plumbing contractors. Those businesses will now have the ability to assert that they include a qualifying retail concept.

The new rules do not change the underlying requirements for the exemption. The employees must earn more than one half of their income through commissions, and that income must be at least one and one-half times minimum wage. Businesses that pay commissioned salespersons overtime may want to review the new rules to determine whether they now qualify for the overtime exemption.