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Inside Sales & the Exempt vs Non-exempt Mess

by Trish Bertuzzi on Fri, May 03, 2013

(UPDATED: We have another post with new research on exempt versus non-exempt.)

At least once a month, I have a conversation with a sales leader who is trying to understand the exempt v non-exempt status of their inside sales teams. I always tell them two things: 

  1. There is logic and then there is the law – and in this case they are mutually exclusive
  2. This is a decision you have to make internally in partnership with HR and legal counsel

If you are not aware of this ridiculous and outdated standard let me share some background. The question deals with the federal Fair Labor Standards Act in conjunction (and often conflict) with state labor laws. 

Legal opinions - a Sales Manager's best friend!

The issue boils down to time-tracking and payment for overtime. In short, nonexempt employees are entitled to overtime pay. Exempt employees are not.  

Here's an explanation from Hopkins & Carley, a Silicon Valley legal firm.

Under federal law, the inside sales exemption applies only to employees who
(a) earn more than 150% of the minimum wage,
(b) derive at least 50% of their income from commissions, and
(c) work in the “retail and service industry."

Employers are engaged in the “retail and service industry” within the meaning of the Fair Labor Standards Act if they derive at least 75% of their annual sales revenue from goods or services not for resale and are recognized as a retail or service establishment in their industry.

So you are probably thinking “OK, our ISRs are paid over ~$24K on salary basis so we just passed the test.” But wait, not so easy…

Sales is Sales; except when it isn’t

According to Department of Labor’s FLSA Overtime Security Advisor site:

The FLSA contains an exemption from the payment of both minimum wage and overtime pay to any employee employed as an Outside Sales Employee, as that term is defined by the Regulations, Part 541.

Further, this may or may not be contradicted by local, state laws. Home offices may or may not be considered an employer’s place of business. Draws may count as commission, or may count as salary.

This. Is. A. Mess.

I decided to do a quick poll of my network to see how companies are handling this issue. Here's what I found: 

FLSApoll

Treating inside sales as non-exempt is the leading approach – but not decisively.

Non-exempt by-products

I will tell you, that those who classify as non-exempt have communicated quite a number of challenges.

  • Culture – Is there a different ‘feel’ between being an hourly vs. salaried sales person? If an organization has both field and inside sales and they both carry significant quota but are paid differently, does it result in a culture clash?
  • Competitive hiring – In this crazy climate for hiring inside sales people, if a great rep is looking at two opportunities and one is hourly and the other salary, they tend to select the salary position. Does hourly carry a stigma?
  • Overtime – Non-exempt requires the payment of overtime. So, do reps “punch” in and out? What about remote workers? Since they are not in the office, per se, are they then exempt?
  • Flexibility – Many organizations have taken flex time to a whole new level. They offer bonus vacation time as long as you are making your number. Well, if that means you work 70 hours one week and none the next what does that do to the equation?

I think we can all agree that this is a 'challenging' issue. Common sense is not in play here (my personal opinion).

So what say you? When commenting please feel free to do so anonymously if you so desire. No one needs to know which way your company went on this issue - unless you want them to of course.

OK, gotta run. I have to go punch out now. ;)

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Topics: inside sales management, best practices

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