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California has very stringent guidelines regarding which of your workers are “exempt” or “non-exempt” from overtime wage rules, and getting it wrong can be very costly. One misclassification can trigger multiple wage violations and their associated monetary penalties!
What I’ve seen is that the question of whether salespeople are exempt or non-exempt often trips employers up. Which is no surprise, since the answer is different for “outside salespeople” than it is “inside salespeople”—and the state has specific definitions for each of these categories. Here’s what you need to know…
Most (but not all) inside salespeople are non-exempt
In most situations inside salespeople are entitled to overtime pay. However, inside salespeople who meet all of the following criteria are exempt from overtime pay:
• Work in an industry governed by Wage Order Number 4 or Wage Order Number 7;
• Are primarily engaged in sales;
• Have earnings that exceed 1.5 times the minimum wage for each hour worked during the pay period; and
• Receive more than half of their earnings each pay period from commissions.
Most (but not all) outside salespeople are exempt
In determining if a worker meets the “outside salesperson” exemption, you must look at their actual job duties and not just their job title. This is because California law defines an “outside salesperson” as someone who:
• Is at least 18 years old;
• Spends at least 50% of their time in the field, working away from their employer’s place of business (which can be a home office, company worksite or other designated physical worksite); and
• Spends at least 50% of their time selling products or services, or obtaining orders or contracts for the sale of products or services.
An important thing to be aware of here is that while time spent traveling to and from sales appointments counts as “time spent selling,” time spent doing pretty much anything else, including delivering merchandise that was previously purchased, does not count as time spent selling.
In addition, the “50% in the field” criteria means that if your outside salesperson spends more time sitting at their desk making phone calls than they do going out and meeting with people face-to-face, the state says you must classify them as an inside salesperson. In this case, the “inside salesperson” criteria must be used to determine exempt vs. non-exempt status.
Need help getting these things sorted out? As your part-time CIO, I’m here for you.