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Will DOL's Overtime Rule Revisions Fix the Outside Salesperson Exemption?

    Client Alerts
  • May 29, 2015
The Department of Labor’s long-anticipated revisions to its Part 541 overtime exemption regulations await Office of Management and Budget review before issuance in proposed form. The new rules follow President Obama’s direction to DOL to review the overtime exemptions based on his belief that the salary and duties tests are too broad, and exempt too many employees from eligibility to receive overtime pay.

The focus of these revisions falls on the Executive, Administrative and Professional exemptions. However, Part 541 also contains rules for exempting Outside Salespersons and Computer Professionals from the FLSA’s overtime requirements. For the Outside Salesperson exemption in particular, DOL has the opportunity to harmonize the exemption with the realities of modern sales activities.

Under the current rule, the Outside Salesperson must customarily and regularly engage in sales activities away from the employers’ principal place of business. Such traveling sales work must be the employee’s primary duty, meaning that it must occur during the course of the regular workweek. This exemption originated in the 1950s, and was structured to cover the traditional traveling salesperson, who brought samples from customer to customer. DOL defines inside sales, meaning telephone and Internet sales activities an non-exempt if they constitute the employee’s primary duty.

Over the years, the nature of outside sales has changed. Few salespersons exclusively spend their days on the road traveling from customer to customer location. Instead, modern sales activities involve a combination of travel, telephone communications, teleconferencing, Internet communications and various forms of promotional and technical support work. A salesperson assigned a particular territory or customer list may not spend the majority of his or her time on the road due to the varied nature of these sales activities.

Also, the current Outside Salesperson exemption requires that the exempt employee personally close sales, meaning that they must actually take the customers’ orders. For many companies, all sales must now be placed through Internet portals, meaning that the salesperson responsible for the sale may only have a limited role in the actual consummation of the transaction.

DOL could address these issues by modernizing the Outside Salesperson exemption to allow exempt employees to engage in this broader range of activities. The underlying statutory exemption requires some employee travel, and absent a change to the FLSA, DOL probably does not have the authority to make purely inside sales activities exempt.  However, the agency could amend the definition of primary duty to recognize the varied functions that contribute to sales in 2015.

Given that the purpose of the upcoming revisions is to limit the exemptions’ scope and make more workers eligible for overtime pay, employers cannot expect DOL to take a contrary position with regard to Outside Salespersons.  However, the notice and comment period following the issuance of the proposed rules gives employers the opportunity to press DOL for changes intended to modernize the terms of a very outdated exemption.