The Inside Sales Exemption Explained
Employers often misinterpret and misapply the inside sales exemption to their workers’ wages. Because of the complexity of the law, some companies believe they are paying their employees appropriately until their payroll policies are overturned in court.
For example, sportswear company It’s Greek to Me discovered it owed more than $97,000 in back wages after the U.S. Department of Labor conducted an investigation. The company’s inside sales reps had been improperly classified as exempt, which means they didn’t receive overtime pay as required by the Fair Labor Standards Act (FLSA).
What Qualifies an Employee as Exempt?
Generally, employees can be classified as exempt if they earn more than 150 percent of the minimum wage and get at least 50 percent of their income from commissions. The industry in which they work also plays a factor.
But where this gets messy — and the reason a lot of companies struggle with these regulations — is that it’s easier to classify an outside sales rep as exempt than it is to classify an inside sales rep as exempt. Yes, this distinction does matter.
If that’s not tricky enough for you, it gets even stickier for companies that combine the outside and inside sales functions, allowing some of their reps to do a little of both. In these cases, you’re probably going to need a lawyer, folks.
Problems That Arise
Some sales reps expect to be on salary. If your company policy classifies them as hourly workers, it might be harder for you to recruit top talent.
In sales, it’s generally understood that you can increase your income potential by putting in extra time, if you choose. If your inside sales reps are non-exempt, you can’t let them work overtime unless you’re willing to pay them time and a half.
Employment law is meant to protect workers, but it can also hamstring businesses. The challenge is to figure out how to comply with the law without breaking the bank.
Nothing in this article is intended as legal advice. It’s simply an overview of a complex issue that many inside sales teams face. If you are trying to figure out how to comply with federal and state labor laws, consult an attorney.
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