Starting Dec. 1, 2016, employees and managers earning less than $47,476 in earned total compensation will be considered non-exempt and eligible for overtime. If your inside sales group becomes non-exempt, this also impacts the incentive portion of their payouts. Here’s how the Department of Labor’s new rule could impact your sales force:
- Outside salespeople will still be exempt. The Department of Labor kept the existing outside sales exemption, so if your salespeople’s primary duties include making sales, and if they’re customarily and regularly engaged away from your company’s place of business, they can be considered outside sales.
- Inside salespeople (including retail) might be eligible for overtime if they’re earning less than $47,476 in total compensation with at least 90% ($42,828.40) coming from salary. Many inside salespeople were already eligible for overtime as hourly employees, but many were not. In fact, ZS’s 2014 High-Tech Incentive Practice Research (IPR) study found that of the high-tech companies that participated in the study, roughly 50% of the inside salespeople were classified as exempt.
- Salespeople and managers earning between $100,000 and $134,004 in total compensation will need to be reexamined. The High Compensated Employee (HCE) exemption will cover fewer employees because it’s shifting from $100,000 to $134,004 in total compensation, but some of these employees may still be exempt due to other duties tests. For example, during your review with your legal team, you may find that your managers earning within this range are still exempt because their role meets one of the other exemptions, such as the administrative or executive exemptions.
- Currently exempt inside salespeople and managers earning between $47,476 and $100,000 will likely retain their current status. The administrative, computer, professional and executive duties tests were left unchanged, so people who were already exempt and were not affected by the shift in compensation minimums will see no change to their status.
It will be important to review the exemption status of your employees who earn less than $47,476 in salary or between $100,000 and $134,004 in total compensation with your legal counsel. This is particularly important because the duties test requires a customized look at your own employees. Also, it will be important to monitor the impact of this change on other historical exemptions. Since the rule only addresses the core exemptions, employers should keep abreast of any changes that could affect any of the other exemptions that have been added over the years. (For example, retail sales employees have sometimes qualified for their own exemption.) In addition, employers can plan ahead for other changes: The standard salary and HCE total compensation levels will automatically update every three years, starting on Jan. 1, 2020.
If you have employees who are now eligible to earn overtime, then there are many changes that will be required, including prorating bonuses for overtime, which we’ll cover in our next post on the topic.
DISCLAIMER: We are not a law firm and do not provide legal advice. This is written based on our experience working with hundreds of sales organizations. Please consult with your labor lawyer.