Ask the Expert, FLSA/Wages

Ask the Expert: New FLSA Overtime Regs and Car Sales Employees

I am wondering how we will change our car sales employees under the new FLSA overtime regs. They currently receive a draw of $18,000 + commissions and they’re exempt. Does this mean our only option is to make them nonexempt and start having them clock in? We cannot provide a base draw of the new threshold of $47,476 per year. With commissions, they usually make over this threshold though.

There are two types of coverage under the FLSA. Either or both may apply in a given situation depending on the circumstances.

(1) Enterprise coverage applies to all employees of new or used automobile dealerships which have at least $500,000 per year in gross sales.

(2) Individual coverage applies to any employee whose work regularly involves commerce between states (“interstate commerce”) even if the employer’s annual sales are less than $500,000.

Numerous exemptions exist which remove certain types of employees from specified requirements of the FLSA. Among those most commonly applicable to automobile dealerships is one which exempts certain sales and parts personnel, mechanics, and service writers from the overtime requirements. Another exempts certain managers and administrative employees from the minimum wage and overtime requirements.

To qualify for Section 7(i)’s exemption from the overtime provisions of the FLSA, three conditions must be met:

  1. the employee must be employed by a retail or service establishment;
  2. the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage; and
  3. more than half the employee’s total earnings in a representative period must consist of commissions on goods or services.

Section 213(B)(10)(A) exempts from overtime any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.

In addition, certain car salespeople may be exempt under the “white collar” exemptions if the salary level, salary basis, and duties tests are met.

Under the DOL’s final overtime rules, employers will now be able to count nondiscretionary bonuses, incentive payments, and commissions toward as much as 10% of the salary (for example up to $91.30 per week) to determine whether they have reached the salary threshold for exemption from overtime. In order to count, these payments must be paid on a quarterly or more frequent basis.

The new rules also permit the employer to make a catch-up payment. If by the last pay period of the quarter the sum of the employee’s weekly salary plus nondiscretionary bonus, incentive, and commission payments received does not equal 13 times the weekly salary amount required by the regulations, the employer may make one final payment sufficient to achieve the required level no later than the next pay period after the end of the quarter. Any final payment made after the end of the 13-week period may count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter it was paid.