HR Management & Compliance

Exempt Employees: New Ruling Clarifies When Outside Sales Staff Don’t Have To Be Paid Overtime

As a general rule, you’re not required to pay overtime to employees who spend most of their time making sales away from your regular place of business. But figuring out which outside sales personnel are really exempt from the overtime laws isn’t always easy, especially because many employees perform a mix of sales and non-sales work. Plus, state and federal law about who’s exempt differ in some important respects. However, a recent decision involving a bottled water delivery-person helps shed some light on when outside sales employees are entitled to overtime.

Delivery Driver Performed Service And Sales

Peter Ramirez was a delivery driver in the Los Angeles area for the Yosemite Water Co. His official title was “route sales representative.” Ramirez’s job involved a variety of service-related tasks including delivering bottles of water to established customers, cleaning water coolers, replacing supplies, maintaining the delivery truck and preparing bills. He was also expected to sell-by encouraging existing customers to upgrade or increase their orders, delivering promotional literature and soliciting at least 10 new customers each day.Ramirez was paid a base salary plus a commission. He spent about 80% of each day away from the office and received no overtime.

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Entitled To Overtime?

Ramirez left Yosemite and sued, claiming he was entitled to back overtime. He said the company had incorrectly classified him as an exempt outside salesperson when most of his time was spent performing non-sales service work such as making deliveries and removing empty bottles.

Look At Primary Duties

The California Court of Appeal disagreed. Under California law, an employee who spends more than half of all working time away from your place of business making sales or obtaining orders is exempt from overtime. In a job that involves both sales and service work, such as bottled water delivery, the court said the first question is whether the employee’s “chief duty or primary function” is making sales or obtaining orders rather than service and delivery. (To avoid disputes on this basic point, it is important to have written, up-to-date job descriptions. Including sales performance standards or quotas can also be helpful.)

When Non-Sales Work Counts

If the primary function of the job is sales, other “incidental duties” such as driving, delivering products, collecting payments and writing sales reports would count as hours worked on outside sales. However, time spent on inside sales work or performing clerical or other tasks totally unrelated to sales would not count because they are not connected to outside sales and are considered non-exempt duties.In this case, the court determined that Ramirez was hired for the primary purpose of making sales. The other tasks he performed were “incidental” to the sales work and therefore counted toward determining what portion of Ramirez’s day was spent performing outside sales. Taking all of this into consideration, the court concluded that Ramirez spent more than half his work hours on outside sales. Consequently, he was exempt and not entitled to overtime.

Not All Drivers Are Exempt

The court pointed out, however, that a route driver would not qualify as an exempt outside salesperson in many other situations. For example, someone who simply delivers products to pre-existing customers would be entitled to receive overtime.

Complicated Federal Rules

Although Ramirez brought this case only under state law, employers in California are also subject to separate federal rules. You should follow whichever rule is more favorable to the employee. For outside sales, this will usually be federal law. That’s because the federal rules require employees to spend a greater proportion of their time performing sales work in order to be exempt.The trouble is that the federal lawis complicated to administer. The basic concept is that the outside salesperson’s hours spent on non-exempt work may not exceed 20% of the hours worked by your non-exempt employees performing similar types of duties.For example, if your non-exempt employees average 40 hours of work each week, your outside sales employees may average no more than 20% of 40 hours, or 8 hours a week, on non-outside sales work. Otherwise, they will have to be paid overtime. Note that if you have no non-exempt employees performing similar duties, the outside salesperson can put in a maximum of 8 hours a week on non-outside sales tasks.

Outside Sales Checklist

To help determine whether your employees qualify as exempt outside salespeople, here’s a quick checklist. If you answer YES to all the following questions, the employee is probably exempt:


  1. Is the primary purpose of the employee’s job to make sales?


  2. Is the time spent by the outside sales employee on non-exempt activities no more than 20% of the time worked by your non-exempt employees performing similar types of work in a week?


  3. Is the sales work performed on the road, away from any fixed place of business?


  4. Is the salesperson over age 18?


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