Wednesday, December 17, 2008

The Forgotten Overtime Exemption |
Much less well known is the overtime exemption set forth in Section 7(i) of the Fair Labor Standards Act. Limited to retail or service establishments, this exemption focuses not on the duties of the employee, but on how the employee is paid. Qualifying establishments are relieved from paying overtime to employees who are paid the majority of their compensation in commissions on goods or services and who earn at least one-and-a-half times the minimum wage. Given that all of these conditions must be present before an employer may utilize the exemption, employers should be wary of the nuances associated with each requirement.

Companies with employees who set their own schedules or work uncontrollable numbers of hours, or that need to align labor costs more closely with revenue, should consider whether this exemption for might work for them.

Employees currently paid on an hourly or other basis can be converted to exempt 7(i) commissioned employees by basing their compensation on the amount of revenue that they or their work unit generate. Once properly implemented, the company can be more flexible about scheduling and need not worry about employees who may inadvertently cross the 40-hour threshold. Employees who generate more revenue for the company will see their compensation increase commensurately and the company can be assured that this higher compensation is fully funded by higher revenue.