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Fair Labor Standards Act (“FLSA”) - page 3 / 8





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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 of the employee’s total earnings in a representative period

must consist of commissions on goods or services.

A “retail or service establishment” is “an establishment 75 percent of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry”. An automobile dealership will generally qualify as retail or service establishment.

Commissions on goods and services needs to be further broken down to determine if requirement #3 is satisfied. Services are fairly self explanatory. Goods are widely defined including not only physical goods but articles and subjects to a transaction such as ideas, insurance policies, negotiable instruments and commercial paper. The definition of commissions is subject to and has been the subject of debate. Commission payments in a retail or service establishment generally are keyed to a rate of sales. However the exemption is based on commissions on goods and services which would include all types of commissions customarily paid based on goods and services the establishment sells and not exclusively on the sales of goods and services. Commission plans that include a periodic payment (usually weekly) of salary, guarantee or draw and include a settlement period where total commissions in excess of the periodic payment (if any) are paid can also be subject to debate. Generally these plans are considered bona fide and the amount representing commissions is the total commission computed for the period whether or not it is greater than the periodic payment. For commission plans that include a salary or periodic payment plus actual commissions, the periodic payment will never be considered commissions.

Within an automobile dealership, employees that might be covered under this exemption would include finance and insurance salespersons, body shop painters, and vehicle detailers. This exemption might also be used if a dealership has a separate business unit or establishment that does not meet the requirements of engaged primarily in the selling of automobiles to the ultimate purchaser.

White Collar Exemptions

The FSLA provides an exemption from both the minimum wage and overtime pay for certain employees that are paid more than a specific minimum salary and are employed in certain “white collar” occupations including executives, administrative, professionals, computer professionals and outside salespersons. For an employee to qualify for the white collar exemptions the following three requirements must be met:

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