On May 18, 2020, the Wage and Hour Division of the Department of Labor (DOL) announced a final rule related to the Fair Labor Standards Act (FLSA) to “allow employers in retail and service industries to exempt certain employees paid primarily on a commission basis from overtime.” The final rule addresses the FLSA’s exemption from its overtime compensation requirement for certain commission-based employees employed by a retail or service establishment. Generally, Section 7(i) of the FLSA relieves employers in retail and service industries from paying overtime compensation to certain employees paid primarily on the basis of commissions. As stated in the background to the new final rule:

[i]n order for an employee to come within this exemption, ‘the regular rate of pay of such employee [must be] in excess of one and one-half times the [Act’s minimum wage],’ and ‘more than half [of the employee’s] compensation for a representative period (not less than one month) [must represent] commissions on goods or services.’ 29 USC 207 (i). In addition, the employee must be employed by a retail or service establishment, which had been defined in section 13(a)(2) of the Act as ‘an establishment 75 per centum 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.’ (citations omitted).

In the final rule, the DOL withdrew the following:

the ‘partial list of establishments’ that it previously viewed as having ‘no retail concept’ and categorically unable to qualify as retail or service establishments eligible to claim the section 7(i) exemption; and the ‘partial list of establishments’ that, in its view, ‘may be recognized as retail’ for purposes of the exemption.

The DOL’s announcement stated that this rule “unshackles job creators in the retail space who had previously been categorically excluded from the exemption” and that “[p]ermitting all retail employers to potentially qualify for this exemption can increase flexibility for businesses and workers. Eliminating confusion empowers job creators to grow their businesses, comply with the law and provide even more good jobs for American workers.” The DOL issued this rule without notice and comment, and it takes effect immediately.

If your business is a retail establishment and you want to evaluate whether your commission-based employees may be exempt from overtime under the FLSA, or if you want to evaluate whether your employees who are returning to work from COVID-19–related furloughs or closures could now be paid on a commission basis, please contact experienced employment counsel to review this rule change.