California Inside Salesperson Exemption

California Inside Salesperson Exemption

Some commissioned salespersons in California are exempt from overtime even if they work in their employer’s place of business. It is important to note that the inside salesperson exemption only applies to persons employed in “Professional, Technical, Clerical, Mechanical and Similar Occupations” or persons working in the “Mercantile” industry. Also, qualifying inside salespersons are only exempt from overtime pay, which means they must still be given meal periods, rest periods, minimum wage, etc. Wage Order 4-2001 and Wage Order 7-2001 state in section 3:

The provisions of subsections (A), (B) and (C) above shall not apply to any employee whose earnings exceed one and one-half (1½) times the minimum wage, if more than half (½) of that employee’s compensation represents commissions.

Qualifying inside salespersons are only exempt from overtime pay, which means they must still be given meal periods, rest periods, minimum wage, etc.

CA Inside Salesperson Exemption Requirements

There are strict requirements for this “inside salesperson” exemption. You must:

  • Be an employee covered by either Wage Order 4-2001 or Wage Order 7-2001
  • Earn at least 1.5 times the current minimum wage
  • Have commissions wages make up more than half of your earnings

Exemption Analysis

The California Inside Salesperson Exemption is fairly simple to understand. The two biggest questions that arise involve how to measure the amount of earnings and which industries/occupations can have an inside salesperson exemption.

The insides salesperson exemption earnings requirement is measured on a workweek basis.

An inside salesperson can be exempt one week, but not another. This is because the inside salesperson exemption’s earning requirements are measured on a workweek basis. The DLSE Enforcement Manual states in section 50.6.1:

1. In order to comply with the requirements of the exemption and of [California Labor Code] § 204, for each workweek in the pay period the earnings of the employee, whether actual commissions or a guaranteed draw for the workweek against commissions to be earned within such workweek, must exceed 1.5 times the minimum wage for each hour worked during the pay period.

2. As stated above, the payment of the earnings of more than 1.5 times the minimum wage for each hour worked must be made in each pay period.

Therefore, it is not permissible to defer any part of the wages due for one period until payment of the wages due for a later period.

3. Compliance with the requirements of the exemption is determined on a workweek basis. The minimum compensation component of the exemption must be satisfied in each workweek and paid in each pay period.

4. The second component of the exemption, namely at least 50% of earnings from commissions, must also be satisfied in each workweek. However, the actual determination of compliance can be deferred until the reconciliation date following the end of the second pay period. Overtime will be due for any week in which the second component is not met. To test whether the compensation arrangement is a bona fide commission plan, California law also uses a period of at least one month. Consistent commission earnings below, at, or near the draw are indicative of a commission plan that is not bona fide. If the commission plan is found to be invalid, overtime will be due for all weeks in which the exemption was claimed.

An inside salesperson must fall under either Wage Order 4-2001 or Wage Order 7-2001.

To fall under the purview of Wage Order 4-2001, the inside salesperson must be employed in the “Professional, Technical, Clerical, Mechanical, and Similar Occupations.” Wage Order 4-2001, an occupational order, defines these occupations as:

“Professional, Technical, Clerical, Mechanical, and Similar Occupations” includes professional, semiprofessional, managerial, supervisorial, laboratory, research, technical, clerical, office work, and mechanical occupations. Said occupations shall include, but not be limited to, the following: accountants; agents; appraisers; artists; attendants; audio-visual technicians; bookkeepers; bundlers; billposters; canvassers; carriers; cashiers; checkers; clerks; collectors; communications and sound technicians; compilers; copy holders; copy readers; copy writers; computer programmers and operators; demonstrators and display representatives; dispatchers; distributors; door-keepers; drafters; elevator operators; estimators; editors; graphic arts technicians; guards; guides; hosts; inspectors; installers; instructors; interviewers; investigators; librarians; laboratory workers; machine operators; mechanics; mailers; messengers; medical and dental technicians and technologists; models; nurses; packagers; photographers; porters and cleaners; process servers; printers; proof readers; salespersons and sales agents; secretaries; sign erectors; sign painters; social workers; solicitors; statisticians; stenographers; teachers; telephone, radiotelephone, telegraph and call-out operators; tellers; ticket agents; tracers; typists; vehicle operators; x-ray technicians; their assistants and other related occupations listed as professional, semiprofessional, technical, clerical, mechanical, and kindred occupations.

Except as provided in the occupational orders, if the employer’s business is covered by one of the industry orders, that industry order applies to all classifications of employees, regardless of the kind of work the employee performs, unless the employee is specifically exempted by the applicability section of the industry order.

To fall under Wage Order 7-2001, the inside salesperson would have to be employed in the Mercantile Industry. Wage Order 7-2001 defines the “mercantile industry” as follows:

“Mercantile Industry” means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities.