United States: Sales Directors And The Outside Sales Exemption Of The Fair Labor Standards Act

Seyfarth Synopsis: Is a retirement community's sales director exempt from overtime? Depending on the duties for an individual, the sales job at a community could be exempt under what is known as "the outside sales person exemption."  Otherwise, the duties performed by this class of employees may be non-exempt, entitling them to overtime under the Fair Labor Standards Act.

Sales directors work at the core of a community's business model.  Their main job is to drive revenue by focusing on occupancy goals.

This work is done by building and maintaining external referral relationships with local professional and healthcare organizations, working as a public relations champion to promote goodwill with internal and external events, and visiting prospective residents and family members at home and at the community.  All of this effort is designed to create leads and ultimately convert those prospects into residential contracts.

Given the mission critical importance of this job, should the sales director's job be exempt under wage and hour laws?  The answer depends.

The Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage (29 U.S.C. § 206) and overtime pay (29 U.S.C. § 207(a)(1)).  The FLSA provides an exemption for individuals who are employed as bona fide outside sales employees.  29 U.S.C. § 213(a)(1).

What's more, the salary requirements for a typical exempt employee do not apply to the outside sales exemption.  Normally, to be exempt under federal law, an employee must be paid on a salary basis at not less than $455 per week; but not outside sales individuals.  They can be paid less than this amount and still be exempt under the FLSA.

To qualify for the FLSA outside sales exemption, the following test must be met:

  • The employee's primary duty must be:

making sales,

or

obtaining orders,

or

obtaining contracts

and

  • The employee must be customarily and regularly engaged away from the employer's place of business. 29 C.F.R. §541.500.

Away from Employer's Place of Business

A senior living sales director typically does important sales work both at the community and in the local market.  If the job is directed primarily to sales work outside of the community, then the employee may arguably be exempt.

Making a sales call or participating in an assessment at the prospective resident's home is the most typical outside sales effort of a retirement community's sales director.  Modeling the community's values and caring attitude directly to the prospect and his/her current caregivers while describing the benefits of community living is an example of a sales function happening away from the retirement community.

However, sales work can go far beyond home visits.  Outside sales work can also include participating in outside events that showcase the community to the public, developing referral relationships, and other involvement in the local market that raises the community's profile.  For instance, outside sales work might include cookie drops, lunches with local health care providers or clergy, networking at community events, or even participating in a local parade if it is incidental to and in conjunction with that employee's outside sales work.

Weighing Inside Sales Work to Determine the "Primary Duty" Standard

An exempt outside sales director usually spends most of his/her time out of the community making and following up on sales. Work in the office incidental to and in conjunction with the outside sales work is still considered exempt work.  This also includes other work that furthers the employee's sales efforts, including incidental deliveries, writing sales reports, updating or revising sales data, organizing sales plans, and attending sales meetings.  As long as the sales director is "customarily and regularly" engaging in sales activities outside the community, and these other inside sales activities are incidental to the outside sales activities, the exemption is still available.  Some employers require sales directors to create contemporaneous records of their outside work to show it was sales-related and to tie the eventual sale to that earlier effort.

On the other hand, outside sales work does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal outside calls.  In addition, developing internal leads from existing residents, cold calling prospects, and organizing in-house events to attract potential residents are not considered outside sales work.  The same is true for giving community tours to prospects and their families.  All of this is "inside" sales work that does not qualify for the exemption.

Negotiating rental agreements with prospective residents may be inside or outside sales work depending on its location.

So, how to figure out if a sales director has the "primary duty" to perform outside or inside sales work?  There is no bright line test.  The U.S. Department of Labor says the term means "the principal, main, major or most important duty" that the employee performs.  While sales directors who spend more than 50% of their time on outside sales activities generally will satisfy the primary duty rule, employees who spend less than that amount can arguably still qualify for the exemption.  The relative importance of the outside sales work, as compared to the inside sales activities, should be the determining factor in such cases.

Be Wary of State Laws

Some states have strict quantifiable standards for measuring the "outside" element of this exemption under their local law.  These states look to the actual time spent engaged in outside vs. inside sales work to figure out the exempt status of salespeople.  California, for instance, has a "primarily engaged" standard that requires sales directors to spend no less than 50% of the time working away from the community.  Colorado is even higher, requiring a bona fide outside sales person to spend at least 80% of their work activities on outside sales.

Be Wary of the Telecommuting Sales Director

Some people think that a sales person qualifies for the outside sales exemption if they do not have an office at the employer's place of business.  If the person works out of their house, the thinking goes, they are still working "outside."  This is not correct.

Any fixed site, whether at home or the community, used by a sales employee as a principal place for working is considered one of the employer's places of business.

Rather than wrangle with the primary duty test and navigate the vagaries of state laws across the country, many leading retirement industry employers simply treat their sales teams as non-exempt and entitled to overtime.  This is a safe way to proceed, especially in light of the threat of class and collective actions in this area of law.

Whether your circumstances warrant a closer look may depend on your business's appetite for restructuring the job to focus the sales work to activities outside of the community, perhaps by giving inside sales tasks to the community managers or a designated inside sales person.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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