Are Outside Sales Reps Exempt from Overtime Pay?

October 5th, 2010. By Kristine B

It’s one of the great conundrums facing employees today: determining whether or not they are exempt from overtime pay. For some, the answer is simple but for others, the answer is much more difficult. Many companies try to classify employees as exempt from overtime pay for obvious reasons—it saves them money. But that doesn’t make it right. This week, Pleading Ignorance looks at outside sales representatives and explains why (or why not) they should be paid overtime. 

Outside sales representatives spend a lot of their time talking with clients and potential clients. They explain the company’s products, prices and the benefits their products have over a competing product. They may or may not leave free samples with the client (or potential client) and may follow up later to encourage the potential client to purchase the product. 

Outside sales representatives are considered exempt from overtime pay, but there is a catch to this. Some sales reps may be misclassified as exempt from overtime pay when, in fact, they are not. 

To be exempt from overtime pay as an outside sales person, the person has to directly affect the sale transaction. 

Here’s an example: I market pens to you (let’s say you’re a doctor who needs pens). Because of my marketing of the pens, you decide to buy them. I have directly affected the sale of the pens and am, therefore, considered an outside sales person. 

Now, consider pharmaceutical sales reps: They go to a doctor’s office and market a drug, drug X. But, the doctor doesn’t actually purchase drug X. All the doctor does is prescribe drug X to a patient based on his understanding of the drug’s uses and the patient’s symptoms. The patient then goes to a pharmacy to purchase the drug. The pharmaceutical sales representative hasn’t directly affected the sale of drug X. 

Yes, she may have made the doctor aware of a new use for the drug, which may have led to a prescription that otherwise wouldn’t have been filled, but it was ultimately up to the doctor, based on the patient’s symptoms, to decide whether or not the drug would be used and up to the patient as to whether or not the prescription would be filled at the pharmacy—or, perhaps a generic form of the drug would be requested. 

Based on this–that is, if the pharmaceutical representative is not ultimately impacting the direct sale of the drug, then that representative might not be exempt from overtime pay—meaning, essentially, that she quite possibly should be paid for any overtime hours that she works. 

This issue was examined in a lawsuit against Novartis and heard by the US Court of Appeals for the Second Circuit. The appeals court found that Novartis sells its drugs to a wholesaler who then sells the drugs to a pharmacy, which then sells the drugs to patients. Pharmaceutical representatives do not have any contact with the wholesaler, the pharmacy or the patients, which are the chain of sales. 

Basically, the reps market the drugs, but they do not affect sales of the drug. Furthermore, because the reps do not exercise independent discretion and judgment (Novartis disagreed with this finding), they aren’t considered exempt under the administrative exemption. 

Meanwhile, according to an article in the Patriot-News (09/25/10), The Hershey Co faces a lawsuit filed by a sales representative who says she wasn’t paid overtime wages even though she was only involved in sales 10 percent of the time, at most. 

So, the question for other outside sales reps is whether or not they have a direct effect on the sale of a product. If they don’t have a role in the chain of sales—that is, they do not communicate to anyone who may trade something of value for the purchase of the product—then they may not actually be outside sales reps.

Tags: Exempt, Outside Sales, Overtime Pay

This was posted on Tuesday, October 5th, 2010 at 3:37 pm and is filed under Employment . Feel free to respond, or trackback. Read our comments policy.