“Many salaried inside sales workers are led to believe—by their employer—that they are not entitled to overtime,” says Vaught. “Employers also lead them to believe that commissions are in lieu of overtime, but that is a misconception in the majority of sales-oriented employees.”Most inside sales workers are paid a nominal salary and commissions. For instance, a typical work week in a call center is no less than 45 hours and routinely 60-70 hour weeks, because if workers don’t hit targeted sales figures, they are often fired. (Interestingly, a number of these call centers that were exported overseas are resurfacing in the US, mainly due to customers complaining of bad service.)
There are three main categories regarding sales and overtime violations. Vaught says that the most prevalent is inside sales.
“The FLSA dictates that inside sales workers are always due overtime, and they routinely work overtime,” he explains. “The biggest violations involve telemarketers. Inside sales also includes working from home.”
The second category is outside sales, such as the door-to-door salesperson. “They are never due overtime, no matter how many hours they work,” explains Vaught. “I think the justification for this is that employers have a hard time tracking their hours.”
The third category is retail sales, which includes people who work in a department store, big box store like Best Buy, or a clothing store. “There is a complex formula that determines whether they may or may not be due overtime, depending on how much of their income comes from commissions,” says Vaught. And keep in mind that, under the FLSA, titles are meaningless—it depends on duties.
Commissions and California Overtime
Vaught says that many employers are calculating the wrong overtime rate for inside sales employees. Some don’t pay overtime at all while others partially follow the law, i.e., they base the overtime rate on salary only and don’t include commissions. For decades, the law has stated that when figuring out an hourly rate for salaried employees, you have to take into consideration salaries and commissions.
“Consequently, these people are losing a lot of overtime pay,” says Vaught.
Say you make $50,000 per year and on top of that, you are paid $30,000 in commissions. Your hourly rate of pay must be based on $80,000 per year.
(The easiest way to figure out rate of pay for salaried workers is to divide $80,000 by 52 weeks then divide by 40, which gives you an hourly rate--they have to factor commissions into compensation.)
This is a very common violation of the California labor code, according to Vaught. “Sometimes employers don’t know that commissions have to be factored into the overtime rate, but if they are a big operation, they should know,” he says.
“California has its own overtime wage laws and sometimes they are more powerful than federal law,” Vaught adds. “Workers in Texas could be paid $1 per hour without any overtime and that is legal, but in California, workers have added benefits, such as mandatory lunch breaks.”
READ MORE CALIFORNIA OVERTIME LEGAL NEWS
Still, employers in California constantly practice overtime violations.
“I talked with a client earlier today and she said, ‘If we ever asked for overtime we would be fired,’ so they are still scared to take a chance,” quips Vaught. “There is a retaliation provision but it is no guarantee that you won’t be fired.”
The overtime California issue isn’t all doom and gloom. “I think people are becoming more aware of their rights, so we may see less overtime violations in the future,” says Vaught.