DOL Creates New Streamlined Standard for Retail and Service Employee Overtime Exemption

By Amy Knapp

The U.S. Department of Labor (DOL) has simplified the overtime exemption for commission-based workers in retail and service industries. Under the Fair Labor Standards Act (FLSA), some employees in retail and service industries can be classified as exempt from overtime if they are paid wholly or in part on a commission basis. On May 18, 2020, the DOL withdrew two lists which employers could previously use as guidance to determine whether they met the definition of a traditional “retail or service establishment.” The first now-defunct list identified industries that the DOL previously concluded had “no retail concept” (for example, accounting firms, travel agencies, and dry cleaners) and were therefore not covered by the exemption. The second list identified industries that “may be recognized as retail,” such as restaurants.

In place of these lists, under the new rule, the DOL will conduct a full analysis in each case to determine whether any establishment has a retail concept and qualifies as a retail or service establishment. The analysis includes such “simplified” concepts as to whether the establishment serves everyday needs of the community, disposes of small quantities of products or provides repair services directly to the general public, or provides “services for the comfort and convenience” of the public. 29 C.F.R. § 779.318. The DOL believes that the new rule promotes greater simplicity and flexibility for employers and workers alike. In light of the new rule, businesses that have historically treated commissioned employees as exempt because their business type appeared on the now-withdrawn non-retail list should review whether their business still satisfies the definition of a retail or service establishment. The DOL warns that industries may have a retail concept now that didn’t before, or might not have a retail concept now, though they did before. For this reason, businesses that have historically utilized the exemption should review the nature of their business and ensure they are still eligible under the remaining DOL guidance. The rule is found here.