California’s “Outside Sales Exemption” – When Does It Apply?

The outside sales exemption is the California employment law that exempts a company’s “outside salespeople” from certain wage and hour laws that apply to non-exempt hourly workers. These rights include receiving

• a minimum wage,
• overtime pay, and
• rest and meal breaks.

“Outside salespeople,” or outside sales employees, include any persons, 18 years of age or over, who regularly work more than one-half the working time away from the employer’s place of business selling items or obtaining orders for products or services. Other exempt employees include:

• administrative employees,
• executives, and
• professional employees.

If an employer makes a mistake in determining sales employee exemption, and the mistake results in the employee not receiving overtime pay, then he/she may:

• bring a wage/hour lawsuit, and
• try to recover any unpaid overtime wages.

Note that there is a federal law regarding exempt outside sales employees. The law is found in Section 13(a)(1) of the Fair Labor Standards Act (FLSA).

Our California labor and employment lawyers will explain the following in this article:

• 1. What employee rights are affected by the outside sales exemption?
• 2. What is an outside salesperson?
  • 2.1. More than half of the working time
  • 2.2. Place of Business
  • 2.3. Job duties involving selling or obtaining orders
• 3. What if an employer makes a mistake in determining employee exemption?
• 4. Are inside sales employees exempt in California?
• 5. Is there a federal law regarding exempt outside sales workers?

Certain people who do outside sales work do not get benefits under FLSA exemptions and California law.

1. What employee rights are affected by the outside sales exemption?

Outside sales employees are exempt from the following employee laws and rights:

1. California’s minimum wage laws (which help establish a State-wide minimum salary),
2. state overtime laws, which provide for overtime pay if a worker works more than 40 hours in a workweek,¹ and
3. laws allowing for rest periods and meal breaks.²

“Exempt,” here, means the “exempt worker” does not enjoy the benefits of the above rules. For example, an exempt outside salesperson would not gain the benefits of overtime pay, which is money given in addition to the person’s regular rate of pay.

Like the outside sales exemption, California law has an administrative exemption that exempts administrative employees.

Note that employees that receive protection under the above laws are often referred to as:

• nonexempt workers, or
• nonexempt employees.

2. What is an outside salesperson?

The law defines an “outside” salesperson as any person who:

1. is 18 years of age or over,
2. customarily and regularly works more than half of his/her working time away from the employer’s place of business, and
3. sells items or obtains orders for products or services.³

Questions often arise under this definition on the meaning of:

• more than half of the working time,
• place of business, and
• job duties involving selling or obtaining orders.

2.1. More than half of the working time

State law uses a “quantitative standard” to determine how much time a salesperson works away from “the office.”⁴

“Quantitative” means that the focus is:

• not on the overall quality of a sales representative’s work, but
• on the actual amount of time (e.g., the number of hours) that he/she performs work away from the employer’s fixed site of business.

Further, this standard calculates the amount of time spent away from the office by considering:

• the employee’s job titles and job descriptions, and
• where the employee actually works.⁵

Example: Joe is a company salesman. According to his job description, the employee’s primary duty is to conduct outside sales efforts by interacting with customers in the field – including both at the customer’s home and at the customer’s place of business.

In reality, though, Joe conducts sales activities within the company’s main headquarters four days a week and visits with customers outside of the office for the remaining one workday. Here, Joe is not working more than half of the time away from the employer’s main place of business. This is true even though his job description gives the indication that he does.

A different outcome is reached if the employees’ own outside sales efforts were done in the field four days a week and he made monthly sales visits to New York. On a quantitative standard, this would mean that Joe spends more than half of his working time away from the company.

2.2. Place of Business

For purposes of this law, an “employer’s place of business” is the location where the employee:

• physically works, or
• uses as a place of doing business (or where there is a use of facilities).⁶

This may include:

• the employee’s home office,
• a company’s headquarters or a field office, or
• a type of modular building.

In reality, this law is to apply to an employee like:

• a door-to-door salesman, or
• a salesperson spending the majority of his/her time visiting a customer’s home or place of business.⁷

2.3. Job duties involving selling or obtaining orders

The phrase “selling and obtaining orders,” as used in the above definition, includes:

• any sales tasks that the employee performs, and
• where those tasks take place outside the place of business.⁸

Examples of some sales tasks are:

• driving to and from a customer’s home,
• meeting with a customer outside of the office,
• solicitation of advertising for periodicals,
• transferring title of tangible property (and sometimes intangible property),
• stocking a car with goods or products, and
• conducting promotional work away from the place of business.

Note that any sales tasks done inside an office do not count towards exempt status.

A California employer may be liable for unpaid overtime wages if the employee is mistakenly determined to be exempt.

3. What if an employer makes a mistake in determining employee exemption?

If an employer makes a mistake, and the mistake results in the employee not receiving overtime pay, then he/she may:

• bring a wage/hour lawsuit, and
• try to recover any unpaid overtime wages.

California employees who do not fall under the overtime exemption because they are not “outside salespersons” must be paid overtime when they work:

• more than 8 hours in a day,
• more than 40 hours in a week, and/or
• more than 6 days in a workweek.⁹

The same overtime requirements apply for workers that do not fall under the:

• administrative exemptions, and
• professional exemptions.

Overtime pay is money paid in addition to a worker’s salary level or hourly pay used on a salary basis.

Note that misclassified employees may also be entitled to meal and rest breaks. If so, they can include a demand for compensation of the same in their wage/hour lawsuit. Employers will owe one hour’s pay for each meal or rest break the employee should have received.¹⁰

4. Are inside sales employees exempt in California?

Under California law, inside sales employees are exempt if:

• They earn 1.5 times more than minimum wage, and
• More than half their compensation comes from commissions, and
• They work in the mercantile industry or in a mechanical, clerical, technical, or professional occupation.

But although exempt inside sales employees do not get overtime compensation, they do get rest and meal breaks.

Note that commissions based on incentives need to be largely proportional to the salesperson’s productivity.¹¹

5. Is there a federal law regarding exempt outside sales workers?

There is a federal law in the United States regarding exempt outside sales workers. The law is found in the Fair Labor Standards Act (FLSA). The law is enforced by the U.S. Department of Labor (DOL).

According to the law, administrative, professional, and outside salespeople are exempt from:

• minimum wage laws, and
• overtime pay.¹²

According to Section 13(a)(1) of the FLSA, an “outside salesperson” is an employee:

1. whose primary duty is making sales, or obtaining orders or contracts for services for which a consideration will be paid by the client or customer, and
2. who is customarily and regularly engaged away from the employer’s place or places of business.¹³

For additional help…

For additional guidance or to discuss your case with a labor and employment lawyer, we invite you to contact our law firm at Shouse Law Group. Our labor law lawyers serve clients in Los Angeles and throughout the state.

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