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OK to pay commissions on a flat-rate basis–it won’t violate FLSA commission exemption

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in Leaders & Managers,Management Training

For years, the U.S. Department of Labor has argued that commissions must be based on a percentage of sales in order to be valid. Otherwise, employers could avoid paying overtime payments to employees earning commissions.

But now the 3rd Circuit Court of Appeals has approved a different form of commissioned sales—one in which employees are paid based not on the total amount of the sale, but on other factors such as whether the sale was made on an outgoing sales call or an incoming one.

Recent case: Adrian Parker worked as a commissioned salesperson for Nutrisystem, a weight-loss program. The cost to consumers depended on whether they purchased a male or female meal plan, a vegetarian one or one designed for those with medical problems, such as diabetes.

Salespeople were paid a flat fee of $18 for sales closed on an incoming call, $25 for sales closed during incoming calls in the evening or on the weekend and $40 for each sale made on an outgoing call or during the overnight shift.

Parker sued, arguing that the flat-rate system violated the Fair Labor Standards Act (FLSA).

The company said it used the flat commission fee structure to encourage outgoing calls and evening, weekend and overnight work.

The court said the commission structure was valid. Employees were therefore not entitled to overtime since they were exempt under the FLSA’s commissioned-sales exemption. (Parker v. Nutrisystem, No. 09-3545, 3rd Cir., 2010)

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