Sales Comp Guy
How DOL Requirements for Overtime Exemption Affect Sales Leaders
Potential pitfalls and opportunities of the new requirements
Considering DOL Requirements for Inside Sales
Back in 2020, the Department of Labor published new guidelines for defining who is and isn't exempt from overtime laws. It may seem a little out of place on a sales compensation blog to be talking about something that's primarily an HR concern. However, sales leaders need to be aware of the implications of these exemptions as well as the opportunities they represent.
What are the DOL exemptions for sales roles?
First things first, let's break down what this DOL exemption is all about. Essentially, it's about who needs to be paid overtime and who doesn't. If your team members are classified as executive, administrative, professional, or outside sales employees (including some computer roles), they are most likely exempt from overtime requirements.
That's because of the outside sales exemption, which defines roles where most of the duties are done away from the place of employment as exempt from overtime.
Additionally, other commissioned employees in retail and service industries may be exempt if certain requirements are met, including that their rate of pay exceeds 1.5x the minimum threshold and that more than half their earnings consist of commissions.
Where things get a little muddy is when compensating the inside sales employees and certain specialist roles.
Impact on Role Definitions
Clarifying Exempt vs. Non-Exempt Status: The rise in the base pay threshold forces a reassessment of the exempt or non-exempt status of inside sales positions. Companies need to clearly define the primary duties of these roles to determine eligibility for exemption. This involves a deep dive into the nature of the work performed, ensuring it aligns with the criteria set forth for exempt employees under the FLSA (Fair Labor Standards Act).
Strategic Job Design: Beyond compliance, there's a strategic component to defining roles within your organization. The changes necessitate a holistic view of job responsibilities, not just from a legal standpoint but also from a talent management perspective. Roles might be redesigned to foster greater responsibility, autonomy, or skill development, aligning more closely with exemption qualifications while also enhancing job satisfaction and career progression opportunities.
Defining Roles with Precision: Despite the exemption, it's crucial for businesses to clearly define the duties of outside sales employees, ensuring they meet the criteria set by the DOL. This involves not just the sales territory but also the nature of the work itself. Precise role definitions help maintain compliance and clearly distinguish outside sales roles from inside sales or other functions that might not qualify for the same exemptions.
Adapting to Changing Business Models: The evolving nature of sales, including the increasing use of digital tools and remote selling techniques, necessitates ongoing evaluation of what constitutes "outside" sales. Businesses must continuously assess how these changes impact the classification of sales roles and ensure that their compensation and role definitions reflect these evolutions.
Inside Sales Compensation in the New DOL Landscape
The DOL requires that to be exempt from overtime, an employee must make a minimum of $684 per week, with no more than 10% of that consisting of commissions. This adjustment in the base pay threshold may prompt your organization to evaluate how base pay and variable compensation are balanced.
If you haven't evaluated the content and compensation of your inside sales roles in recent years, now may be the right time for the sake of compliance but also as an opportunity to create a more functional sales strategy.
With the base pay threshold increase to $684 per week, inside sales roles—traditionally a mix of base pay plus commissions—need careful structuring to ensure compliance. The ability to include up to 10% of this threshold through non-discretionary bonuses and incentives is particularly relevant. This flexibility allows organizations to creatively design compensation packages that motivate employees while meeting legal standards.
The Opportunity for Sales Roles
How are you compensating inside sales? If they are currently 100% base pay, you have an opportunity to leverage incentives (up to 10% of the minimum base pay) to improve motivation and performance.
However, if you've been incentivizing your inside sales team with more than 10% pay at risk and a salary that doesn't meet the minimum threshold, it's going to be necessary to revise either how you pay your team or the requirements of their job in order to comply with the DOL exemptions.
Understand that the inside sales role is eligible for overtime, and that impacts how the role can and ought to be used in the pursuit of a sales strategy. We’ll get into that more in a future post.
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Have your outside sales roles changed? The COVID pandemic changed a lot about how we communicate, and that has affected how we sell. It's worth evaluating your current outside sales roles to see the extent of these changes and whether there's a need to revise the content and role description. In extreme cases, this may change their job classification as well as how they are compensated.
For example, is your outside salesperson working mostly at their desk these days, making calls? Has the nature of their duties changed to where it makes sense to change the amount of risk associated with their pay?
Again, all of these considerations are essential to compliance, but they're also an opportunity to create a more effective sales team.
A Note about Outside Sales
While outside sales roles are exempt from the base pay threshold requirements, it's still important to ensure that your compensation models are competitive within the industry to attract and retain top talent. This might include offering additional incentives, benefits, or career development opportunities that go beyond direct earnings from sales.
The reason many are in outside sales roles is because of the attraction for potentially higher earnings through performance-based compensation. Companies can highlight the autonomy and flexibility typically associated with outside sales positions, just like non-travel-based inside sales are appealing to others.
Despite the exemption from overtime pay, you should consider the work-life balance of your outside sales teams. Creating a culture that values and promotes a healthy balance can improve job satisfaction and reduce burnout, contributing to long-term employee retention and success.
While the changes to the DOL exemption criteria present certain challenges, they also offer a unique opportunity for organizational growth and development. By embracing these changes, you can enhance your compensation strategies, clarify role definitions, and ultimately foster a more engaged and motivated sales force.
