We frequently encounter situations where employers classify their salesforce that primarily sells through telephone and internet means as salaried exempt employees, primarily for purposes of overtime and minimum wage payment under the Fair Labor Standards Act. For decades, the Department of Labor has maintained that inside sales do not qualify for the outside salesperson exemption, and that the exemption is limited to employees who travel most of their working time.

Faced with the inability to claim the outside sales exemption, some employers have taken the position that their inside salespersons fall under the FLSA’s administrative exemption. In a recent case from the First Circuit Court of Appeals, the court rejected these arguments and found that inside salespersons are eligible for overtime pay. In Su v. F.W. Webb Co., the employer argued that the salespersons fell within the administrative exemption due to the high level of customer service work performed. This included determining appropriate products for the customers' needs, as well as post-sale technical support and complaint resolution.

The First Circuit disposed of these arguments, noting that the primary duty of salespersons was selling. The customer service and other activities noted by the defendant are performed to some degree by all salespersons and this does not make them administrative support workers. Employees who make sales are direct production workers and therefore ineligible for the administrative exemption.

Employers with inside salesforces should review and correct any misclassification issues. Some sales managers may qualify for the executive exemption. For other employees, some portion of commissions earned may be counted toward overtime obligations. In most situations, however, inside salespersons need to track their time and be paid overtime when they work more than 40 hours in a given workweek.

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