Can I Pay My Employees Commission Only?
Question: I recently spoke with another member who informed me that their company was paying their field employees on a “commission” basis. The installers receive a flat percentage of every job and the technicians receive a flat percentage of every ticket. The company does not keep track of employee hours and they don’t pay them overtime. Both companies tell me they have had Department of Labor audits without issue. I understand there’s an opinion letter online from the Department of Labor that allowed a plumbing franchise to pay their field staff in this manner under an exemption for retail or service establishments. Our business is in a state without special rules. We follow only the federal law. We are definitely in retail only as we do no wholesale work and do almost exclusively residential work. Do you have an opinion about this matter?
Answer: To provide some background, the FLSA allows retail establishments as defined in the law to pay certain employees on a commission basis. The plumbing concern, which obtained the opinion letter referred to above was engaged almost solely in emergency repairs to unclog drains and sewers; they did not install kitchens and baths or perform more extensive plumbing services. We’ve all seen their ads–you call them when your pipes are backed up. Most ACCA members do not perform similarly limited HVAC services and thus will not likely qualify for the retail exemption so as to allow such creative compensation schemes. Most ACCA members offer much more than simply repair or servicing of HVAC equipment–they sell and install new and replacement systems in existing structures and as part of new construction. Not only is this a crucial distinction from the plumbing employer mentioned in the opinion letter but something else very important to know is that the DOL regulation at issue
(29 CFR 779.317) specifically says that “air-conditioning and heating systems contractors” do not meet the definition of “retail.” Again, the plumbing concerns described had a niche–opening clogged drains on an emergency as-needed basis, selling drain cleaners, and performing pipe inspections, and therefore were not “plumbing contractors.” As to how other HVAC employers paying commissions only may have survived DOL audits, it may have been that their businesses are as limited as the pipe-cleaning plumber, or perhaps the audits concerned other FLSA issues. ACCA members should carefully consider whether their business model matches the limitations briefly described here before adopting a commission-only pay scheme for their employees, and a carefully tailored opinion from counsel would be advisable as well. Hourly field employees can receive commissions for sales and can be paid on a piece-work basis but overtime rules nevertheless apply.
This response is intended for general informational purposes only and should not be construed as legal advice or a legal opinion, nor is this column a substitute for formal legal assistance. For help with particular legal needs, members are invited to consult with Brooke Duncan III of Adams and Reese LLP. Mr. Duncan can be reached at 504-585-0220 or by email at email@example.com .
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