gross receipts of the new business during the first quarter year in which it has been in operation will be taken as representative of its annual dollar volume, in applying the annual volume tests of sections 3(s) and 13(a)(2), for purposes of determining its obligations under the Act in workweeks falling in the following quarter year period. Similarly, for purposes of determining its obligations under the Act in workweeks falling within ensuing quarter year periods, the gross receipts of the new business for the completed quarter year periods will be taken as representative of its annual dollar volume in applying the annual volume tests of the Act. After the new business has been in operation for a full calendar or fiscal year, the analysis can be made by the methods described in sections 779.267 to 779.270. Section 779.272-CALCULATING ANNUAL PURCHASES OR RECEIPTS UNDER 3(s) AND ANNUAL SALES FOR EXEMPTIONS The methods of calculation described above, in sections 779.268 to 779.271, may be used for determining the annual amount of purchases or receipts of goods for resale that move or have moved across State lines, and also, as in the past, may be used for determining the annual dollar volume of sales of goods or services, or of both, for purposes of applying the percentage requirements of section 13(a) (2) and 13(a) (4), and in determining the applicability of other exemptions provided in section 13 of the Act. Section 779.273-COMPUTATIONS FOR PERIOD BEGINNING SEPTEMBER 3, 1961, THE EFFECTIVE DATE OF THE 1961 AMENDMENTS The effective date of the 1961 Amendments is September 3, 1961. To determine the obligations under the Act as of that date, under the method described above, the period of four calendar quarters ending June 30, 1961, may be used. If the employer used the fiscal year basis for computations, the four quarters of the fiscal year immediately preceding September 3, 1961, may be used to make the computations. Subpart D-EXEMPTIONS FOR CERTAIN RETAIL OR SERVICE ESTABLISHMENTS GENERAL PRINCIPLES Section 779.300-PURPOSE OF SUBPART Subpart C of this part discusses the various criteria for determining coverage under the Act of employers and employees in enterprises and establishments that make retail sales of goods and services. This subpart deals with the exemptions from the Act's minimum wage and overtime provisions found in section 13(a) (2), (4), (13), (19) and (20) for employees of retail or service establishments. If all the requirements set forth in any of these exemptions are met, the minimum wage and overtime provisions of the Act need not be complied with by an employer even though his employees are engaged in interstate or foreign commerce or in the production of goods for such commerce or employed in covered enterprises. Section 779.301-STATUTORY PROVISIONS Sections 13(a) (2), (4), (13), (19) and (20) of the Act, as amended, grants exemptions from the minimum wage provisions of section 6 and the maximum hours provisions of section 7 as follows: 13(a) (2) any employee employed by any retail or service establishment, more than 50 per centum of which establishment's annual dollar volume of sales of goods or services is made within the State in which the establishment is located, if such establishment(i) is not in an enterprise described in section 3(s), or (ii) is in such an enterprise and is a hotel, motel, restaurant, or motion picture theater; or is an amusement or recreational establishment that operates on a seasonal basis, or (iii) is in such an enterprise and is a hospital, or an institution which is primarily engaged in the care of the sick, the aged, the mentally ill or defective, re siding on the premises of such institution, or a school for physically or mentally handicapped or gifted children, or (iv) is in such an enterprise and has an annual dollar volume of sales (exclusive of excise taxes at the retail level which are separately stated) which is less than $250,000. A "retail or service establishment" shall mean an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry; or 13(a) (4) any employee employed by an establishment which qualifies as an exempt retail establishment under clause (2) of this subsection and is recognized as a retail establishment in the particular industry notwithstanding that such establishment makes or processes at the retail establishment the goods that it sells: Provided, That more than 85 per centum of such establishment's annual dollar volume of sales of goods so made or processed is made within the State in which the establishment is located; or and (19). Therefore, if the establishment meets the tests enumerated in these sections, employees "employed by" that establishment are exempt from sections 6 and 7. (See sections. 779.307 to 779.309 discussing "employed by.") Other exemptions establish two criteria, the character of the establishment and the nature of the employment of the particular employee. Such an exemption is set forth in section 13(a) (20). To determine whether the exemption of this section applies it is necessary to determine both that the establishment meets the enumerated tests and that the employee is engaged in the enumerated activities. Thus, under section 13 (a) (20) some of the employees of a given employer may be exempt from sections 6 and 7, while others are not. Section 779.303-"ESTABLISHMENT" DEFINED; DISTINGUISHED FROM "ENTERPRISE" AND "BUSINESS" As previously stated in section 779.23, the term "establishment" as used in the Act means a distinct physical place of business. The "enterprise," by reason of the definition contained in section 3 (r) of the Act and the tests enumerated in section 3 (s) of the Act, may be composed of a single establishment. The term "establishment," however, is not synonymous with the words "business" or "enterprise" when those terms are used to describe multi-unit operations. In such a multi-unit operation some of the establishments may qualify for exemption, others may not. For example, a manufacturer may operate a plant for production of its goods, a separate warehouse for storage and distribution, and several stores from which its products are sold. Each such physically separate place of business is a separate establishment. In the case of chain store systems, branch stores, groups of independent stores organized to carry on business in a manner similar to chain store systems, and retail outlets operated by manufacturing or distributing concerns, each separate place of business ordinarily is a separate establishment. Section 779.304-ILLUSTRATIONS OF A SINGLE ESTABLISHMENT (a) The unit store ordinarily will constitute the establishment contemplated by the exemp tions. The mere fact that a store is departmentalized will not alter the rule. For example, the typical large department store carries a wide variety of lines which ordinarily are segregated or departmentalized not only as to location within the store, but also as to operation and records. Where such departments are operated as integral parts of a unit, the departmentalized unit taken as a whole ordinarily will be considered to be the establishment contemplated by the exemptions, even if there is diversity of ownership of some of the departments, such as leased departments. (b) Some stores, such as bakery or tailor shops, may produce goods in a back room and sell them in the adjoining front room. In such cases if there is unity of ownership and if the back room and the front room are operated by the employer as a single store, the entire premises ordinarily will be considered to be a single establishment for purposes of the tests of the exemption, notwithstanding the fact that the two functions of making and of selling the goods, are separated by a partition or a wall. (See H. Mgrs. St., 1949, p. 27.) Section 779.305-SEPARATE ESTABLISHMENTS ON THE SAME PREMISES Although, as stated in the preceding paragraph, two or more departments of a business may constitute a single establishment, two or more physically separated portions of a business though located on the same premises, and even under the same roof in some circumstances may constitute more than one establishment for purposes of the exemptions. In order to effect such a result physical separation is a prerequisite. In addition, the physically separated portions of the business also must be engaged in operations which are functionally separated from each other. The retail portion of the business must be distinct and separate from and unrelated to that portion of the business devoted to other activities. For example, a firm may engage in selling groceries at retail and at the same place of business be engaged in an unrelated activity, such as the incubation of chicks for sale to growers. The retail grocery portion of the business could be considered as a separate establishment for purposes of the exemp tion, if it is physically segregated from the hatchery and has separate employees and separate records. In other words, the retail portion of an establishment would be considered a separate establishment from the unrelated portion for the purpose of the exemption if (a) it is physically separated from the other activities; and (b) it is functionally operated as a separate unit having separate records, and separate bookkeeping; and (c) there is no interchange of employees between the units. The requirement that there be no interchange of employees between the units does not mean that an employee of one unit may not occasionally, when circumstances require it, render some help in the other units or that one employee of one unit may not be transferred to work in the other unit. The requirement has reference to the indiscriminate use of the employee in both units without regard to the segregated functions of such units. Section 779.306-LEASED DEPARTMENTS The discussion in section 779.305, however, does not mean that leased departments engaged in the retail sale of goods or services in a departmentalized store are separate establishments. To the contrary, it is only in rare instances that such leased departments would be separate establishments for purposes of the exemptions. For example, take a situation where the departmentalized retail store, having leased departments, controls the space location, determines the type of goods that may be sold, determines the pricing policy, bills the customers, passes on customers' credit, receives payments due, handles complaints, determines the personnel policies, and performs other functions as well. In such situations the leased department is an integral part of the retail store and considered to be such by the customers. It is clear, that such departments are not separate establishments but rather a part of the retail store establishment and will be considered as such for purposes of the exemptions. The same result may follow in the case of leased departments engaged in the retail sale of goods or services in a departmentalized store where all or most of the departments are leased or otherwise individually owned, but which operate under one common trade name and hold themselves out to the public as one integrated business unit. Section 779.307-MEANING AND SCOPE OF "EMPLOYED BY" AND "EMPLOYEE OF" Section 13 (a) (2) as originally enacted in 1938 exempted any employee "engaged in" any retail or service establishment. The 1949 amendments to that section, however, as contained in section 13(a) (2) and (4) exempted any employee "employed by" any establishment described in those exemptions. The 1961 amendments retained the "employed by" language of these exemptions. Thus, where it is found that any of those exemptions apply to an establishment owned or operated by the employer the employees "employed by" that establishment of the employer are exempt from the minimum wage and overtime provisions of the Act without regard to whether such employees perform their activities inside or outside the establishment. Thus, such employees as collectors, repair and service men, outside salesmen, merchandise buyers, consumer survey and promotion workers, and delivery men actually employed by an exempt retail or service establishment are exempt from the minimum wage and overtime provisions of the Act although they may perform the work of the establishment away from the premises. As used in section 13 of the Act, the phrases "employee of" and "employed by" are synonymous. Section 779.308-EMPLOYED WITHIN SCOPE OF EXEMPT BUSINESS In order to meet the requirement of actual employment "by" the establishment, an employee, whether performing his duties inside or outside the establishment, must be employed in the work of the exempt establishment itself in activities within the scope of its business. (See Davis v. Goodman Lumber Co., 133 F. 2d 52 (CA-4), holding section 13 (a) (2) exemption inapplicable to employees working in manufacturing phase of employer's retail establishment. See also, Northwest Airlines v. Jackson, 185 F. 2d 74 (CA-8); Walling v. Connecticut Co., 154 F. 2d 522 (CA-2) certiorari denied, 329 U.S. 667; and Wabash Radio Corp. v. Walling, 162 F.2d 391 (CA-6).) Section 779.309-EMPLOYED "IN" BUT NOT "BY" Since the exemptions by their terms apply to the employees "employed by" the exempt establishment, it follows that those exemptions will not extend to other employees who although actually working in the establishment are not "employed by" the exempt establishment. Thus, traveling auditors, manufacturers' demonstrators, display-window arrangers, sales instructors, etc., who are not "employed by" an exempt establishment in which they work will not be exempt merely because they happen to be working in such an exempt establishment. (Mitchell v. Kroger Co., 248 F. 2d 935 (CA-8).) For example, if the manufacturer sends one of his employees to demonstrate to the public in a customer's exempt retail establishment the products which he has manufactured, the employee will not be considered exempt under section 13(a) (2) since he is not employed by the retail establishment but by the manufacturer. The same would be true of an employee of the central offices of a chain-store organization who performs work for the central organization on the premises of an exempt retail outlet of the chain (Mitchell v. Kroger Co., supra). Section 779.310-EMPLOYEES OF EMPLOYERS OPERATING MULTI-UNIT BUSINESSES (a) Where the employer's business operations are conducted in more than one establishment, as in the various units of a chain-store system or where branch establishments are operated in conjunction with a main store, the employer is entitled to exemption under section 13(a) (2) or (4) for those of his employees in such business operations, and those only, who are "employed by" an establishment which qualifies for exemption under the statutory tests. For example, the central office or central warehouse of a chain-store operation even though located on the same premises as one of the chain's retail stores would be considered a separate establishment for purposes of the exemption, if it is physically separated from the area in which the retail operations are carried on and has separate employees and records. (Goldberg v. Sunshine Department Stores, 15 W.H. Cases 169 (CA-5) Mitchell v. Miller Drugs, Inc., 255 F. 2d 574 (CA-1); Walling v. Goldblatt Bros., 152 F.2d 475 (CA-7).) (b) Under this test, employees in the ware- Section 779.311-EMPLOYEES WORKING PLOYER An employee who is employed by an establishment which qualifies as an exempt establishment under section 13 (a) (2) or (4) is exempt from the minimum wage and overtime requirements of the Act even though his employer also operates one or more establishments which are not exempt. On the other hand, it may be stated as a general rule that if such an employer employs an employee in the work of both exempt and non-exempt establishments during the same workweek, the employee is not "employed by" an exempt establishment during such work week. It is recognized, however, that em- Section 779.312-"RETAIL OR SERVICE The 1949 amendments to the Act defined the term "retail or service establishment" in section 13(a)(2). That definition was retained in section 13(a) (2) as amended in 1961 and is as follows: A "retail or service establishment" shall mean an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry. It is clear from the legislative history of the 1961 amendments to the Act that no different meaning was intended by the term "retail or service establishment" from that already established by the Act's definition, wherever used in the new provisions, whether relating to coverage or to exemption. (See S. Rept. 145, 87th Cong., 1st Sess. p. 27; H.R. 75, 87th Cong., 1st |