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(1) The retail or service establishment must not be in an enterprise of the type described in section 3(s), or
(2) If the retail or service establishment is in an enterprise of the type described in 3(s) it:
(i) Has an annual volume of sales (exclusive of excise taxes at the retail level which are separately stated) of less than $250,000, or
(ii) Is a hotel, motel, restaurant, or motion picture theater; or is an amusement or recreational establishment that operates on a seasonal basis; or it is a hospital, or an institution which is primarily engaged in the care of the sick, the aged, the mentally ill or defective, residing on the premises of such institution, or a school for physically or mentally handicapped or gifted children,
Section 779.337-EFFECT OF 1961
AMENDMENTS The 1961 amendments narrowed the then existing section 13(a) (2) exemption by excluding therefrom otherwise qualified retail or service establishments in covered enterprises. (For a discussion of covered enterprises, see sections 779.236 to 779.255.) When, however, a retail or service establishment is not in a covered enterprise it will be exempt under section 13(a) (2) if it meets the requirements of the exemption. In addition, certain retail or service establishments, even though in a covered enterprise, may have annual sales, exclusive of certain excise taxes, of less than $250,000 or may otherwise be specifically excepted in the exemption. Such establishments, too, will be exempt establishments, if they meet the other requirements of the exemption.
volume) must be made within the State in which the establishment is located." This limitation means that such establishment must be primarily engaged (more than 50 percent) in selling to or serving customers within its State. If the establishment is engaged to the extent of 50 percent or more in selling to or serving customers outside the State of its location, the requirement is not met and the establishment cannot qualify for exemption. Section 779.339—OUT-OF-STATE
CUSTOMERS Whether the sale or service is made to an out-of-State customer is a question of fact. In order for a customer to be considered an out-ofState customer, some specific relationship between him and the seller has to exist to indicate his out-of-State character. On the one hand, sales made to the casual cash-and-carry customer of a retail or sevice establishment, who, for all practical purposes, is indistinguishable from the mass of customers who visit the establishment, are sales made within the State even though the seller knows or has reason to believe, because of his proximity to the State line or because he is frequented by tourists, that some of the customers who visit his establishment reside outside the State. If the customer is of that type, sales made to him are sales made within the State even if the seller knows in the particular instance that the customer resides outside the State. On the other hand, a sale is made to an out-of-State customer and, therefore, is not a sale made within the State" in which the establishment is located, if delivery of the goods is made outside that State. It should be noted that sales of goods or services that are conditioned upon acceptance or rejection by an out-of-State source are interstate sales and not sales made within the State for purposes of section 13(a) (2). For example, a contract entered into in the State where the customer resides for the delivery of a magazine to the customer's residence, is an interstate sale if the contract must be approved by the out-ofState home office of the company publishing the magazine before it becomes effective.
SALES MADE WITHIN THE
Section 779.338 MORE THAN 50 PER
CENT INTRASTATE SALES REQUIRED
The first test specified in section 13(a) (2) is that more than 50 percent of the sales of goods or of services (or of both) of a "retail or service establishment” (measured by annual dollar
are not included. A discussion of what excise taxes may be excluded is contained in sections 779.263 to 779.266.
Section 779.340-SALES "MADE WITHIN
THE STATE" AND "ENGAGEMENT IN COMMERCE” DISTINGUISHED
Sales to customers located in the same State as the establishment are sales made within the State” even though such sales may constitute engagement in interstate commerce as where the sale (a) is made pursuant to prior orders from customers for goods to be obtained from outside the State; (b) contemplates the purchase of goods from outside the State to fill a customer's order; or (c) is made to a customer for use in interstate commerce or in production of goods for such commerce.
RETAIL OR SERVICE ESTAB
LISHMENTS IN COVERED ENTERPRISES
Section 779.343_EXCEPTION FOR CER
TAIN NAMED ESTABLISHMENTS IN COVERED ENTERPRISES
By specific provision, section 13(a) (2) of the Act continues the exemption from the pay provisions of the Act for certain named types of establishments in covered enterprises if they meet all other requirements of the exemption. These requirements are discussed in sections 779.336 to 779.341. The establishments named are: hotels; motels; restaurants; motion picture theaters; amusement or recreational establishments operating on a seasonal basis; hospitals or institutions primarily engaged in the care of the sick, the aged, the mentally ill, or the defective residing on the premises; and, schools for physically or mentally handicapped or gifted children. An establishment which is in a covered enterprise described in section 3(s) must be in one of the specifically named groups in order to qualify for the 13(a) (2) exemption. Each of the specifically named types of establishments is discussed later in this subpart. (See sections 779.381 to 779.390.)
Section 779.341-ESTABLISHMENT IN
COVERED ENTERPRISES NOT EXEMPT
The 1961 amendments further narrowed the section 13(a) (2) exemption by adding a second test that an establishment must meet in order to qualify for exemption. The new requirement is that the establishment must not be in a covered enterprise of the type described in section 3(s) (1) through (5), or if it is in such an enterprise then it must be specifically excepted in the exemption. (A discussion as to "covered enterprises” can be found in sections 779.236 to 779.261.) Section 779.342_EXCEPTION FOR
SMALL STORES IN COVERED ENTERPRISES
Section 13(a) (2) of the Act continues the exemption from the pay provisions of the Act for any retail or service establishment in a covered enterprise which has an annual dollar volume of sales of goods or services (exclusive of certain excise taxes) of less than $250,000, if such an establishment meets all other requirements of the 13(a)(2) exemption. The requirements of the 13(a) (2) exemptions are discussed in sections 779.336 to 779.344. In computing the $250,000 sales test, excise taxes at the retail level which are separately stated
COMPUTING ANNUAL DOLLAR
VOLUME AND COMBINATION
OF EXEMPTIONS Section 779.344-METHODS OF COMPUT
ING ANNUAL VOLUME OF SALES
The tests as to whether an establishment qualifies for exemption under section 13(a) (2) of the Act are specified in terms of percentages of the annual dollar volume of sales” of goods or of services (or both). The "annual dollar volume of sales" of an establishment consists of the gross receipts from all sales of the establishment during a 12-month period. The methods of computing whether the establishment qualifies under the percentage tests of the exemption are the same as the methods of calculating whether the annual volume of sales of an enterprise or an establishment meets the statutory dollar tests. These are discussed in sections 779.267 to 779.273.
tion will depend on whether the employee meets all the requirements of each exemption which it is sought to combine.
Section 779.345—COMBINATIONS OF
EXEMPTIONS (a) An employee may be engaged in a particular workweek in two or more types of activities for each of which a specific exemption is provided by the Act. The combined work of the employee during such a workweek may not satisfy the requirements of either exemption. It is not the intent of the Act, however, that an exemption based on the performance of one exempt activity should be defeated by the performance of another activity which has been made the basis of an equivalent exemption under another provision of the Act. Thus, where an employee during a particular workweek is exclusively engaged in performing two or more activities to which different exemptions are applicable, each of which activities considered separately would be an exempt activity under the applicable exemption if it were the sole activity of the employee for the whole workweek in question, as a matter of enforcement policy the employee will be considered exempt during such workweek. If the scope of such exemptions is not the same, the exemption applicable to the employee will be equivalent to that provided by whichever exemption provision is more limited in scope.
(b) In the case of an establishment which sells both goods and services at retail and which qualifies as an exempt establishment under section 13(a) (2), but cannot, as a whole, meet the tests of section 13(a) (4) because it sells services as well as goods, a combination of section 13 (a)(2) and 13(a)(4) exemptions may nevertheless be available for employees of the establishment who make or process, on the premises, goods which it sells. Such employees employed by an establishment which, as a whole, meets the tests set forth in section 13(a) (2), will be considered exempt under this combination exemption if the establishment, on the basis of all its activities other than sales of services, would meet the tests of section 13(a) (4).
(c) Where two or more exemptions are applicable to an employee's work or employment during a work week and where he may be exempt under a combination of exemptions as stated above, the availability of a combination exemp
ENGAGING IN MANUFACTURING
AND PROCESSING ACTIVITIES;
SECTION 13(a) (4) Section 779.346-EXEMPTION PROVIDED
IN SECTION 13(a) (4) The section 13(a) (4) exemption exempts any employee employed by an establishment which meets the requirements for exemption under section 13(a) (2), even though the establishment makes or processes on its own premises the goods that it sells, provided, that more than 85 percent of such establishment's annual dollar volume of sales of the goods so made or processed is made within the State in which the establishment is located. Section 779.347-REQUIREMENTS FOR
EXEMPTION SUMMARIZED An establishment to qualify for exemption under section 13(a) (4) must be an exempt establishment under section 13(a) (2), and, in addition, must meet the following three tests:
(a) The establishment must be recognized as a retail establishment in the particular industry.
(b) The goods which the exempt establishment makes or processes must be made or processed at the establishment which sells the goods.
(c) More than 85 percent of the establishment's annual dollar volume of sales of the goods which it makes or processes must be made within the State in which the establishment is located. (See Arnold v. Ben Kanowsky, Inc., 361 U.S. 388.) Section 779.348_EXEMPTION LIMITED
TO “RECOGNIZED RETAIL ESTABLISHMENT"; FACTORIES NOT EXEMPT
The section 13(a) (4) exemption requires the establishment to be recognized as a retail establishment in the particular industry. This test limits the exemption to retail establishments only, and excludes factories as such and establishments to which the retail concept does not apply. In other words this test requires that
the establishment as a whole be recognized as a retail establishment although it makes or processes at the establishment the goods it sells. Typical of the establishments which may be recognized as retail establishments under the exemption are custom tailor shops, candy shops, ice cream parlors, bakeries, drug stores, optometrist establishments, ice plants and other local retail establishments which make or process the goods they sell and meet the other tests for exemption. Clearly factories as such are not “recognized retail establishments” and would not be eligible for this exemption. (See 95 Cong. Rec. pp. 11001, 11200, 11216 and 14942.) Section 779.349—GOODS MUST BE MADE
AT THE ESTABLISHMENT WHICH SELLS THEM
(a) Further to make certain that the exemption applies to retail establishments only and not to factories, an additional requirement of the exemption is that the goods which the exempt establishment makes or processes must be made or processed at the establishment which sells the goods. Thus an establishment that makes or processes any goods which the employer will sell from another establishment, is not exempt. If the establishment making the goods does not sell such goods but makes them for the purpose of selling them at other establishments the establishment making the goods is a factory and not a retail establishment.
(b) Also where the making or processing of the goods takes place away from the selling establishment, the section 13(a) (4) requirement that both the making or processing and selling take place at the same establishment cannot be met. This will be true even though the place at which the goods are made or processed services the retail selling establishment exclusively. In such a situation, while the selling establishment may qualify for exemption under section 13(a)(2), the separate establishment at which the goods are made or processed will not be exempt. The latter is a manufacturing establishment. For example, a candy kitchen manufacturing candy for sale at separate retail outlets is a manufacturing establishment and not a retail establishment. (Fred Wolferman, Inc. v. Gustafson, 169 F. 2d 759 (CA-8).)
(c) The fact that goods made or processed on the premises of a bona fide retail establishment are sold by the establishment through outside salesmen will not defeat the exemption if otherwise applicable. On the other hand, in the case of a factory or similar establishment devoted to making or processing goods, the fact that its goods are sold at retail by outside salesmen provides no ground for recognizing the establishment as a retail establishment or qualifying it for exemption. Section 779.350—THE 85-PERCENT
REQUIREMENT The final requirement for the section 13(a) (4) exemption is that more than 85 percent of the establishment's sales of the goods it makes or processes, measured by annual dollar volume, must consist of sales made within the State in which the establishment is located. A retail establishment of the type intended to be exempt under this exemption may also sell goods which it does not make or process; the 85-percent requirement applies only to the sales of goods which are made or processed at the establishment. This must not be confused with the additional test which requires that the establishment, to be exempt, must derive more than 50 percent of its entire annual dollar volume of sales of goods from sales made within the State. (See section 779.338.) In other words, more than 85 percent of the establishment's annual dollar volume of sales of goods made or processed at the establishment, and more than 50 percent of the establishment's total annual dollar volume of sales of all the goods sold by the establishment, must be derived from sales made within the State. An establishment will not lose an otherwise applicable exemption under section 13(a) (4) merely because some of its sales of goods made or processed at the establishment are sales for resale or are not recognized as retail sales in the particular industry. Sales for resale, such as wholesale sales, and other sales not recognized as retail sales in the industry, will be counted in the 25-percent tolerance permitted by the exemption. (Cf. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388.) Thus, for example, a bakery otherwise meeting the tests of 13(a)
(4) making and selling baked goods on the premises nevertheless will qualify as an exempt retail establishment even though it engages in the sale of baked goods to grocery stores for resale if such sales, together with other sales not recognized as retail in the industry, do not exceed 25 percent of the total annual dollar volume of the establishment. Section 779.351—THE SECTION 13(a)(4)
EXEMPTION DOES NOT APPLY TO SERVICE ESTABLISHMENTS
The section 13(a) (4) exemption applies to retail establishments engaged in the selling of goods. It does not apply to service establishments. If the establishment is a service establishment, it must qualify under section 13(a) (2) in order to be exempt. A retail establishment selling goods, however, also may perform services incidental or necessary to the sale of such goods, such as a delivery service by a bakery store or installation of antennas by a radio dealer for his customers, without affecting the character of the establishment as a retail establishment qualified for exemption under section 13(a) (4).
or contract arrangement with a telegraph company; (c) such employee or proprietor must be one to whom the minimum wage and overtime pay provisions of the Act would not apply in the absence of such handling of telegraphic messages (See Western Union Tel. Co. v. McComb 165 F. 2d 65 (CA-6), certiorari denied, 333 U.S. 862); and (d) the exemption applies only where the telegraphic message revenue does not exceed $500 a month. For purposes of this exemption, in determining whether a retail or service establishment meets the percentage tests contained in section 13(a) (2) of the Act, the receipts from the telegraphic message agency will not be included.
CLASSIFICATION OF SALES AND ESTABLISHMENTS IN CERTAIN INDUSTRIES
Section 779.354-BASIS FOR
CLASSIFICATION The general principles governing the application of the 13(a) (2) and 13(a) (4) exemptions are explained in detail earlier in this Subpart. It is the purpose of the following sections to show how these principles apply to establishments in certain specific industries. In these industries the Divisions have made special studies, held hearings or consulted with representatives of industry and labor, to ascertain the facts. Based upon these facts the following determinations have been made as to which sales or establishments are, and which are not, recognized as retail in the particular industry.
LUMBER AND BUILDING MATERIALS DEALERS
ENGAGING IN CONTRACT TELE
GRAPH AGENCY OPERATION;
SECTION 13(a)(13) Section 779.352-EXEMPTION PROVIDED
Section 13(a) (13) exempts from sections 6 and 7 of the Act any employee or proprietor who is engaged in handling telegraphic messages for the public in a retail or service establishment which qualifies as an exempt retail or service establishment under section 13(a) (2), if the provisions of sections 6 and 7 of the Act would not otherwise apply. Section 779.353_REQUIREMENTS FOR
EXEMPTION The requirements of the exemption are: (a) the establishment in which the employee or proprietor works must qualify as an exempt retail or service establishment under section 13(a) (2) of the Act; (b) the employee or proprietor must be engaged in handling telegraphic messages for the public pursuant to an agency
Section 779.354a-WHO MAY QUALIFY
AS EXEMPT 13(a)(2) OR 13(a)(4). ESTABLISHMENT
(a) Section 13(a)(2). An establishment engaged in selling lumber and building materials may qualify as an exempt retail or service establishment under section 13(a) (2) of the Act if it meets all the requirements of that exemption. It must appear that:
(1) The establishment is not in an enterprise described in section 3(s) of the Act or, if it is, its annual dollar volume of sales (exclusive of