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These employees are generally employed in socalled “big ticket” departments and those establishments or parts of establishments where commission methods of payment traditionally have been used, typically those dealing in furniture, bedding and home furnishings, floor covering, draperies, major appliances, musical instruments, radios and television, men's clothing, women's ready to wear, shoes, corsets, home insulation, and various home custom orders. There may be other segments in retailing where the proportionate amount of commission payments would be great enough for employees employed in such segments to come within the exemption. Each such situation will be examined, where exemption is claimed, to make certain that the employees treated as exempt from overtime compensation under section 7(h) are properly within the statutory exclusion.

Retail or service establishment employees are generally compensated (apart from any extra payments for overtime or other additional payments) by one of the following methods:

(a) Straight salary or hourly rate. Under this method of compensation the employee receives a stipulated sum paid weekly, bi-weekly, semi-monthly or monthly or a fixed amount for each hour of work.

(b) Salary plus commission. Under this method of compensation the employee receives a commission on all sales in addition to a base salary (see paragraph (a) of this section).

(c) Quota bonus. This method of compensation is similar to paragraph (b) of this section except that the commission payment is paid on sales over and above a predetermined sales quota.

(d) Straight commission without advances. Under this method of compensation the employee is paid a flat percentage on each dollar of sales he makes.

(e) Straight commission with "advances”, "guarantees", or "draws. This method of compensation is similar to paragraph (d) of this section except that the employee is paid a fixed weekly,

bi-weekly, semi-monthly, monthly “advance", "guarantee" or "draw". At periodic intervals a settlement is made at which time the payments already made are supplemented by any additional amount by which his commission earnings exceed the amounts previously paid. The above listing which reflects the typical methods of compensation is not, of course, exhaustive of the pay practices which may exist in retail or service establishments.



As explained earlier in this part, a retail or service establishment within the meaning of the Act is a physical place of business engaged in making “sales of goods or services” which meet the prescribed statutory tests. Section 7(h) provides an overtime pay exemption for an employee of such an establishment on the condition, among others, that more than half his compensation over a representative period "represents commissions on goods or services." In so providing, the Congress plainly must have had in mind employees compensated principally on an incentive basis through payments representing commissions on the goods or services in which the retail or service establishment deals, pursuant to the traditional methods of commission compensation (see SS 779.414, 779.415) used in retail businesses. Although typically in retail or service establishments commission payments are keyed to sales, the requirement of the exemption is that more than half the employee's compensation represent commissions “on goods or services", which would include all types of commissions customarily based on the goods or services which the establishment sells, and not exclusively those measured by "sales" of these goods or services.


Section 7(h) was enacted to relieve an employer from the obligation of paying overtime compensation to certain employees of a retail or service establishment paid wholly or in greater part on the basis of commissions.


salary and commission payments whose commissions always exceed the salary. If, on the other hand, the commissions paid to an employee receiving a salary are always a minor part of his total compensation it is clear that he will not qualify for the exemption provided by section 7(h). Some special situations in which it may be necessary to compute the proportion of an employee's compensation which represents commissions are considered in the following section.

In determining for purposes of section 7(h) whether more than half of an employee's compensation "represents commissions on goods or services” it is necessary first to total all compensation paid to or on behalf of the employee as remuneration for his employment during the period. All such compensation in whatever form or by whatever method paid should be included, whether calculated on a time, piece, incentive or other basis, and amounts representing any board, lodging or other facilities furnished should be included in addition to cash payments, to the extent required by section 3(m) of the Act and Part 531 of this chapter. Payments excludable from the employee's “regular rate” under section 7(d) may be excluded from this computation if, but only if, they are payments of a kind not made as compensation for his employment during the period. (See Part 778 of this chapter.)


Section 779.418_COMPUTING PROPOR


In computing the employee's total compensation for the representative period it will in many instances become clear whether more than half of it represents commissions. Where this is not clear, it will be necessary to identify and total all portions of the compensation which represent commissions on the goods or services that the retail or service establishment sells. In determining what compensation "represents commissions on goods or services” it is clear that any portion of the compensation paid as a weekly, bi-weekly, semi-monthly, monthly, or other periodic salary, or as an hourly or daily rate of pay, does not "represent commissions” paid to the employee. On the other hand, it is equally clear that an employee paid entirely by commissions on the goods or services which the retail or service establishment sells will, in any representative period which may be chosen, satisfy the requirement that more than half of his compensation represents commissions. The same will be true of an employee receiving both

(a) Employment arrangements which provide for a commission on goods or services to be paid to an employee of a retail or service establishment may also provide, as indicated in $ 779.414, for the payment to the employee at a regular pay period of a fixed sum of money, which may bear a more or less fixed relationship to the commission earnings which could be expected, on the basis of experience, for an average period of the same length. Such periodic payments, which are variously described in retail or service establishments as "advances," “draws,” or “guarantees,” are keyed to a time base and are usually paid at weekly or other fixed intervals which may in some instances be different from and more frequent than, the intervals for payment of any earnings computed exclusively on a commission basis. They are normally smaller in amount than the commission earnings expected for such a period and if they prove to be greater, a deduction of the excess amount from commission earnings for a subsequent period, if otherwise lawful, may or may not be customary under the employment arrangement. A determination of whether or to what extent such periodic payments can be considered to represent commissions may be required in those situations where the employment arrangement is that the employee will be paid the stipulated sum, or the commission earnings allocable to the same period, whichever is the greater amount. The stipulated sum can never represent commissions, of course, if it is actually paid as a salary. If, however, it appears from all the facts and circumstances of

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the employment that the stipulated sum is not so páid and that it actually functions as an integral part of a true commission basis of payment, then the compensation paid under the dual system for each workweek ending in the representative period must be examined to determine whether in that workweek the stipulated periodic payment or the amount of commissions on goods or services attributable to the workweek is the factor which has decisive effect in determining the total compensation paid for the workweek. (Compare Walling v. Youngerman Reynolds Hardwood Co., 325 U.S. 419; Walling v. A. H. Belo Co., 311 U.S. 324.) If the commission earnings attributable to a particular workweek exceed the "advance," "guarantee," or "draw” paid for that workweek, the commission portion of the arrangement is the one which actually measures the total compensation the employee receives for that workweek, and all of his compensation for that workweek "represents commissions on goods or services” within the meaning of clause (2) of the section 7(h) exemption. If, on the other hand, the employee's computed commissions for that workweek do not yield an amount in excess of the "advance," "guarantee," or "draw" portion of his pay arrangement, the agreed commissions on goods or services have not been effective in determining any part of the total compensation, and none of it "represents commissions on goods or services” within the meaning of clause (2) in section 7(h) of the Act.

(b) The computation indicated in paragraph (a) of this section may be illustrated by the following example. Employee A, employed by a retail store, works under an arrangement by which he is to receive a stipulated commission on all sales of X merchandise, with the understanding that a stipulated amount of money will be paid each week as a “guarantee” to be charged against commissions for that week and to be paid him in any event in any workweek when the commission earnings which would otherwise be payable do not equal this stipulated payment. He receives no other forms of compensation. In a representative period of one month, his earnings are as follows:

In this example, the total compensation of employee A during the representative period was $355, of which $280, or more than half, represented commissions. The requirement in clause (2) of section 7(h) for exemption was therefore met. If, however, the commissions computed for workweek 2 and work week 4 had also failed to exceed the $75 "guarantee," his compensation representing commissions would have been only $100 out of a total compensation of $325, and the requirement of section 7(h) (2) would not have been meet.

(c) As an example of the application of the principles stated in paragraph (a) of this section in the case of an employee compensated by a salary who also receives commissions, let us assume that the employment arrangement between a retail store and employee B is that he is to receive a fixed salary of $60 each week without regard to sales volume, and in addition 3 percent of all his sales. He receives no other forms of compensation. The following illustrates the computation required in a representative period of one month.

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pensation representing commissions would have totaled only $235, which is less than half of a total compensation in such case of $475 for the representative period.

quently, for employees compensated in part through commissions, fluctuations in total compensation from pay period to pay period are generally attributable to fluctuations in commission earnings. Those factors which cause fluctuations in commission earnings must be taken into account in determining what is a representative period for ascertaining the proportion of compensation representing commissions under section 7(h).


Section 779.420—THE “REPRESENTA


Whether compensation representing commissions constitutes most of an employee's pay, so as to satisfy the exemption condition contained in clause (2) of section 7(h), must be determined by testing the employee's compensation for a “representative period” of not less than one month. The Act does not define a representative period, but plainly contemplates a period which can reasonably be accepted by the employer, the employee, and disinterested persons as being truly representative of the compensation aspects of the employee's employment on which this exemption test depends. A representative period within the meaning of this exemption may be described generally as a period which typifies the total characteristics of an employee's earning pattern in his current employment situation, with respect to the fluctuations of the proportion of his commission earnings to his total compensation.



The exemption provided by section 7(h) by its terms requires a determination for each workweek in which the employee works overtime, as to whether his compensation in that workweek meets the conditions for exemption. The application of the exemption thus depends on how the individual employee is compensated in his current employment situation and, as previously indicated, the representative period used to determine the proportion of the employee's compensation which represents commissions should reflect as fully and fairly as possible the factors affecting his current earning pattern which are pertinent to this proportion—in other words, it must be representative of his current employment situation in this respect. For an employee whose compensation from all sources is computed and paid monthly for the workweek ending in that month, this requirement can, of course, be met by taking the current month as the representative period for determining whether, in the workweeks ending therein for which payment is being made, more than half the employee's compensation represents commissions. In the more common situation of employees of a retail or service establishment who are paid more frequently than once a month, however, the representative period of one month or more must necessarily include past workweeks for which compensation has previously been computed and paid. It cannot, as a practical matter, include future work weeks in view of the impossibility of determining, at the pay day

The efforts of an employee which result in commissions often are not confined to the particular workweek to which a commission is credited. Sales efforts, for example, may extend in some instances over a considerable period prior to the workweek in which the sales are made. Also, commissions may fluctuate from workweek to work week for a number of reasons not necessarily connected with the employee's hours of work, among which are weather conditions, holidays, nature of the merchandise sold, seasonal demands, promotion of particular merchandise, and buying habits of the public. Compensation other than commissions does not generally fluctuate to a significant extent from week to week. Conse

on which the Act requires the statutory compensation due for the pay period to be paid, what effect the employee's earnings for such future workweeks would have on his exemption.

Section 779.423


may be. The quarterly recomputation would tend to ensure that the period used reflects any gradual changes in the characteristics of the employment which could be important in determining the ratio between compensation representing commissions and other compensation in the current employment situation of the employee.

(b) Ordinarily a period less recent than the periods described in paragraph (a) of this section cannot qualify as a representative period for purposes of the section 7(h) exemption. While there may be circumstances in which it may be necessary to use a corresponding period in the preceding calendar or fiscal year as a representative period for an employee whose compensation representing commissions cannot, because of unusual circumstances, be tested by a more recent period, this would be an exception to the general rule which could be justified only in a factual situation clearly demonstrating the representative character of the period chosen. Whether the facts are adequate to support the choice of such a period as representative within the meaning of the statute in any given case can be determined only by a careful review of all relevant aspects of the particular employment situation in that case.

(a) Generally, where application of the exemption requires consideration of past compensation for the employment, a past employment period as close in time to the workweeks ending in the pay period as can practicably be adopted must be chosen as the representative period. For the reasons previously stated, any past period so chosen should be one which is as representative as possible to those factors in the terms, conditions, and circumstances of employment which may affect the presence or absence of a preponderance of compensation representing commissions in the total compensation of the employee under his present employment situation. To this end the period must be as recent a period, of sufficient length (see $ 779.424) to fully and fairly reflect all such factors, as can practicably be used. Thus, as a general rule, if a month is long enough to reflect the necessary factors, the most recent month for which necessary computations can be made prior to the pay day for the first workweek in the current month should be chosen. Similarly, if it is necessary to use a period as long as a calendar or fiscal quarter year to fully represent such factors, the quarterly period used should ordinarily be the one ending immediately prior to the quarter in which the current workweek falls. If a period longer than a quarter year is required in order to include all the factors necessary to make it fully and fairly representative of the current period of employment for purposes of section 7(h), the end of such period should likewise be at least as recent as the end of the quarter year immediately preceding the quarter in which the current workweek falls. Thus, in the case of a representative period of six months or of one year, recomputation each quarter would be required so as to include in it the most recent two quarter-years for four quarter-years, as the case

Section 779.424-LENGTH OF REPRE


(a) The representative period for determining whether more than half of an employee's compensation represents commissions cannot, under the express terms of section 7(h), be less than one month. The period chosen should be long enough to stabilize the measure of the balance between the portions of the employee's compensation which respectively represent commissions and other earnings, against purely seasonal or plainly temporary changes. Although the Act sets no upper limit on the length of the period, the statutory intent would not appear to be served by any recognition of a period in excess of one year as representative for purposes of this exemption. There would seem to be no employment situation in a retail or service establishment in which

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