Section 779.417-COMPUTING EMPLOYEE'S TOTAL COMPENSATION FOR THE REPRESENTATIVE PERIOD

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 PROPORTION OF TOTAL COMPENSATION WHICH "REPRESENTS COMMISSIONS"

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

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.

Section 779.419-WHAT COMPENSATION "REPRESENTS COMMISSIONS" WHERE DUAL SYSTEMS OF PAYMENT ARE USED

(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

the employment that the stipulated sum is not so paid 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 workweek 4 had also failed to exceed the $75 "guarantee," his compensation representing commissions would have been only $100 out of a total compensation of $250, and the requirement of section 7(h) (2) would not have been met.

(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.

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.

Section

779.420-THE "REPRESENTATIVE PERIOD” FOR TESTING EMPLOYEE'S COMPENSATION

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.

Section 779.421-FACTORS AFFECTING THE REPRESENTATIVE PERIOD

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 workweek 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

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 779.422-PERIOD REPRESENTA-
TIVE OF EMPLOYEE'S CURRENT
EARNING PATTERN

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 work weeks 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 workweeks in view of the impossibility of determining, at the pay day

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

779.423-REPRESENTATIVE CHARACTER OF PAST PERIODS

(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

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.

Section 779.424-LENGTH OF REPRESENTATIVE PERIOD

(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

a period longer than a year would be needed to represent the seasonal and other fluctuations in commission compensation which are referred to in §§ 779.420 and 779.421. Moreover, the inclusion in the period used under section 7(h) of any past weeks of employment more than one year prior to the beginning of the current quarter year would cause the period to reflect conditions too remote from the present to justify acceptance of the period as truly representative of the employee's earning pattern in his current employment situation. Subject to the above minimum and maximum limitations, and to the principles discussed in §§ 779.420 through 779.423, a period of any length suitable for a full and fair representation of the pertinent compensation characteristics of the employee's present employment will be accepted as a representative period for purposes of section 7(h) when properly designated and supported in the employer's records as required by Part 516 of this chapter (see also § 779.430).

Section 779.425-LENGTH OF PERIODS IN SOME TYPICAL SITUATIONS

(a) Subject to the conditions mentioned in § 779.424, in employments where it is typical for the employee's commissions to fluctuate upward or downward in particular weeks, or from season to season, in accordance with the factors referred to in 779.421, the period will be considered representative if it includes a sufficient number of workweeks to reflect such fluctuations throughout their full cycle, and is not longer than is necessary for this purpose.

(b) In employments where there is no appreciable fluctuation, from pay period to pay period or from commission computation period to commission computation period, in the proportion of the employee's compensation which represents commissions, the designation and use of such a pay period or commission computation period as a representative period for such an employee will be proper under section 7(h), when such period is not less than one month and otherwise satisfies the conditions mentioned in $779.424.

(c) With respect to employees whose compensation arrangements would meet the condi

tions of exemption expressed in clause 7(h) (2) regardless of the length of the period from a month to a year which may be chosen as representative, as, for example, employees compensated exclusively by commissions (without advances, draws or guarantees), any such representative period designated by the employer which otherwise meets the conditions mentioned in § 779.424 will be acceptable as a representative period for determining the application of the exemption.

Section 779.426-APPLICATION OF THE REPRESENTATIVE PERIOD

As previously indicated, the representative period which must be applied in determining whether an individual employee is exempt from overtime pay pursuant to the provisions of section 7(h) is one which is representative of that particular employee's earning pattern as it relates to the proportionate part of his total compensation which represents commissions. Accordingly, for each employee whose exemption is to be tested in any workweek under clause (2) of section 7(h), an appropriate representative period or a formula for establishing such a period must be chosen and must be designated and substantiated in the employer's records (see § 516.28 of this chapter). When the facts change so that the designated period or the period established by the designated formula is no longer representative, a new representative period or formula therefor must be adopted which is appropriate and sufficient for the purpose, and designated and substantiated in the employer's records. Although the period selected and designated must be one which is representative with respect to the particular employee for whom exemption is sought, and the appropriateness of the representative period for that employee will always depend on his individual earning pattern, there may be situations in which the factors affecting the proportionate relationship between total compensation and compensation representing commissions will be substantially identical for a group or groups of employees in a particular occupation or department of a retail or service establishment or in the establishment as a whole.