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Section 779.409—“FULL-TIME STUDENTS”
The 1961 Amendments added to section 14 of the Act, the authority to issue special certificates for the employment of “full-time students”, under certain specified conditions, at wages lower than the minimum wage applicable under section 6. The student, to qualify for a special certificate must attend school full time and his employment must be outside of his school hours and his employment must be in a retail or service establishment. In addition, the student's employment must not be of the type ordinarily given to a full-time employee. Regulations with respect to the employment of such students will be issued and promulgated in the Federal Register. The legislative history states that: "The purpose of this provision is to provide employment opportunities for students who desire to work part time outside of their school hours without displacement of adult workers.” (S. Rept. 145, 87th Cong., 1st Sess.,
Section 779.412-EMPLOYEE OF A "RETAIL OR SERVICE ESTABLISHMENT"
In order for an employee to come within the exemption from the overtime pay requirement provided by section 7(h) for certain employees receiving commissions, the employee must be employed by a retail or service establishment. The term "retail or service establishment" is defined in section 13(a) (2) of the Act. The definition is set forth in $ 779.424; its application is considered at length in Subpart D of this part. As used in section 7(h), as in other provisions of the Act, the term "retail or service establishment” means an establishment 75 percentum 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.
Regulations have been issued under the authority in section 14 of the Act to provide for employment under special certificate of handicapped workers at wages lower than the minimum wage applicable under section 6 of the Act. These regulations are set forth in Part 524 of this chapter. In these regulations handicapped workers are defined as individuals whose earning capacity is impaired by age or physical or mental deficiency or injury for the work they are to perform.
Section 779.413 — COMPENSATION REQUIREMENTS FOR OVERTIME PAY EXEMPTION UNDER SECTION 7(h)
EMPLOYEES COMPENSATED PRINCIPALLY BY COMMISSIONS
SOURCE: Sections 779.411 to 779.431 appear at 28 F.R. 7826, Aug. 1, 1963. Section 779.411-STATUTORY PROVISION
Section 7 of the Act provides, in subsection (h):
(h) No employer shall be deemed to have violated subsection (a) by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the
An employee of a “retail or service establishment” who is paid on a commission basis or whose pay includes compensation representing commissions need not be paid the premium compensation prescribed by section 7(a) for overtime hours worked in a workweek, provided the following conditions are met:
(a) The “regular rate” of pay of such employee must be more than one and one-half times the minimum hourly rate applicable to him under section 6; and
(b) More than half his compensation for a “representative period” (not less than one month) must represent commissions on goods or services.
Section 779.414-METHODS OF COMPENSATION OF RETAIL STORE EMPLOYEES
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, or 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.
Section 779.416_COMPENSATION REPRESENTING “COMMISSIONS ON GOODS OR SERVICES"
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 88 779.414, 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 779.415_TYPES OF EMPLOY. MENT IN WHICH THIS OVERTIME PAY EXEMPTION MAY APPLY
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.
Section 779.417—COMPUTING EMPLOY. salary and commission payments whose commis
EE'S TOTAL COMPENSATION FOR sions always exceed the salary. If, on the other
ceiving a salary are always a minor part of his whether more than half of an employee's com
total compensation it is clear that he will not pensation “represents commissions on goods or
qualify for the exemption provided by section services” it is necessary first to total all compen
7(h). Some special situations in which it may sation paid to or on behalf of the employee as
be necessary to compute the proportion of an remuneration for his employment during the
employee's compensation which represents comperiod. All such compensation in whatever
missions are considered in the following section. form or by whatever method paid should be included, whether calculated on a time, piece,
Section 779.419—WHAT COMPENSATION incentive or other basis, and amounts represent
WHERE DUAL SYSTEMS OF PAYing any board, lodging or other facilities furnished should be included in addition to cash
MENT ARE USED payments, to the extent required by section (a) Employment arrangements which pro3(m) of the Act and Part 531 of this chapter. vide for a commission on goods or services to Payments excludable from the employee's “reg be paid to an employee of a retail or service ular rate" under section 7(d) may be excluded
establishment may also provide, as indicated in from this computation if, but only if, they are $ 779.414, for the payment to the employee at payments of a kind not made as compensation a regular pay period of a fixed sum of money, for his employment during the period. (See which may bear a more or less fixed relationship Part 778 of this chapter.)
to the commission earnings which could be ex
pected, on the basis of experience, for an averSection 779.418_COMPUTING PROPOR
age period of the same length. Such periodic TION OF TOTAL COMPENSATION
payments, which are variously described in reWHICH "REPRESENTS COMMIS
tail or service establishments as "advances," SIONS”
“draws," or "guarantees,” are keyed to a time In computing the employee's total compen base and are usually paid at weekly or other sation for the representative period it will in fixed intervals which may in some instances many instances become clear whether more than be different from and more frequent than, the half of it represents commissions. Where this intervals for payment of any earnings computed is not clear, it will be necessary to identify and exclusively on a commission basis. They are total all portions of the compensation which normally smaller in amount than the commisrepresent commissions on the goods or services sion earnings expected for such a period and that the retail or service establishment sells. if they prove to be greater, a deduction of the In determining what compensation “represents excess amount from commission earnings for a commissions on goods or services” it is clear that subsequent period, if otherwise lawful, may or any portion of the compensation paid as a may not be customary under the employment weekly, bi-weekly, semi-monthly, monthly, or arrangement. A determination of whether or other periodic salary, or as an hourly or daily to what extent such periodic payments can be rate of pay, does not "represent commissions" considered to represent commissions may be paid to the employee. On the other hand, it is required in those situations where the employequally clear that an employee paid entirely by ment arrangement is that the employee will be commissions on the goods or services which the paid the stipulated sum, or the commission earnretail or service establishment sells will, in any ings allocable to the same period, whichever is representative period which may be chosen, the greater amount. The stipulated sum can satisfy the requirement that more than half of never represent commissions, of course, if it is his compensation represents commissions. The
actually paid as a salary. If, however, it apsame will be true of an employee receiving both pears from all the facts and circumstances of
ommis. e other yen reof his
1. 2 3.
of an s comection.
rvice ed in Fee at ones, ship e ex
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.
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:
time ther dices
or be be
In this example, the total compensation of employee B during the representative period was $495 of which $255, or more than half, represented commissions. The requirement in clause (2) of section 7(h) for exemption was met. If, however, the commissions for workweek 2 had been only $75 instead of $95, the requirement would not have been met because his com
an is D)of
pensation representing commissions would have quently, for employees compensated in part totaled only $235, which is less than half of a through commissions, fluctuations in total comtotal compensation in such case of $475 for the pensation from pay period to pay period are representative period.
generally attributable to fluctuations in commis
sion earnings. Those factors which cause flucSection 779.420_THE “REPRESENTA tuations in commission earnings must be taken
TIVE PERIOD” FOR TESTING EM into account in determining what is a repPLOYEE'S COMPENSATION
resentative period for ascertaining the proporWhether compensation representing commis
tion of compensation representing commissions sions constitutes most of an employee's pay, so
under section 7(h). as to satisfy the exemption condition contained in clause (2) of section 7(h), must be deter
Section 779.422-PERIOD REPRESENTAmined by testing the employee's compensation
TIVE OF EMPLOYEE'S CURRENT for a “representative period” of not less than
EARNING PATTERN one month. The Act does not define a representative period, but plainly contemplates a
The exemption provided by section 7(h) by
its terms requires a determination for each workperiod which can reasonably be accepted by the
week in which the employee works overtime, as employer, the employee, and disinterested per
to whether his compensation in that workweek sons as being truly representative of the com
meets the conditions for exemption. The applipensation aspects of the employee's employment
cation of the exemption thus depends on how the on which this exemption test depends. A rep
individual employee is compensated in his curresentative period within the meaning of this
rent employment situation and, as previously exemption may be described generally as a
indicated, the representative period used to deperiod which typifies the total characteristics of
termine the proportion of the employee's coman employee's earning pattern in his current
pensation which represents commissions should employment situation, with respect to the fluc
reflect as fully and fairly as possible the factors tuations of the proportion of his commission
affecting his current earning pattern which are earnings to his total compensation.
pertinent to this proportion-in other words, it
must be representative of his current employSection 779.421-FACTORS AFFECTING
ment situation in this respect. For an employee THE REPRESENTATIVE PERIOD
whose compensation from all sources is comThe efforts of an employee which result in
puted and paid monthly for the workweek endcommissions often are not confined to the par ing in that month, this requirement can, of ticular workweek to which a commission is
course, be met by taking the current month as credited. Sales efforts, for example, may ex the representative period for determining tend in some instances over a considerable
whether, in the workweeks ending therein for period prior to the workweek in which the sales
which payment is being made, more than half are made. Also, commissions may fluctuate the employee's compensation represents commisfrom workweek to workweek for a number of sions. In the more common situation of emreasons not necessarily connected with the em ployees of a retail or service establishment who ployee's hours of work, among which are are paid more frequently than once a month, weather conditions, holidays, nature of the
however, the representative period of one month merchandise sold, seasonal demands, promotion or more must necessarily include past workweeks of particular merchandise, and buying habits for which compensation has previously been of the public. Compensation other than com computed and paid. It cannot, as a practical missions does not generally fluctuate to a matter, include future workweeks in view of significant extent from week to week. Conse the impossibility of determining, at the pay day