Inside Sales Exemption: what are the rules?


Many companies pay their inside sales people a base wage or salary and then pay commissions.  Do these people get overtime pay, too?

Yes, especially in Connecticut.

As usually, we start with the understanding that everyone gets overtime pay and an employer who wants to avoid it must prove that an exemption applies.

There is an exemption for inside sales.  It is quite complex and there are some good sources of information out there.  The US DOL Fact Sheet does a good job explaining the federal exemption.

In Connecticut, the “inside sales” is much stricter and more employee friendly.  This exemption permits an employer to avoid overtime pay to inside sales persons for whom the following is true:

a.     Their sole duty must be to sell a product or service,
b.    Their total weekly pay must be greater than twice the minimum wage for all hours worked,
c.    More than half their pay must be commissions
d.    They must now work more than 54 hours per week.

(the precise language of the law is below)

Connecticut General Statutes Sec. 31-76i (g) any inside salesperson whose sole duty is to sell a product or service (1) whose regular rate of pay is in excess of two times the minimum hourly rate applicable to him under section 31- 58, (2) more than half of whose compensation for a representative period, being not less than one month, represents commissions on goods or services, and (3) who does not work more than fifty-four hours during a work week of seven consecutive calendar days. In determining the proportion of compensation representing commissions, all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee;..

In Connecticut, this law is often violated when someone is given duties other than sales, for example, management work.

The overtime that is paid must include the commissions and not be based simply on the hourly rate.  So, if your hourly rate is $10 and you earned $500 in commissions in a week in which you worked 50 hours, your overtime rate for your ten hours of overtime shouldn’t be just $15 (one and a half times your hourly rate) but should be one and half times $20 (since the $500 divided by 50 hours adds $10 to your base rate).