California Wage and Overtime Laws: Understanding Exemptions for Sales Employees
California law mandates that most employees receive at least the state minimum wage for all hours worked and overtime pay at one and a half times their regular rate for hours exceeding 8 in a single day or 40 in a workweek. This requirement is outlined in California Labor Code Section 1194, which ensures that employees cannot be forced to accept a lower wage through an agreement. If an employer fails to meet these obligations, employees have the right to recover unpaid wages, interest, attorney’s fees, and legal costs through civil action.
However, certain employees are exempt from minimum wage, overtime pay, and rest/meal break requirements if they meet the criteria for a specified exemption. Among these exemptions are:
- Outside Salesperson Exemption
- Commissioned Salesperson Exemption (which only exempts employees from overtime pay but not from minimum wage or rest/meal breaks)
Outside Salesperson Exemption
An outside salesperson is an employee who:
- Is 18 years or older
- Spends more than 50% of their working time away from their employer’s place of business
- Primarily engages in sales activities, such as negotiating transactions with clients and potential customers
If an employee meets this strict legal definition, they are not entitled to minimum wage or overtime pay. However, the burden of proving this classification rests on the employer (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785).
An example of a true outside salesperson would be a door-to-door salesperson selling household appliances directly to customers. However, simply having an “outside salesperson” job title does not automatically qualify an employee for the exemption. Courts will closely examine both the job description and the employee’s actual work habits (Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 26).
For instance, delivery drivers who transport bottled water to customers do not qualify as outside salespersons unless they spend most of their time actively selling, rather than just delivering products.
Commissioned Salesperson Exemption
A commissioned salesperson may be exempt from overtime pay if they meet the following conditions:
- More than 50% of their income must come from commissions
- Their earnings must exceed 1.5 times the state minimum wage in each pay period
This exemption only applies for pay periods where the income requirement is met—employers cannot reallocate wages from one pay period to another to meet the exemption (Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669). Additionally, reassignment of wages would violate California Labor Code Section 204, which requires wages to be paid at least twice per month.
It is also crucial that commissioned pay is genuine—employers cannot misclassify bonuses as commissions just to avoid paying overtime. Furthermore, commissioned employees must actually be engaged in sales. For example, auto mechanics who receive a percentage of service charges do not qualify as commissioned salespeople since they only perform repair services rather than selling them (Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557).
A classic example of a commissioned salesperson is a car salesperson who earns a percentage commission on each vehicle sold. If their commissions make up more than half of their earnings, they may be exempt from overtime pay. However, they must still receive minimum wage and required rest/meal breaks (Vaquero v. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98).
Key Takeaways
- Outside salespersons may be exempt from minimum wage, overtime, and break requirements, but the employer must prove they meet the legal definition.
- Commissioned salespersons are only exempt from overtime pay—they still must receive minimum wage and meal/rest breaks.
- Job title alone does not determine classification—courts examine actual job duties and earnings.
- Employers cannot manipulate commission pay periods to meet exemption requirements.
Understanding these distinctions is crucial for both employees and employers to ensure compliance with California labor laws.