The U.S. Department of Labor recently withdrew two regulatory provisions in an effort to bring more uniformity to the process of determining if a business is in the retail and service industries.

The move also expands the opportunity to exempt certain employees paid primarily on a commission basis from overtime pay.

The DOL announced the changes May 19 when it withdrew two provisions from its Wage and Hour Division regulations.

The first contained lists of businesses the DOL viewed as "lacking a retail concept."

The second listed industries that, in the DOL's view, "may be recognized as retail," and were potentially eligible for the exemption.

In 1961, the DOL adopted a list identifying 89 types of establishments lacking a retail concept. A second list of 45 more businesses was added in 1970. 

Courts Question Lists

But, as the DOL noted, some courts questioned the lists.

The Seventh Circuit U.S. Court of Appeals described the list as an "incomplete, arbitrary, and essentially mindless catalog," while the Ninth Court said "the list does not appear to flow from any cohesive criteria for retail and non-retail establishments."

The DOL said the new rule recognizes that "an industry may gain or lose retail characteristics over time as the economy develops and modernizes, or for other reasons."

Such an establishment typically:

  • Sells goods or services to the general public
  • Serves the everyday needs of the community
  • Sits at the end of the distribution stream
  • Disposes its products and skills in small quantities
  • Does not participate in the manufacturing process

Flexibility

"Insofar as these establishments were deterred from availing themselves of the exemption and its flexibilities, they may now do so if they qualify—including by having more flexibility to work with workers on commission-based pay arrangements," the DOL said.

For these employers and workers, they could consider whether, for instance, more commission-based pay is sensible."

The FLSA's overtime exemption allows retail and service businesses to exempt from overtime employees paid wholly or partly on commission, as long as the employee earned at least 1.5 times the minimum wage for all hours worked and more than half their pay came from commissions.

Because DOL viewed the change as an "interpretive rule," it concluded that a public comment period was not required.


For more information, contact CBIA's Mark Soycher (860.244.1900) | @HRHotline