[House Report 105-558]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-558
_______________________________________________________________________
SALES INCENTIVE COMPENSATION ACT
_______
June 3, 1998.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Goodling, from the Committee on Education and the Workforce,
submitted the following
R E P O R T
together with
MINORITY AND ADDITIONAL VIEWS
[To accompany H.R. 2888]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 2888) to amend the Fair Labor Standards
Act of 1938 to exempt from the minimum wage recordkeeping and
overtime compensation requirements certain specialized
employees, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Sales Incentive Compensation Act''.
SEC. 2. EXEMPTION.
Section 13(a) of the Fair Labor Standards Act of 1938 (29 U.S.C.
213(a)) is amended by striking the period at the end of paragraph (17)
and inserting a semicolon and by adding at the end the following:
``(18) any employee employed in a sales position if--
``(A) the employee has specialized or technical
knowledge related to products or services being sold;
``(B) the employee's--
``(i) sales are predominantly to persons who
are entities to whom the employee's position
has made previous sales; or
``(ii) position does not involve making sales
contacts;
``(C) the employee's position requires a detailed
understanding of the needs of those to whom the
employee is selling;
``(D) the employee's position requires the employee
to exercise discretion in offering a variety of
products and services;
``(E) the employee receives--
``(i) base compensation, determined without
regard to the number of hours worked by the
employee, of not less than an amount equal to
one and one-half times the minimum wage in
effect under section 6(a)(1) multiplied by
2,080; and
``(ii) in addition to the employee's base
compensation, compensation based upon each sale
attributable to the employee;
``(F) the employee's aggregate compensation based
upon sales attributable to the employee is not less
than 40 percent of one and one-half times the minimum
wage multiplied by 2,080;
``(G) the employee receives a rate of compensation
based upon each sale attributable to the employee which
is beyond sales required to reach the compensation
required by subparagraph (F) which rate is not less
than the rate on which the compensation required by
subparagraph (F) is determined; and
``(H) the rate of annual compensation or base
compensation for any employee who did not work for an
employer for an entire calendar year is prorated to
reflect annual compensation which would have been
earned if the employee had been compensated at the same
rate for the entire calendar year.''.
SEC. 3. CONSTRUCTION.
The amendment made by section 2 may not be construed to apply to
individuals who are employed as route sales drivers.
Purpose
The purpose of H.R. 2888, the Sales Incentive Compensation
Act, is to amend the Fair Labor Standards Act to provide that
certain specialized ``inside'' sales employees may be exempt
from minimum wage, overtime compensation, and record-keeping
requirements.
Committee Action
During the 104th Congress, the Subcommittee on Workforce
Protections held a hearing on the treatment of inside sales
employees under the Fair Labor Standards Act. The following
individuals testified at the hearing, which was held on October
25, 1995: Mr. Chris Lute, President of Lute Plumbing Supply,
Inc., Portsmouth, Ohio; Mr. Kevin M. Priest, Vice President of
the Cleveland Plant and Flower Company, Cleveland, Ohio; and
Ms. Deborah Dietrich, Senior Legislative Representative,
Service Employees International Union.
A second hearing was held on the issue during the 105th
Congress by the Subcommittee on Workforce Protections on May
13, 1997. Testimony was heard from the following individuals:
Mr. Anthony L. Williams, Sales Associate, Ferguson Enterprises,
Incorporated, Baltimore, Maryland; Ms. Leronda Lucky, Inside
Sales Associate, the Berry Company, Ohio; and Ms. Deborah
Siday, Vice President of Human Resources, Atlantic Food
Services, Inc., Manassas, Virginia. On November 7, 1997,
Representatives Harris W. Fawell and Robert E. Andrews
introduced H.R. 2888, ``The Sales Incentive Compensation Act.''
On March 5, 1998, the Subcommittee on Workforce Protections
approved H.R. 2888, as amended, by voice vote and ordered the
bill favorably reported to the Full Committee. On April 1,
1998, the Committee on Education and the Workforce approved
H.R. 2888, as amended, by voice vote, and ordered the bill
favorably reported.
Committee Statement and Views
Background
The Fair Labor Standards Act (FLSA),\1\ which was enacted
in 1938, is the primary federal statute regulating the wages
and hours of work. The Act covers employees who are (1) engaged
in interstate commerce, or (2) engaged in the production of
goods for travel for interstate commerce, or (3) employed in an
enterprise engaged in commerce or in the production of goods
for commerce. For covered or ``nonexempt'' employees, the FLSA
sets a minimum wage of $5.15 per hour and requires, as a
general rule, that hours of work by nonexempt employees in
excess of 40 hours in a seven-day period be compensated at a
rate of one-and-one-half times the employee's regular rate of
pay. In addition, the FLSA requires employers to maintain
records which reflect the employees' hours of work and wages
received. There are, however, a number of exemptions from the
minimum wage and/or overtime requirements under the FLSA for
specific groups of employees, including certain employees who
work in sales.
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\1\ 29 U.S.C. Sec. 201-219.
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For example, the FLSA contains an exemption from minimum
wage and overtime for ``any employee employed * * * in the
capacity of outside salesman.'' \2\ Whether or not a sales
employee can qualify for the exemption depends on where the
work is performed and whether the employee is employed to
sell.\3\ The employee must customarily and regularly work away
from the employer's place of business for the purpose of
selling tangible or intangible items, or obtaining orders or
contracts for services or use of facilities. In addition, the
hours of work in activities unrelated to sales can not exceed
20 percent of the hours worked in the workweek by nonexempt
employees of the employer.\4\
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\2\ 29 U.S.C. Sec. 213(a)(1).
\3\ ``Executive, Administrative, Professional and Outside Sales
Exemptions Under the Fair Labor Standards Act,'' WH Publication 1363,
U.S. Department of Labor, Employment Standards Administration, Wage and
Hour Division.
\4\ 29 C.F.R. Sec. 541.500-508.
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The FLSA also contains an exemption from overtime for
certain sales employees of retail or service (but not
wholesale) establishments. Three conditions must be met in
order for an employee to qualify for the exemption: (1) the
employee must be employed by a retail or service establishment,
as defined by the Department of Labor; (2) the employee's
regular rate of pay must exceed one-and-one-half times the
applicable minimum wage for every hour worked in a workweek in
which overtime hours are worked, and (3) more than half the
employee's total earnings in a representative period (not less
than one month) must consist of commissions on sales of goods
or services.\5\
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\5\ 29 U.S.C. Sec. 207(i).
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A third category of sales employee--whose importance in
many businesses is growing as technology advances and the
marketplace becomes ever more global in scope--is an individual
who works primarily at the employer's facility, using phone,
fax, and computer connections to communicate with non-retail
customers. These sales employees may deal with sophisticated
products or function as both consultant and salesperson to
customers, yet neither of the existing sales employee-specific
FLSA exemptions reaches them. These are ``inside sales''
employees to whom H.R. 2888 is addressed.
Many of these inside sales employees have been considered
exempt under the general exemption for ``administrative''
employees in section 13 (a)(1) of the FLSA. Unfortunately,
section 13 (a)(1) is a general exemption written many years ago
without today's professional sales person in mind, and the
result is a confusing situation as to whether these sales
persons qualify for the ``administrative'' exemption.
Two recent cases demonstrate the problem. In Martin v.
Cooper Electric Supply Co.,\6\ the Third Circuit Court of
Appeals considered whether an electrical products wholesaler's
inside sales persons were ``administrative'' employees within
the FLSA exemption. Adopting language from the Department of
Labor's regulations, the Court of Appeals said that
``administrative'' operations of a business must be
distinguished from ``production'' activities.\7\ Cooper
Electric Supply, the Court of Appeals said, is a wholesale
business whose ``primary business purpose is to produce sales
of electrical products.'' \8\ Thus, the court reasoned, the
company's sales employees were ``production'' employees rather
than ``administrative'' employees.
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\6\ Martin v. Cooper Electric Supply Co., 940 F.2d 896, (3rd
Cir.1991).
\7\ Ibid., at 902.
\8\ Ibid., at 903.
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A different result was reached in Reich v. John Alden Life
Insurance Co.\9\ In that case, the U.S. Court of Appeals for
the First Circuit found that marketing representatives for John
Alden Life Insurance Company fit within the ``administrative''
employee exemption. The Court of Appeals distinguished the
Cooper Electric case by citing the fact that John Alden Life
Insurance Company's ``principal production activity [is] the
creation of insurance policies.'' Thus, the Court of Appeals
found, John Alden's sales employees were engaged in servicing
the employer's business, rather than in ``production.''
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\9\ Reich v. John Alden Life Insurance Co., 126 F.3d 1, (1st
Cir.1997).
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These two cases point out the difficulty of relying on the
``administrative'' employee exemption for inside sales
employees. Although many professional sales employees do
qualify for the ``administrative'' employee exemption, the
application of the exemption is unpredictable and not very
logical.\10\ Without disturbing the ``administrative'' employee
exemption, the Committee believes that a complementary and more
direct exemption written for professional, inside sales
employees is needed.
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\10\ For example, the combination of the Cooper Electric and Alden
cases would appear to favor large, integrated companies in which inside
sales personnel sell products produced in whole or in part by the
company itself, as compared to smaller, more entrepreneurial firms that
primarily market other companies' products.
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An exemption written specifically for inside sales
employees is also appropriate and necessary because of changes
in the manner in which the commercial world works in 1998 as
compared to 1938, when the FLSA was written. The FLSA's
provisions and regulations regarding sales employees have not
been updated to reflect various technological changes--such as
the increased use of computers, modems, facsimile machines, and
the Internet--which have dramatically altered the way in which
sales employees perform the duties of their job.
Outside sales employees, many of whom perform the same
duties as their inside sales counterparts, are exempt from the
FLSA's minimum wage and overtime provisions because they sell
from outside of their employer's place of business, traveling
to the customer's business establishment. While this may have
been a typical way of conducting business in years past,
technological advances in communication have enabled many
outside sales employees to become more productive by working
from within their employer's business establishment. However,
once the sales employee is working primarily from within the
employer's business establishment, the individual no longer
qualifies for the exemption from minimum wage and overtime.
In today's highly-competitive global marketplace, many
individuals earn a living by selling goods and services to
customers across the continent or across the globe. The pay
structure of many of these sales employees is determined, in
part, by how much they sell and many are compensated through
bonuses, commissions or incentive pay. Thus, for some
individuals the FLSA has the ironic effect of preventing them
from reaching their full income potential. For example, a sales
employee may be restricted from working more than 40 hours per
week because of the additional overtime cost to the employer.
Yet, this has the unintended effect of placing a ceiling on the
employee's income because he or she is prevented from working
additional hours to generate additional sales and increase
earnings.
Ms. Deborah Siday, Vice President of Human Resources for
Atlantic Food Services, articulated the problem to the
Subcommittee on Workforce Protections:
Under the Fair Labor Standards Act as currently
written, these inside sales people, who operate from
within our facility primarily by phone, fax, or
computer, must be paid overtime for all hours worked
over 40 in 1 week. While this requirement might at
first glance appear to be the most profitable method of
compensation for these employees, in practice it merely
serves to reduce their actual earnings potential.\11\
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\11\ ``Hearing on the Treatment of Inside Sales Personnel and
Public Sector Volunteers under the Fair Labor Standards Act,'' The
Subcommittee on Workforce Protections, Committee on Education and the
Workforce, U.S. House of Representatives, 105th Congress, First
Session, May 13, 1997, Serial No. 105-30, p. 22.
Mr. Anthony L. Williams, an employee who works as an inside
sales associate with Ferguson Enterprises, told the
Subcommittee on Workforce Protections why he would like to see
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changes made to the FLSA:
Number one, I consider myself a professional salesman
and would like to be treated as such. Number two, the
law as it currently stands is antiquated and does not
reflect employee needs as we approach the 21st
century.\12\
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\12\ Ibid., p. 18.
Mr. Williams testified in favor of changing the application
of the 1938 Fair Labor Standards Act as it relates to inside
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sales employees. In his view,
. . . the inside sales force is certainly every bit as
professional, knowledgeable and well trained as the
outside sales force. We deserve to be seen as such by
the wage and hour laws.
. . . consider that the inside salesperson of today
didn't exist when these laws under which we operate
were initially written. Just as the office environment
of today with faxes, beepers, telephones, PCs, voice
mail and everything else was inconceivable in 1938, so
was the aspect of the inside sales profession in which
I operate.
. . . Today's inside sales position was just unknown
in 1938. Just as telecommunications and about
everything else in our world has changed in 60 years,
it is time for this area of the law to adapt to today's
marketplace as well, to reflect reality.\13\
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\13\ Ibid., p. 20.
Ms. Leronda Lucky, an employee who works as an inside sales
associate with the Berry Company in Ohio, also testified in
favor of changing the FLSA to classify commissioned inside
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sales employees as exempt. As Ms. Lucky told the Subcommittee--
I am in this business because I am a salesperson. My
motivation to sell is the earning potential that I
have. My choice is to be paid on a commission basis. I
would like to be able to work as many hours as possible
and earn as much money as possible for me . . .
Unless I have prior approval, I am restricted to
working 40 hours per week due to a law passed in 1938,
a time when people did not have telephones, let alone
conducted sales over the telephone.
There is also a very important customer service
component to my job. My clients do not necessarily have
9-to-5 work hours. Many start their day early in the
morning and work until late in the evening. I need the
flexibility to determine when I need to meet with the
customers on their hours. Being an exempt employee
would provide for that flexibility.\14\
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\14\ Ibid., p. 21.
Many employees who are classified as exempt under the FLSA
are less restricted by law and often are permitted by their
employers to have much more flexibility in their schedules than
nonexempt employees. This very issue was highlighted by Ms.
Lucky, who told the Subcommittee how her experience and job
duties as a nonexempt inside sales employee compares with that
of many of her exempt colleagues who work outside of the
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office:
. . . I feel that I should not be treated any
differently than my co-workers who sell the same
product, receive the same training, and use the same
marketing techniques as I do, but do so outside the
employer's office. We do the exact same things, but
because of a law established 60 years ago, prior to
advancements in technology, I am treated differently. I
do not believe this is fair or right. I am motivated by
the same things as these employees.\15\
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\15\ Ibid., p. 22.
The Committee recognizes that the constraints under current
law frequently work against many highly-trained, highly-skilled
sales employees by restricting their ability to achieve greater
earnings. Thus, the Committee believes that the FLSA should be
updated to more accurately reflect the duties and functions of
inside sales employees and to provide employees who are highly
motivated with the opportunity to increase their wages.
legislation
H.R. 2888 amends section 13(a) of the FLSA \16\ to exempt
certain specialized sales employees from the FLSA's minimum
wage and overtime compensation and record-keeping requirements.
The exemption consists of a two-prong test: first, the employee
must meet the requirements in the bill which outline specific
functions and duties of the job; second, the employee's pay
structure must meet the minimum requirements in the bill for a
specified amount of base compensation in addition to
compensation which is based on sales made by the employee.
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\16\ 29 U.s.C. Sec. 213(a).
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The bill applies to employees whose principal activity is
making sales. In order to qualify for the exemption, an
individual employed in a sales position must possess
specialized or technical knowledge related to the products or
services being sold. The employee would have to possess more
than a general familiarity with the products or services being
sold. A sales employee who offers different services or
products to customers based on the varying needs of each
customer using the employee's own training or experience would
have a specialized knowledge of the products or services being
sold in order to make appropriate recommendations to the
customer. This exemption is not intended for employees who
merely take orders over the telephone or utilize a prepared
script, such as, telemarketing sales employees. This type of an
employee would not meet the requirement for possessing
specialized or technical knowledge about the products or
services being sold.
Several additional requirements for the exemption are
included in the bill in order to ensure that it is limited to
sales employees who work with and advise customers on behalf of
the employer, rather than to persons engaged in mass ``cold
calling'' of businesses or residences. The bill requires that
either the employee's sales be made predominately to persons or
entities to whom the employee's position has made previous
sales; or that the employee does not initiate sales
contacts.\17\ During the Committee markup, an amendment offered
by Representative Andrews was accepted which further requires
that the employee have a detailed understanding of the needs of
those to whom he or she is selling and requires that the
employee must exercise discretion in offering a variety of
products and services to various customers.\18\
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\17\ The amendment adopted during the Committee on Education and
the Workforce's markup inadvertently substituted the words ``who are''
for the word ``or'' and the word ``make'' for the word ``initiate.''
\18\ The type of discretion which the Committee believes
appropriate to professional sales employees for purposes of H.R. 2888
is similar to that exercised by the sales employees in Reich v. John
Alden Life Insurance Co., 126 F.3d 1, (1st Cir. 1997): ``It is
undisputed that these employees have discretion in choosing which
agents to contact on any given day, and concerning which products to
discuss with each agent. In addition, the marketing representatives
rely on their own knowledge of an agent's business to help tailor
proposals for the agent's end-customers. Further, they must be able to
anticipate the competing products that the agent's customers might be
considering, and distinguish John Alden's offerings from those of
competitors.'' 126 F. 3d at 13. The Secretary of Labor argued that
since Alden's marketing representatives operated within certain
parameters and applied sales techniques given them by the company, they
were ``merely skilled workers.'' The Court of Appeals rejected the
Secretary's argument that sales employees who operate within the
employer's instructions do not exercise the requisite level of
discretion: ``These employees do not use prepared scripts or read from
required verbatim statements, nor do they operate within the contours
of a prescribed technique or `sales pitch.' On the contrary, the
content of a given conversation with an agent is dictated by the needs
or customer base of that agent, or by the particular information sought
by the marketing representative during that phone call. Further, to the
extent that the marketing representatives receive guidance about
products to emphasize and suggested points to make with agents, they
nonetheless exercise discretion in applying this instruction--for
instance, in determining which agent may have an interest in that
product, or in fashioning bid proposals that meet the needs of the
agent's customers. (citing case) In light of all this, we concur that
the marketing representatives `are not merely skilled workers who
operate within a strict set of rules. Rather, they exercise significant
discretion in their daily contacts with various insurance agents.' ''
126 F.3d at 14.
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With regard to compensation, in order to qualify for the
exemption the employee must receive a base compensation amount,
determined without regard to the number of hours worked by the
employee, of not less than an amount equal to one-and-one-half
times the minimum wage in effect under section 6(a)(1) of the
FLSA,\19\ multiplied by 2,080. Currently this would require
that the employee be paid at least $16,068, without regard to
hours worked. The bill provides that if the employee does not
work for the employer for an entire calendar year, the base
compensation can be prorated to reflect the compensation which
would have been earned if the employee had been compensated at
the same rate for the entire calendar year.
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\19\ 29 U.S.C. Sec. 206(a)(1).
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In addition to receiving base compensation as described in
the preceding paragraph, in order to qualify for the exemption
the employee must receive compensation-commission income-based
upon each sale attributable to the employee. The Committee is
aware of the fact that sales commission arrangements vary
tremendously among different industries and employers, and may
vary by type of product or cost of product. For example, an
employer may set a higher commission rate for new products as a
way of encouraging their introduction into the marketplace.
Similarly, in some companies, sales employees are paid
commissions on the value of all sales by the employee or a
group of sales employees. The bill does not attempt to
``straitjacket'' these various sales and commission
arrangements, but the employer must have a reasonable method of
assigning sales to each employee and allocating commissions to
each sale made.
The bill requires that the total amount of compensation
from these commissions, or sales attributable to the employee,
must be at least 40 percent of one-and-one-half times the
minimum wage in effect under section 6(a)(1) of the FLSA
multiplied by 2,080. Currently, this requires that the sales
employee receive a minimum commission compensation of
$6,427.20.
With regard to the employee's compensation which is based
upon each sale attributable to the employee beyond that
required to attain the previous requirement of 40 percent of
one-and-one-half times the minimum wage multiplied by 2,080,
the employer must continue to pay the same rate of compensation
as that which was paid to the employee to meet the bill's
requirement for aggregate compensation based upon the
employee's sales. In other words, the employer cannot reduce
the inside sales employee's commission rate or rates once the
employee has earned $6,427.20 (based on the current minimum
wage) in commission income.
Finally, an amendment offered by Representative Carolyn
McCarthy was accepted which stated that the exemption in the
bill does not apply to individuals who are employed as route
sales drivers.\20\
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\20\ H.R. 2888 does not address or affect in any way the existing
exemptions under the FLSA for ``outside sales'' employees under section
13(a)(1) or for sales employees of retail and service establishments
under section 7(i).
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The Committee believes that H.R. 2888 will give many sales
employees who are highly motivated and highly skilled, the
opportunity to increase their earnings by removing them from
the confines of the 40-hour workweek and allowing them to
increase their earnings by increasing their sales. Many of
these employees could earn more income from generating
additional sales than could otherwise be made through overtime
compensation.
In a letter to the Chairman of the Education and Workforce
Committee dated March 31, 1998, the Secretary of Labor listed
several objections to H.R. 2888. Most of the Secretary's
objections have to do with the alleged burden on employers of
meeting the bill's conditions for the inside sales exemption.
Of course, the exemption is not mandatory and an employer may
choose not to make employees eligible for the exemption. The
Secretary also argues that the bill will subject employees to
long hours of work with little or no additional pay. The
Committee believes that the specter of employers forcing their
professional and skilled sales force to spend long hours in the
office, against the employee's wishes, when they are not making
additional sales (and thus increasing their income) is simply
not realistic. The Committee believes that H.R. 2888 allows
these sales employees to perform their jobs more effectively by
allowing them to schedule their work hours in such a way as to
maximize sales and increase their own earnings.
Summary
H.R. 2888 would create a new exemption from minimum wage
and overtime for any employee in a sales position if the
employee has specialized or technical knowledge related to the
products or services being sold; if the sales are made
predominately to persons or entities to whom the employee has
made previous sales, or if the employee's position does not
involve initiating sales contacts; if the employee has a
detailed understanding of the needs of those to whom he or she
is selling; and if the employee exercises discretion in
offering a variety of products and services.
In addition, H.R. 2888 would require that the employee
receive base compensation--determined without regard to the
number of hours worked by the employee--of not less than one-
and-one-half times the minimum wage in effect under section
6(a)(1) of the Fair Labor Standards Act, multiplied by 2,080;
and an additional amount of compensation equal to at least 40
percent of the employee's base compensation which is based on
each sale attributable to the employee.
The employee must receive additional compensation based on
each sale, beyond that which is necessary to meet the previous
requirement for 40 percent of the employee's base compensation.
The amount of additional compensation must be determined at the
same rate or rates which was used to determine the portion of
the employee's compensation which is equal to at least 40
percent of the employee's base compensation. The exemption made
by H.R. 2888 shall not be construed to apply to individuals who
are employed as route drivers.
Section-by-Section Analysis
Section 1
``The Sales Incentive Compensation Act''.
Section 2
Amends section 13(a) of the Fair Labor Standards Act of
1938 to provide an exemption for any employee employed in a
sales position if:
(A) the employee has specialized or technical
knowledge related to the products or services being
sold;
(B) the employee's sales are made predominately to
persons who are entities to whom the employee's
position has made previous sales; or the employee's
position does not involve making sales contacts;
(C) the employee's position requires a detailed
understanding of the needs of those to whom the
employee is selling;
(D) the employee's position requires the employee to
exercise discretion in offering a variety of products
and services;
(E) the employee receives base compensation,
determined without regard to the number of hours
worked, of not less than one-and-one-half times the
minimum wage, in effect under section 6(a)(1) of the
Fair Labor Standards Act, multiplied by 2,080; and an
additional amount of compensation based upon each sale
attributable to the employee;
(F) the employee's aggregate compensation based upon
sales attributable to the employee is not less than 40
percent of one-and-one-half times the minimum wage
multiplied by 2,080;
(G) the employee receives a rate of compensation,
based upon each sale attributable to the employee,
which is beyond sales required to reach the
compensation required by (F) and which is not less than
the rate on which the compensation required by (F) is
determined; and
(H) the rate of annual compensation or base
compensation for any employee who did not work for an
entire calendar year is prorated to reflect annual
compensation which would have been earned if the
employee had been compensated at the same rate for the
entire calendar year.
Section 3
The amendment made by section 2 may not be construed to
apply to individuals who are employed as route sales drivers.
Explanation of Amendments
The Amendment in the Nature of a Substitute is explained in
the body of this report.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch. This bill amends the Fair Labor Standards Act by
exempting certain inside sales personnel from the overtime pay
requirements of the Fair Labor Standards Act. The bill does not
prevent legislative branch employees from receiving the
benefits of this legislation.
Constitutional Authority Statement
The Fair Labor Standards Act has been held to be a
constitutional use of the Commerce power under United States v.
Darby (S. Ct. 1941) and Garcia v. The San Antonio Metropolitan
Transit Authority (S. Ct. 1985). This bill's creation of an
exemption to certain of the Acts provisions would not further
extend the reach of the Fair Labor Standards Act, and as such
is constitutional.
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act requires a statement of whether the provisions of
the reported bill include unfunded mandates. This bill amends
the Fair Labor Standards Act by exempting certain inside sales
personnel from the overtime pay requirements of the Fair Labor
Standards Act. As such, the bill does not contain any unfunded
mandates.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 2(l)(3)(A) of Rule XI and clause
2(b)(1) of Rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the body of this report.
Statement of Oversight Findings of the Committee on Government Reform
and Oversight
With respect to the requirement of clause 2(l)(3)(D) of
Rule XI of the Rules of the House of Representatives, the
Committee has received no report of oversight findings and
recommendations from the Committee on Government Reform and
Oversight on the subject of H.R. 2888.
Committee Estimate
Clause 7 of Rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 2888. However, clause 7(d) of that rule provides that this
requirement does not apply when the Committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 403 of the Congressional Budget Act.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirements of clause 2(l)(3)(B) of
Rule XI of the House of Representatives and section 308(a) of
the Congressional Budget Act of 1974 and with respect to
requirements of 2(l)(3)(C) of Rule XI of the House of
Representatives and section 403 of the Congressional Budget Act
of 1974, the Committee has received the following cost estimate
for H.R. 2888 from the Director of the Congressional Budget
Act:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 9, 1998.
Hon. William F. Goodling,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2888, the Sales
Incentive Compensation Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Christina
Hawley Sadoti.
Sincerely,
James L. Blum
(For June E. O'Neill, Director).
Enclosure.
H.R. 2888--Sales Incentive Compensation Act
H.R. 2888 would amend the Fair Labor Standards Act of 1938
to exempt certain specialized sales employees from provisions
governing minimum wage record-keeping and overtime
compensation. The bill would exempt employees working in
specialized sales positions whose base salary and commissions
total at least $22,495 per year. CBO estimates that enactment
of H.R. 2888 would have no significant impact on the federal
budget. Because the bill would not affect direct spending or
receipts, pay-as-you-go procedures would not apply.
H.R. 2888 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act of 1995
and would impose no costs on state, local, or tribal
governments.
This estimate was prepared by Christina Hawley Sadoti
(federal cost), Marc Nicole (impact on state, local, and tribal
governments), and Bruce Vavrichek (impact on the private
sector).
This estimate was approved by Robert A. Sunshine, Deputy
Assistant Director for Budget Analysis.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (existing law proposed
to be omitted is enclosed in black brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
SECTION 13 OF THE FAIR LABOR STANDARDS ACT OF 1938
exemptions
Sec. 13. (a) The provisions of sections 6 (except section
6(d) in the case of paragraph (1) of this subsection) and 7
shall not apply with respect to--
(1) * * *
* * * * * * *
(17) any employee who is a computer systems analyst,
computer programmer, software engineer, or other
similarly skilled worker, whose primary duty is--
(A) * * *
* * * * * * *
who, in the case of an employee who is compensated on
an hourly basis, is compensated at a rate of not less
than $27.63 an hour[.];
(18) any employee employed in a sales position if--
(A) the employee has specialized or technical
knowledge related to products or services being
sold;
(B) the employee's--
(i) sales are predominantly to
persons who are entities to whom the
employee's position has made previous
sales; or
(ii) position does not involve making
sales contacts;
(C) the employee's position requires a
detailed understanding of the needs of those to
whom the employee is selling;
(D) the employee's position requires the
employee to exercise discretion in offering a
variety of products and services;
(E) the employee receives--
(i) base compensation, determined
without regard to the number of hours
worked by the employee, of not less
than an amount equal to one and one-
half times the minimum wage in effect
under section 6(a)(1) multiplied by
2,080; and
(ii) in addition to the employee's
base compensation, compensation based
upon each sale attributable to the
employee;
(F) the employee's aggregate compensation
based upon sales attributable to the employee
is not less than 40 percent of one and one-half
times the minimum wage multiplied by 2,080;
(G) the employee receives a rate of
compensation based upon each sale attributable
to the employee which is beyond sales required
to reach the compensation required by
subparagraph (F) which rate is not less than
the rate on which the compensation required by
subparagraph (F) is determined; and
(H) the rate of annual compensation or base
compensation for any employee who did not work
for an employer for an entire calendar year is
prorated to reflect annual compensation which
would have been earned if the employee had been
compensated at the same rate for the entire
calendar year.
* * * * * * *
ADDITIONAL VIEWS
The product of significant bipartisan cooperation, H.R.
2888 represents a positive modernization of the FLSA and will
bring practical and significant improvements to workers and
employers alike. As originally introduced, the bill achieved
the intended goal of benefiting inside salespeople while not
harming other workers who deserve to retain their overtime
rights. In doing so, it did not disturb the important
protections and philosophy of the FLSA. Instead, it proposed
reform based on the principles of fairness and opportunity, and
we were glad to offer our support as cosponsors.
Following its introduction, H.R. 2888 has been subsequently
amended in a bipartisan fashion to provide even more clarity
about who it affects and who it does not. These amendments
serve to further improve the bill, making it a product which
deserves the support of the full House.
In specific, two amendments to the bill provided additional
guidance about the range of affected employees. First, Ms.
McCarthy's amendment made crystal clear the understanding that
the bill's exemption does not apply to individuals who are
employed as route sales drivers. This understanding was and
continues to be widely-held; the amendment simply reinforces
beyond doubt the inapplicability of the bill to these
employees.
Similarly, the amendment offered by Mr. Andrews simply
clarified that the employees to be exempted must indeed be
professional salespeople; as such, the employees must be well-
versed in the specific characteristics of both the products and
the clients. In order to exercise independent and autonomous
judgment and to provide consultative advice, the salesperson
must know a great deal about the clients' needs. This type of
client-specific information cannot be gained through cursory
contact, but rather results only through on-going and regular
contact with the client.
These two amendments remove any doubt about the type of
employees covered by the bill. The amended legislation,
therefore, represents a well-crafted effort to improve
compensation opportunities for workers and employers. By both
preserving the FLSA's protections and expanding worker
opportunity, H.R. 2888 offers sensible and modernizing reform.
We are pleased to offer our full support and to commend the
bill for positive consideration by the full House.
Robert E. Andrews.
Harold E. Ford, Jr.
Carolyn McCarthy.
Tim Roemer.
Ron Kind.
MINORITY VIEWS
The proponents of H.R. 2888 believe that overtime pay
requirements limit the number of hours an employee may work. We
take an almost diametrically opposed view. By requiring
employers to pay time-and-a-half for hours worked in excess of
40 hours a week, the overtime provisions act to ensure that
workers have sufficient time off to care for themselves and
their families. It also ensures that workers who are required
to work extra hours are fairly compensated. Further, we believe
that the absence of the protection afforded by overtime would
not only result in workers receiving less pay for hours worked
in excess of 40 hours a week, but would serve to diminish an
employees regular pay as well.
H.R. 2888 has been justified by its proponents on the basis
that: (1) outside sales persons are exempt from overtime and
therefore inside sales persons should be as well; (2)
eliminating the overtime requirement will provide employees
greater flexibility in determining their own hours; and (3)
eliminating the requirements to pay overtime will enable
workers to increase their income. None of these rationales
withstands close scrutiny.
i. h.r. 2888 punishes workers for advances in technology
Though H.R. 2888 contains no language limiting its
applications only to inside sales persons, its proponents have
often described the bill as being limited to ``inside sales''
workers. Outside sales persons are currently exempt from
overtime because such individuals typically and necessarily
spend a large amount of time in activities that are not
directly productive, such as travel. No similar justification
is applicable to inside sales persons. Unlike outside sales
persons, inside sales persons are directly engaged in making
and processing sales during their entire time at work. Since
the employer is receiving a direct benefit from the employee's
labors throughout the employee's work period, there is no
justification for denying the employee fair compensation when
the employee is required to work more than 40 hours a week.
We certainly agree with the proponents of the legislation
that remarkable advances in communications technology have
encouraged more employers to bring the outside sales force
indoors and have allowed sales forces to become more efficient.
However, we believe that workers, as well as employers, should
share the benefits of that efficiency. Technology has enabled
employers to ensure that a sales person's entire time at work
is spent directly in productive activity and thereby has
enhanced an employer's ability to earn a profit. That same
technology cannot and should not serve as a basis for
diminishing a worker's income or requiring workers to work even
longer hours. For more than 60 years, inside sales persons have
been entitled to overtime for hours worked in excess of 40
hours a week.\1\ The fact that more sales persons are now able
to work inside and fewer must work outside is not a
justification of eliminating overtime. To claim otherwise is to
effectively insist that workers be denied any share of the
profits that result from efficiencies brought about by
technological advances.
---------------------------------------------------------------------------
\1\ In other circumstances, exemptions from minimum wage have been
justified on the basis that employers could not afford to pay time and
a-half. However, since the employees covered by this legislation have
been entitled to overtime for more than 60 years, it is hard to contend
that employees are unable to financially meet that commitment. Indeed,
no one has seriously contended that the exemption is justified on the
basis of the financial hardship that overtime imposes on employers.
---------------------------------------------------------------------------
ii. h.r. 2888 will result in workers being required to work more hours
Proponents of the legislation contend that eliminating the
requirement that employers pay overtime will provide employees
a more flexible work schedule. However, nothing in H.R. 2888
alters or changes the fact that it is the employer, not the
employee, who controls when and how long a worker may be
required to work. Other than overtime pay provisions, nothing
limits the hours an employee may be required to work.
H.R. 2888 exempts employees from overtime if they receive a
base compensation, determined without regard to the number of
hours worked, of not less than one and one-half times the
minimum wage multiplied by 2,080 (the equivalent of a year's
work at 40 hours a week, presently $16,078.40 \2\), and
additional compensation, in the form of commissions or bonuses
based upon sales attributable to the employee, of not less than
40% of the minimum required base compensation (which is
$6,431.36 \3\).\4\ Thus H.R. 2888 exempts an employee from
overtime pay protection if an employee earns $16,078.40 a year
either in hourly wages or as a salary, and earns an additional
$6,431.36 annually in commissions. An employee who earns these
threshold amounts is not entitled to overtime pay, or even
additional wages for hours worked. However, an employer must
continue to pay commissions for sales attributable to the
employee and may not reduce the commission paid per sale below
the commission per sale paid for the first $6,431.36 worth of
commissions.
---------------------------------------------------------------------------
\2\ See H.R. 2888, Sec. 2, at subparagraph ``(C) clause (i)''.
\3\ Id. at subparagraph ``(C) clause (ii)'' and subparagraph
``(D)''.
\4\ Id. at subparagraph ``(E)''.
---------------------------------------------------------------------------
We believe H.R. 2888 not only eliminates the requirement
that workers be paid time-and-a-half, thereby eliminating any
disincentive an employer may have to requiring excessive hours
of work, but it, in fact, encourages employers to require
employees to work overtime by permitting employers may pay 60%
less in compensation for hours worked in excess of 40 hours a
week than an employer is required to pay for the first 40 hours
worked. To most employees, increasing workplace flexibility
means permitting employees to choose for themselves when they
will work. Requiring workers to work more hours, and to be
compensated for those extra hours, if they are compensated for
them at all, at only 40% of their normal rate of pay simply
serves to exploit workers, rather than enhancing worker
flexibility or earning opportunities.
In order to ensure that employees subject to H.R. 2888
truly had the right to ``choose'' overtime work without
overtime pay, Rep. Owens offered an amendment in Committee to
make overtime work voluntary. It stated that such employees
could not be required to work more than 8 hours a day, or 40
hours a week. The amendment would have ensured that employees
could choose whether they wished to work more hours in order to
earn more money. Unfortunately, this amendment was rejected by
the Committee.
H.R. 2888 creates a very powerful economic incentive for an
employer to require an employee to work as many hours as
possible, and thus diminishes rather than enhances workers'
flexibility. If the intent of this legislation is to benefit
workers, then the choice to work overtime must belong to the
worker.
iii. h.r. 2888 will diminish, rather than enhance, workers' income
Proponents contend that by eliminating the requirement that
employers pay overtime, H.R. 2888 eliminates the incentive that
employers have to restrict the number of hours an employee
works and therefore will enhance the earning ability of workers
by permitting them to work longer hours and earn more
commissions. We agree that enactment of H.R. 2888 will result
in workers working longer hours, though not as a consequence of
the employee's choice. We dispute whether or not employees will
actually earn more money as a consequence.
Al that H.R. 2888 literally provides is that an employer
may require an employee to work unlimited hours without being
required to pay more than a base salary of $16,078.40 per year
and annual commissions of at least $6,431.36 to the employee.
Although it is impossible to tell who is actually covered by
H.R. 2888, the employees most likely to be impacted by H.R.
2888 include non-retail sales representatives, of whom the 1996
Occupational Employment Statistics survey by occupation
identified 1,485,420 individuals. In 1996, these almost 1.5
million workers had an average hourly wage of $19.21, $39,957 a
year assuming an individual works 2080 hours a year.\5\ Most of
these employees, with the exception of those in the computer
industry who have annual incomes in excess of $57,000, are
currently receiving overtime pay. By the terms of H.R. 2888,
employees making only 56% of the current annual earnings of
sales representatives will be exempted from
overtime.5.1
---------------------------------------------------------------------------
\5\ The term sales representative encompasses a vast and disparate
population in virtually every industry and the disparity in income
earned by sales representatives is reflective of this fact. There are
sales representatives, such as those who sell communication and
computer systems to large employers, who earn annual incomes in excess
of $100,000 a year. For purposes of the Fair Labor Standards Act
(FLSA), the Department of Labor typically defines professional in terms
of a job requiring a post-graduate college education as a typical
condition of employment. While certainly some sales representatives may
qualify as professionals under the current rules, others, including
some who make substantial incomes, do not. College curriculums do not
necessarily conform in a timely manner to technological advances. The
Congress took cognizance of this fact in 1990 with regard to the
computer industry. At the time, there were many occupations in that
industry which clearly required specialized, professional expertise,
and which were compensated accordingly, but for which there was no
corresponding advanced college degree. While professional status has
typically been measured largely by educational achievement, another
measure of professional status is reflected by the compensation that
the skills and knowledge of the worker are able to command. The
Congress, therefore, amended the FLSA to provide that employees in the
computer industry making 6.5 times the minimum wage would be deemed
professionals and therefore exempt from overtime. (In the last
Congress, when the minimum wage was increased, the provision was
changed from 6.5 times the minimum wage to 6.5 times $4.25.) An
extension of that provision to sales representatives would likely have
attracted much less opposition. However, to contend that employees
making as little as $22,500 a year are earning ``professional''
salaries is ludicrous.
\5.1\ A full-time employee who is paid a salary equal to 1.5 times
the minimum wage, $7.73 per hour, and earns additional commissions
equal to a rate of $3.10 per hour is exempt from overtime under this
legislation. An employee who is earning less than $11.00 an hour is not
highly compensated employee and probably needs to be able to earn
overtime in order to be able to make ends meet. However, not only does
H.R. 2888 deny this employee overtime, but it provides that hours
worked in excess of 40 hours a week will only be compensated for in
commissions. Whereas the employee normally earns the equivalent of
$10.83 per hour, including commission and base compensation, for the
first forty hours worked in a week, for every hour in excess of that
the employee will only earn the commission. Assuming the employee is
able to make sales at the same rate outside of the normal work day that
the employee is able to make during the normal work day, the employee
will only earn $3.10 per hour for hours in excess of 40 hours a week
instead of the normal $10.83 per hour paid to the employee for the
first 40 hours worked. If the employee is required to work extra hours,
but fails to make any additional sales during that time, the employee
is not compensated at all for the extra hours the employee was required
to work.
---------------------------------------------------------------------------
The contention by proponents that $22,509.76 reflects a
``professional'' wage or specialized expertise on the part of
the employee is also false. In 1996, the median full-time,
full-year worker earned $28,000 and the average annual earnings
for workers was $25,500. In fact, $22,509.76 is more typical of
the starting pay for sales representatives than it is of the
average pay earned by most sales representatives. Establishing
the guaranteed annual income at such a paltry level guarantees
that virtually no sales representative will be excluded from
the overtime exemption on the basis of insufficient
earnings.5.2
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\5.2\ In Committee, Mr. Owens offered an amendment to provide that
employees subject to H.R. 2888 must earn at least $40,000 in total
annual income before they can be exempted from overtime. The intent of
the amendment was to at least mitigate the effect that H.R. 2888 would
have on lower paid workers and decrease the downward pressure H.R. 2888
will otherwise have on workers' income by ensuring that those making
less than the average wage for sales representatives would retain
overtime protection.
---------------------------------------------------------------------------
Notwithstanding the assertions of the proponents of H.R.
2888, this legislation does not benefit workers. Rather, the
legislation appears to be intended to provide a windfall to
employers at the expense of workers. Virtually all reputable
economic studies indicate that the income disparity between the
wealthy and everyone else continues to increase. Despite the
strong labor markets of recent years, both the real average
hourly wages and the weekly earnings of non-supervisory workers
fell by 1.5 percent between 1989 and 1997. We should be
considering legislation, such as legislation increasing the
minimum wage, to address and correct these trends. Instead, by
permitting employers to require workers to work longer hours
for less money, this legislation effectively exacerbates these
trends.
IV. H.R. 2888 promotes burdensome compliance obligation and excessive
litigation
Our strongest objection to H.R. 2888 is the damage it will
inflict upon those workers unfortunate enough to be held within
the purview of the bill. There are, however, other significant
flaws in the legislation. As Representative Owens stated during
subcommittee consideration of this legislation, ``Among the
first questions any Member of Congress should ask in
considering this legislation is how many employees will lose
the protection afforded by overtime if this legislation is
enacted.'' In fact, no one can answer that question. Even the
most basic questions regarding the scope of this legislation
are unclear. By its terms, the bill applies to ``any employee
employed in a sales position.'' It would then appear that the
bill effectively replaces existing overtime exemptions
affecting sales persons, though the sponsors have never
indicated that such was their desire. The more prosaic issues
raised by the legislation are a litigator's dream.
Under the terms of H.R. 2888, to be exempt from overtime,
the employee must have ``specialized or technical knowledge
related to the product or service being sold.'' \6\ The
Department looks at whether a position typically requires a
post-graduate degree to determine whether or not the
specialized or technical knowledge required for the position is
sufficient to exempt employees from overtime. One of the
principal purposes of H.R. 2888 is substitute a different
standard with regard to sales positions. However, H.R. 2888
provides no basis for assessing or determining what constitutes
specialized or technical knowledge. Nor are the terms
sufficiently clear as to lend themselves to a common
understanding. H.R. 2888 is, therefore, likely to produce
significant confusion and litigation if it is enacted.
---------------------------------------------------------------------------
\6\ See H.R. 2888, Sec. 2, at subparagraph ``(A)''.
---------------------------------------------------------------------------
Secretary Herman, in a letter to the Committee, stated that
the legislation places substantial, almost impossible, burdens
or employer record keeping:
Proper application of the exemption will require
employers to maintain extensive records, for example:
(1) the specialized or technical knowledge required to
sell each product and/or service; (2) the amount and
timing of training provided to each salesperson on each
product and/or service; and (3) the rate of incentive-
based compensation paid to each salesperson after the
40 percent of base pay incentive-based compensation
requirement has been met.
Further, while exempting some sales representatives for
overtime, the bill covers only those employees whose duties
``consist of making sales predominantly to persons or entities
to whom the employee's position has made previous sales'' \7\
and only if the employee's position ``does not involve
initiating sales contacts.'' \8\ In addition, employers must be
prepared to demonstrate that the employee has a ``detailed
understanding of the needs of those to whom the employee is
selling'' \9\ and exercises ``discretion in offering a variety
of products and services.'' \10\ There will likely be extensive
litigation before what constitutes ``entities to whom the
employee's position has made previous sales'' is defined,
before it is clear what ``predominantly'' means, or what
constitutes ``initiating sales contacts'' or a ``detailed
understanding of the needs of those to whom the employee is
selling.'' Even after the initial round of litigation, the
obligation of maintaining records sufficient to demonstrate
that employer was justified in withholding overtime pay would
seem substantial and the issue of just what records would be
sufficient to meet that burden is likely to remain murky.
---------------------------------------------------------------------------
\7\ Id. at subparagraph ``(B) clause ``(i)''.
\8\ Id. at subparagraph ``(B)'' clause ``(ii)''.
\9\ Id. at subparagraph ``(C)''.
\10\ Id. at subparagraph ``(D)''.
---------------------------------------------------------------------------
Conclusion
We are strongly opposed to H.R. 2888. The principal
rationale that has been proffered to justify this legislation,
that the requirement that employers pay overtime acts to
diminish the wages of employees, is as nonsensical as it
appears on its face. The assertion that workers will benefit by
eliminating the requirement that certain sales persons receive
time-and-a-half pay for hours worked in excess of 40 hours a
week is absurd. The legislation exempts employees earning as
little as $22,509.76 a year, 12% below American workers'
average annual earnings, from overtime on the basis that they
are professional employees with specialized expertise. If the
employee is, in fact, a professional employee with specialized
expertise, then surely the employee would merit a significantly
higher income for his or her services.
This legislation is distinct from other existing overtime
exemptions. H.R. 2888 not only exempts employers from the
requirement that they pay time-and-a-half for hours worked in
excess of 40 hours a week, it exempts employers from the
requirement that they pay an employee any wage at all for
overtime hours. H.R. 2888 requires that employers pay
commissions on such sales as are made during the overtime
period, but does not require an employer to provide any
additional compensation. The consequence H.R. 2888 has for
workers was clearly pointed out by the Secretary of Labor.
The overall design of the expanded exemption clearly
shifts business risk from employers to employees.
Employees who work long hours but are unable, for
whatever reason, to make significant sales will receive
little or no additional pay for the extra hours they
work. The employer can not lose in this situation, but
the employees certainly will.
U.S. Department of Labor,
Secretary of Labor,
Washington, DC, March 31, 1998.
Hon. William F. Goodling,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
Dear Chairman Goodling: I am writing to provide you with
the views of the Department of Labor on H.R. 2888, the ``Sales
Incentive Compensation Act,'' which would amend the Fair Labor
Standards Act (FLSA) by providing a minimum wage and overtime
exemption to all sales people who meet certain criteria.
H.R. 2888 has no provision requiring additional
compensation for sales employees who may be forced to work long
hours. This would deny FLSA protection for significant numbers
of often low-paid workers who have long received such
protection. The Department believes that expansion of the FLSA
``sales'' exemptions would weaken a basic principle of the
FLSA--to limit excessive hours of work by employees and provide
them just compensation for working overtime.
H.R. 2888 incorporates several important worker protections
and guarantees, and in this regard we believe that the bill
represents an improvement over previous bills with such
purpose. Our careful review of the proposal, however, raises
several concerns regarding these protections, including:
The overall design of the expanded exemption clearly
shifts business risk from employers to employees.
Employees who work long hours but are unable, for
whatever reason, to make significant sales will receive
little or no additional pay for the extra hours they
work. The employer cannot lose in this situation, but
the employees can.
The requirement that the exempt ``employee's position
requires specialized or technical knowledge related to
products or services being sold,'' whether further
defined by regulation or in the legislative history, is
so vague and subject to differences in understanding
and application that there will undoubtedly be an
increase in the already high levels of private
litigation involving sales employment.
Determining when and how this complicated, multi-test
exemption applies will be very difficult for employers,
employees and the Department of Labor. This difficulty
too will undoubtedly lead to misunderstandings,
disputes and litigation.
Proper application of the exemption will require
employers to maintain extensive records, for example:
(1) the specialized or technical knowledge required to
sell each product and/or service; (2) the amount and
timing of training provided to each salesperson on each
product and/or service; and (3) the rate of incentive-
based compensation paid to each salesperson after the
40 percent of base pay incentive-based compensation
requirement has been met.
For these reasons, the Department opposes the bill's
expansion of the FLSA ``sales'' exemptions to sales employees
in all industries. The Office of Management and Budget has
advised that there is no objection to the presentation of this
report from the standpoint of the Administration's program.
Sincerely,
Alexis M. Herman.
William L. Clay.
Dale E. Kildee.
Major R. Owens.
Patsy T. Mink.
Lynn Woolsey.
Chaka Fattah.
George Miller.
Matthew G. Martinez.
Donald M. Payne.
Bobby Scott.
Carlos Romero-Barcelo.
Ruben Hinojosa.
John F. Tierney.
Dennis J. Kucinich.