Legal: Pass the test for paying employees

A. We all know that the federal Anti-Kickback Statute does not allow DME suppliers to pay independent contractors a commission-based compensation for performing marketing and sales services, which is why most DME suppliers that want to pay a commission-based compensation hire marketing and sale personnel as full-time or part-time bona fide employees, pursuant to the “employee” safe harbor to the Anti-Kickback Statute. However, it is important for DME suppliers to remember that paying a commission-based compensation to employees may still require the DME supplier to adhere to certain wage and hour laws.

The Fair Labor Standards Act (“FLSA”) establishes a minimum wage and overtime pay for the majority of employees in the United States. However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Most DME suppliers try to fit their marketing and sales employees under the “outside sales employee” exemption.

To qualify for the exemption, the following tests must be met: (1) the employee's primary duty must be making sales; and (2) the employee must be customarily and regularly engaged away from the employer's place or places of business. While the first prong of the test is typically easily met, the second prong may be problematic for some. The Department of Labor has clarified that outside sales does not include: “sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.” Furthermore, any fixed site, including a home or office, that is used by a salesperson as a headquarters or for telephone solicitations, is considered the employer's place of business, even if the employer is not the owner or tenant of the property.

Therefore, an employer must make sure their commission-based employees regularly spend  time outside the office meeting with customers, and are primarily engaged in sales. If not, the DME supplier will be responsible for paying the employee the federal minimum wage and overtime.

Edward Vishnevetsky is an associate with Munsch Hardt Knopf & Harr. Reach him at evishnevetsky@munsch.com or 214-855-7546.