FAQ: Salesperson Pay

Dealers must be careful about violations of the Fair Labor Standards Act.  These actions can be filed either as individual actions or as group actions in federal court, and they can be lucrative for plaintiffs’ law firms.  In fact, there are law firms springing up around the country that do nothing but FLSA work on behalf of employees. Here are three questions regularly asked with respect to salesperson pay.

Q:   I pay my salespeople draws.  I won’t have a minimum wage problem will I?
A:   That’s not necessarily the case.  If the draw is based on an assumed average work week, employees who claim to have worked more hours may have a minimum wage claim if their commissions during the pay period are not sufficient to pay them the minimum hourly wage for all hours worked.  Have a policy to ensure that salespeople – and others in the company – earn minimum wage.

  • Make sure that there is no doubt about hours worked.  Require that employees clock in and clock out.
  • Pay draws to salespeople on a regular basis – whether weekly or bimonthly.
  • The draw should at least be sufficient to cover the minimum hourly wage per each expected hour worked over an average work week.
  • On the settlement date, check to be sure that each salesperson earned commissions equal to or greater than the minimum hourly wage times the number of hours worked.  If not, pay the employee a supplement.

An action filed under the federal Fair Labor Standards Act can lead to an award for back pay, statutory damages, and attorney’s fees.  A claim filed under a state wage statute (the law requiring that the employer pay what is due the employee) can similarly lead to liability for back pay, penalty in the form of a multiple of the amount owed, and attorney’s fees.

Q:   Do I have to use a time clock for salespeople?
A:   Using a time clock for salespeople is a best practice to protect against FLSA and state wage statute actions.  If you do not require that employees keep time records at all, then each employee will be the sole resource for information about how many hours he or she worked in a time period in the event of any legal action.  Some dealers have addressed this issue by requiring salespeople to fill out time sheets.  However, time sheets are highly suspect because salespeople with timesheets indicating that they worked much less than claimed in a lawsuit can simply testify that they were told to falsify the timesheets and keep the hours dictated by management.  The only sure fire way of appropriately recording time is by a time clock.

Q:   Do I need anything else besides the time clock?
A:   Yes, you need a policy for punching the time clock that you enforce.  Failing to punch in and out at the beginning and end of the day, and during lunch periods, can lead to sloppiness and guess work by the general office.  Allowing employees to have others punch the time clock for them can lead to serious problems.  You must have a policy requiring employees to punch their own time card in and out, and you must enforce the policy.

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