Employment Laws for Commission-Only Salespeople in Texas
The majority of wage and hour laws that pertain to commission-only salespeople in the state of Texas are based mostly on federal standards from the United States Department of Labor (U.S. DOL). Great care should be taken to ensure that salespeople are classified and, by extension, paid correctly to ensure compliance with the law.
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Federal Labor Guidelines Apply
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The Texas Workforce Commission lays out the U.S. DOL standards at great length. These standards are fleshed out even more on the U.S. DOL website. Two major tenets exist that must be heeded when determining how a salesperson can be legally paid. The first rule is that job duties determine U.S. DOL classification. Job title, in and of itself, is not relevant when classifying an employee. The other rule is that paying someone only commission is something that should be limited to outside, as opposed to inside, salespeople. This distinction is very important.
Outside vs. Inside Sales
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Another way of portraying the distinction between inside and outside sales is to take note that inside sales people are employees and outside salespeople are contractors. If you know Internal Revenue Service (IRS) regulations regarding these two types of workers, you know that this difference is not inconsequential. Employees must be paid via minimum wage. On the other hand, the wages of outside salespeople are reported via Form 1099 with no taxes withheld and no minimum or maximum exists as it relates to what they are paid. However, the firm the outside salesperson represents is rather limited in what they can force an outside sales employee to do. The employee cannot work a majority of his time on the site of his employer and the employer cannot extensively regulate how the salesperson does his job.
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Misclassification Can Be Costly
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Classifying a salesperson incorrectly can be a very costly mistake if the Department of Labor and/or the IRS find out. The way the two types are handled is entirely different and the penalties for treating what should be an employee as a contractor and/or paying an inside salesperson like an outside one will often lead to a wage and hour violation. Outside salespeople, otherwise known as commission-only, must be making sales as their primary duty and they should be operating primarily outside of the employer’s location.
Outside Sales Pay Structure
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Typically, inside salespeople are paid a flat wage plus commission and their total wages, unless they are exempt, cannot fall below minimum wage. No such limitation exists for outside salespeople but employers need to be sure the employees qualify as such before treating them in this way. In short, as long as a person is indeed an outside salesperson, the employer is in its right to pay the salesperson in whatever manner it deems to be acceptable as long as the salesperson agrees to the terms and the agreement is strictly adhered to.
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