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FLSA Overtime Exemption and Staffing

A Jan. 19 opinion letter issued by the Department of Labor at ASA’s request clarifies the overtime exemption, representing a major win for the industry.

At the American Staffing Association’s request, on Jan. 19 the U.S. Department of Labor issued opinion letter FLSA2021-6, affirming that the Fair Labor Standards Act’s “retail or service establishment” overtime exemption can apply to staffing firms. This opinion represents a major win for the industry, and a departure from the agency’s prior position that staffing firms categorically could not qualify for the exemption under any circumstance.

Examining Recent Caselaw

ASA submitted the request in 2019 and argued that the agency’s denial of the exemption’s applicability to staffing contravened recent caselaw. DOL agreed, noting that in light of the U.S. Supreme Court’s decision in Encino Motorcars LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018), FLSA exemptions—including the retail or service establishment exemption, or so-called section 7(i) exemption—should be given a “fair (rather than narrow) interpretation.”

DOL’s opinion letter provides another potential avenue for staffing firms’ internal employees such as recruiters or account managers, who are paid at least 1.5 times minimum wage and receive more than half of their compensation in commissions, to be exempt from overtime under federal law.

Section 7(i) of the FLSA, 29 U.S.C. § 207(i), provides an overtime exemption for employees of a “retail or service establishment” who are paid in excess of 1.5 times the minimum wage, and receive more than half of their compensation, for a representative period, in commissions on goods or services. To qualify as a “retail or service establishment,” an employer must:

  • Engage in the making of sales of goods or services;
  • Have 75% of its sales of goods or services, or both, recognized as retail sales in the particular industry; and
  • Not have more than 25% of its sales of goods or services, or both, result from sales for resale.

DOL opined that because staffing firms provide temporary staffing and permanent recruitment services, they satisfy the sales of goods and services requirement, and the fact that sales are made to commercial entities does not change this conclusion. DOL further stated that staffing firms satisfy the second prong of the legal test because they have a “retail concept” in that they are open to the general public and serve the needs of the community. Finally, DOL stated that so long as resale services constitute 25% or less of total sales, the third legal requirement likely would be met.

Relying on Fact Analysis

DOL concluded that whether a specific staffing firm qualifies as a retail or service establishment will require a fact analysis; for example, a staffing firm that refers candidates to other staffing firms may engage in resale activity that exceeds the 25% threshold. Moreover, qualification as a retail or service establishment does not necessarily mean that individual employees will be exempt under the section 7(i) exemption. Staffing firms, therefore, should consult with their legal counsel with respect to their particular circumstances.

Stephen C. Dwyer is senior vice president, and chief legal and operating officer for ASA. Send your feedback on this article to Follow ASA on Twitter @StaffingTweets.

This material is not intended, and should not be relied on, as legal advice. ASA members should consult with their own counsel about the legal matters discussed here.

<span class="publication-name"><em><em>Staffing Success Magazine</em></em></span> <span class="publication-separator">-</span> <span class="publication-issue">March–April 2021</span>
Originally Published In

Staffing Success Magazine - March–April 2021

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