Understanding Federal Overtime Pay Exemptions for Dealership Employees
Patrick L. Breen , Brian P. Goodman , Robert E. Gregg | 08.21.23
Federal law requires employers, including dealerships, to pay overtime to most employees who work more than 40 hours per week. But there are several exemptions to overtime requirements that may apply to dealership employees. Dealers should familiarize themselves with overtime requirements and exemptions to ensure they comply with federal law when paying employees.
Exemptions for Non-Manager Employees
Several exemptions from overtime requirements may apply to non-manager employees at dealerships.
1. Overtime Pay Exemption Specifically for Dealership Employees
One exemption from federal overtime requirements applies to “salesmen, partsmen, or mechanics” at dealerships who spend more than 50% of their time selling or servicing vehicles or ordering, stocking, and dispensing vehicle parts. This exemption includes most employees involved in selling or servicing vehicles, including service advisors. These individuals are exempt from overtime regardless of whether they are paid on an hourly, salaried, or commissioned basis. However, this exemption does not include employees who spend more than 50% of their time on work that is not sales or mechanical work, such as washing, cleaning, painting, changing tires, installing seat covers, or driving a tow truck.
The dealership employee exemption applies only to dealerships whose main business is selling automobiles, trucks, farm implements, trailers, boats, or aircrafts. Dealerships that also engage in manufacturing are not eligible for this exemption.
2. Overtime Pay Exemption for Commissioned Sales Employees
Another exemption from federal overtime requirements is the retail sales exemption, which applies to commissioned employees of “retail or service establishments.” A “retail or service establishment” is a business for which at least 75% of its sales are retail sales at the end of the distribution stream. Three requirements must be met to for an employee to qualify for the commissioned retail sales employee exemption:
- The employee is employed at a retail or service establishment,
- The employee’s regular pay rate is at least one-and-a-half times the minimum wage in any work week in which the employee works overtime, and
- More than half the employee’s earnings consist of commissions in any compensation period.
This exemption applies to Finance and Insurance (typically referred to as “F&I”) managers.
3. Overtime Pay Exemption for“Outside Sales Employees”
A third exemption from overtime requirements applies to certain sales employees who do most of their work away from the employer’s place of business. This exemption is less likely to apply to dealership employees, but dealerships who employ travelling sales employees should be aware of it.
Exemptions for Managers and Administrators
Additional exemptions may apply to managers, administrators, and other white-collar employees at dealerships. Dealership employees who qualify for these exemptions need to be employed on a salary basis, as defined by federal law, and make at least $684 per week. Additionally, their primary duty must be the performance of executive, managerial, or high-level administrative exempt work related to the operation and management of the dealership.
It is important that dealers know which of their employees may be exempt from federal overtime requirements. It is also important to know that in some cases, state law might require overtime even when federal law provides an exemption from overtime requirements. Sometimes the inconsistencies between state and federal law might appear minor, but they can have a significant legal effect. If you have questions about whether your employees are exempt from overtime requirements under federal or state law, please contact an attorney.
Boardman Clark law clerk Leigha Vilen also contributed to this article.
The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.