Professional Service Agreement

DOL Simplifies Retail or Service Establishment Exemption

May 19, 2020

Section 7(i) of the Fair Labor Standards Act (“FLSA” or “Act”) provides an exemption from the Act’s overtime requirement for certain commissioned employees employed by a retail or service establishment. To satisfy the FLSA’s “employed by a retail or service establishment” requirement, the employee must be employed by an establishment where 75% of the sales are to the ultimate customer. The U.S. Department of Labor (“DOL” or “Department”) has interpreted “retail or service establishment” as requiring the establishment to have a “retail concept.” Such an establishment typically “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.”

Industries normally considered “retail” by the DOL include the following:

  • Funeral homes and cemeteries
  • Automotive sales;
  • Automotive and tire repair and services;
  • Seasonal amusement or recreational establishments;
  • Restaurants;
  • Hotels;
  • Lumber and building materials dealers; and
  • Gas and fuel dealers.

The DOL has issued a Final Rule that does two things:

  1. Withdraws the “partial list of establishments” that the Department previously viewed as having “no retail concept” and categorically unable to qualify as retail or service establishments eligible to claim the Exemption; and
  2. Withdraws the “partial list of establishments” that, in its view, “may be recognized as retail” for purposes of the Exemption.

The DOL is issuing the Final Rule without notice and comment, and it will take immediate effect.

The major industries that potentially could take advantage of the overtime exemption include:

  1. Contractors: air-conditioning and heating systems, building, construction, painting, plumbing, sheet metal, etc.;
  2. Professional Services: Doctor’s offices, Dentist’s offices, Lawyer’s offices, Accounting Firms, etc.;
  3. Banks: both commercial and savings; and
  4. Ambulance Service Companies.


Under Section 7(i) of the FLSA, employees who meet the following conditions may be exempt from the Act's overtime — but not minimum wage and recordkeeping — requirements:

  • The employee is employed by a retail or service establishment (75% of the company’s sales is to the ultimate customer);
  • The regular rate of pay for such employee exceeds one and one-half times the applicable minimum wage (federal or state – whichever is higher); and
  • More than half (51%) of the employee's compensation for a representative period (not less than one month) constitutes commissions earned.

State law may either prohibit use of the Exemption or place limitations on its use.

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