2 sales tests before you waive overtime pay

The outside-sales test and the commission test are separate sentences with different pay-rule consequences.

Key takeaways for two sales tests before waiving overtime

• Keep the outside-sales test and the commission test separate; they are distinct sentences with different pay-rule consequences.
• Note that the federal rule for outside sales employees states that salary requirements do not apply, according to Legal Information Institute.
• Check state definitions, such as Minnesota’s limit that a salesperson conducts no more than 20 percent of sales on the premises, according to Minnesota Office of the Revisor of Statutes.
• Write the matching test’s words beside your note for the next sales offer to ensure you are applying the correct criteria.

Two different sales tests exist, and only the quoted page says which pay rule drops

The outside-sales exemption requires that the employee be customarily and regularly engaged away from the employer's place or places of business in performing such primary duty, according to Legal Information Institute. This definition ties the exemption to the physical location of the work rather than the type of compensation received.

The term “primary duty” means the principal, main, major or most important duty that the employee performs, according to Legal Information Institute. This definition applies broadly to various exemptions but serves as the baseline for determining if sales is the core function of the role. If an employee spends most of their time on administrative tasks, inventory management, or non-sales activities, they may not satisfy the primary duty requirement even if they occasionally make sales calls. See Check 4 duty tests before you write a salaried offer.

These two tests operate independently. The outside-sales test focuses on where the work happens and what the main job is. The commission test focuses on how the pay is structured. Conflating the two leads to incorrect exemption claims. A hiring manager must verify which specific test applies to the role before waiving overtime pay. The federal regulations define the outside-sales criteria, while state laws may define commission-based exemptions.

The outside-sales duty test, and where the salary test does not apply

The primary duty requirement for outside sales employees is defined in 29 CFR § 541.700, which states that employees who spend more than 50 percent of their time performing exempt work will generally satisfy the primary duty requirement, according to Legal Information Institute. However, the same section clarifies that time alone is not the sole test, and nothing in this section requires that exempt employees spend more than 50 percent of their time performing exempt work, according to Legal Information Institute. This distinction matters because a hiring manager cannot rely solely on a time-tracking spreadsheet to confirm exemption status. The primary duty must be evaluated in the context of the employee's overall role, not just the hours logged on a specific task.

When assessing the specific duties of an outside sales employee, 29 CFR § 541.500 provides that work performed incidental to and in conjunction with the employee's own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work, according to Legal Information Institute. This means that if a salesperson spends a portion of their day on incidental deliveries and collections, that time is considered part of the exempt outside sales activity. The key factor is that the work is incidental to and in conjunction with the employee's own outside sales or solicitations. If the employee is performing tasks that are not tied to their own sales efforts, such as general warehouse work or administrative support for the entire sales team, those tasks may not qualify as exempt under this specific provision.

The commission test is a different sentence from outside sales

Do not treat them as the same test. The California Department of Industrial Relations page titled "Exemptions from the overtime laws" lists specific criteria for commission-based employees that are distinct from the duties-based criteria for outside sales.

According to the California Department of Industrial Relations, one exemption line applies to employees, except minors, whose earnings exceed one and one-half times the minimum wage and where more than half their compensation represents commissions. This is a specific pay structure test. It requires checking the ratio of commission pay to total compensation against the minimum wage multiplier. It is a standalone sentence in the list of exemptions.

A separate sentence on the same page addresses employees covered by a valid collective bargaining agreement. According to the California Department of Industrial Relations, this exemption applies if the agreement expressly provides for the wages, hours of work, and working conditions, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30% more than the state minimum wage. This is a contractual test. It depends on the existence of a valid collective bargaining agreement with specific wage provisions. It is not the same as the commission test, which depends on the source of an individual employee's earnings.

These two sentences from the California page show that different pay rules drop under different conditions. The commission test drops overtime for those meeting the earnings and commission ratio criteria. The collective bargaining agreement test drops overtime for those covered by a qualifying agreement. Neither of these sentences is the outside-sales test. The outside-sales test is a different sentence with its own specific requirements, which are detailed in the previous section of this article.

How three state pages word the sales exemption

Washington and Minnesota state their own sales rules, and North Carolina adopts the federal outside-sales definition. Washington and North Carolina use different wording for an outside salesperson, and Minnesota sets an on-premises sales limit. Each page points to a specific statutory or regulatory definition.

Washington’s definition

The Washington State Legislature defines the term "individual employed in the capacity of outside salesperson" in RCW 49.46.010 (3)(c) as any employee, according to Washington State Legislature. The same page specifies that this includes making sales, including any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition, according to Washington State Legislature.

Washington also states that the requirements of WAC 296-128-545 do not apply to outside salespersons who are compensated by the employer on a guaranteed salary, commission or fee basis and who are advised of their employee status as an "outside salesperson," according to Washington State Legislature.

Minnesota’s on-premises limit

Minnesota takes a different approach by setting a percentage limit. The Minnesota Office of the Revisor of Statutes describes an exemption for a salesperson who conducts no more than 20 percent of sales on the premises of the employer, according to Minnesota Office of the Revisor of Statutes. This 20 percent figure is the specific threshold mentioned in the statute for on-premises sales.

North Carolina’s federal reference

North Carolina points directly to the federal definition. The North Carolina General Assembly lists an exemption for any person employed in an executive, administrative, professional or outside sales capacity, as defined under the Fair Labor Standards Act, according to North Carolina General Assembly.

How to use these pages

When you are deciding whether a salesperson qualifies for the overtime exemption, check which of these three approaches applies in your state. If you are in Washington, that page states the WAC 296-128-545 requirements do not apply to the outside salespersons it describes. If you are in Minnesota, calculate whether the salesperson’s on-premises sales stay at or below 20 percent. If you are in North Carolina, confirm that the role meets the federal Fair Labor Standards Act definition for outside sales.

Write down which state rule you are using and the specific words from the statute that support your decision. This keeps your documentation tied to the exact source you relied on.

See State overtime rules from 4 pages before the offer.

Reference table for the two quoted sales tests

The table below lists the federal outside-sales line and the California commission line. Use this table to match the specific language of the test to the role you are evaluating.

Keep the commission test and the outside-sales test separate when you write your offer.

Check both tests before the next sales offer

Record the specific sales exemption criteria for your next offer. Keep the two distinct tests separate so you can verify which pay rules apply before waiving overtime.

This federal definition applies to outside sales employees under 29 CFR § 541.500. If the employee does not meet this duty requirement, the outside-sales exemption does not apply.

This criterion applies to employees, except minors, under California overtime exemption rules. If the employee does not meet both parts of this commission test, the commission exemption does not apply.

The outside-sales test focuses on where the work happens, while the commission test focuses on how the pay is structured. Keep the salary test separate from the outside-sales test; the federal page for outside sales does not include a salary requirement.

Illustrative example of the two tests

These figures are illustrative. A salesperson spends 50 percent of the week on exempt sales work and makes 20 percent of sales on the premises. Use the 50 percent share as a time clue only. Use the 20 percent share as the on-premises question. Write the two results on separate lines before you waive overtime.

Today, choose one sales offer and note which test you are using before you waive overtime. See Hiring Decision Debrief: Notes to a Recorded Decision.

Sales-exemption FAQ

What are the two sales tests?

The outside-sales test focuses on where the work happens, specifically if the employee is customarily and regularly engaged away from the employer's place of business according to Legal Information Institute. The commission test is a distinct criterion that looks at how the employee is paid, such as the California requirement that more than half their compensation represents commissions according to California Department of Industrial Relations.

Does outside sales still have a salary test on the federal page?

No, the federal page explicitly states that the requirements of subpart G (salary requirements) do not apply to the outside sales employees described in that section according to Legal Information Institute. This specific rule drops the salary requirement for that category of workers.

What does the California commission line require?

The California page lists two specific conditions for the commission exemption: earnings must exceed one and one-half times the minimum wage, and more than half of the employee's compensation must represent commissions according to California Department of Industrial Relations. These requirements apply to employees, except minors, who meet both criteria.

What does Minnesota say about on-premises sales?

Minnesota law defines the exemption for a salesperson who conducts no more than 20 percent of sales on the premises of the employer according to Minnesota Office of the Revisor of Statutes.

What do you write down today?

On the next sales offer, write whether the person sells away from your site or earns commissions. Copy the matching test's words beside that note to keep the records clear. This step helps you track which specific rule applies to the individual.