What is the retail exemption to overtime pay?

The Fair Labor Standards Act, passed in 1938, requires employers to pay their employers one a half times their regular rate for any hours worked past 40 hours per week. However, this overtime rule does not apply to every employer and employee.

First, the FLSA only covers employees and not independent contractors. Under the FLSA, employees are those workers who are economically dependent on their employers. Second, the Act only covers employers who have workers that are engaged in or affecting interstate commerce. The interstate commerce requirement is interpreted very broadly and includes most employees.

Lastly, for an employee to receive protection from the FLSA and entitle him to overtime pay he must not be an exempt employee. The FLSA exempts employees who occupy certain positions. Among these exemptions is the retail or service establishment exemption.

For this exemption to apply the employee must be employed at a retail or service establishment open to the general public, must be paid at least one and a half times the minimum wage, and cannot be paid more than half of his compensation in commission.

Classic examples of such retail or service establishments are grocery stores, hardware stores, clothing stores, furniture stores, restaurants, and hotels. Thus, employees of these businesses are not required to be paid overtime.

A typical retail or service establishment sells goods or services to the general public and serves the everyday needs of its community. So, businesses that deal with the manufacturing or transportation of goods would be excluded from this exemption.

However, just because a business sells a product or service to an end user does not mean it is a retail or service establishment. For example, insurance companies that sell insurance and electric companies that sell electricity have been held to fall outside this exemption.

Further, for the exemption to apply the business must be open to the general public. This means that the establishment must be available to the general consuming public, not necessarily that the public actually frequents the establishment and makes purchases in person. So, for example, an air conditioning repair shop is open to the general public even if it makes all of its sales over the telephone and its repairs at its customers’ homes.