Recurring Revenue, FLSA, and the Minimum Wage

The national Fair Labor Standards Act (FLSA) stipulates that employees across the nation be paid a minimum wage of at least $7.25 per hour.

Most sales leaders need not worry: it’s easy to ensure that the sales team earns at least the minimum wage when they draw salaries or earn an hourly wage in addition to their variable compensation. But for companies that pay on a piece rate basis or sales plans that use 100% commission sales people, it’s not so simple.

Companies need better revenue tracking

Full commission sales jobs are common, especially for the kind of recurring revenue companies that rent water heaters, sell insurance policies or provide things like phone service subscriptions.

In many cases, commissioned sales people’s earnings don’t meet the minimum wage, which is bad news for employees and employers alike. The onus to stay compliant is on employers, and it’s not a simple matter.

Many states that have their own minimum wage laws, and companies must ensure that pay is commensurate with the higher of the two rates: national or state. To further complicate the matter, companies must multiply the minimum wage by one-and-a-half for any hours that salespeople work in excess of 40 per week.

The problem is that most companies have no way of calculating whether the minimum wage is being met. Most assume that will occur, but don’t have the revenue tracking tools in place to ensure that the minimum wage is being met every month.

Dire consequences for not meeting the minimum wage

Yet the consequences of not meeting the minimum wage can be profound. In cases that have gone to trial, suits are generally filed in federal court and can pose a serious threat to business continuity. In 2015, some 260,000 workers were paid back wages thanks to FLSA enforcement. In some jurisdictions FLSA lawsuits have become such a moneymaker that attorneys are taking out ads, encouraging people to sue their employers.

One Tucson, Arizona construction business was recently found to have run afoul of the FLSA and ordered to pay back wages and damages to 31 employees—a sum of $48,000. That included compensation equal to two times the amount employees would have received in unpaid wages.

After an employee complaint sparked two years of federal investigation, DCO Custom Builders was found to have misleadingly classified construction workers as independent contractors, neglected to maintain an accurate log of hours worked, or to compensate employees for working overtime.

This is by no means an uncommon outcome. If a court finds that your company is in violation of the FLSA, you are likely to have to pay the missing wages as well as an equal sum in damages. Not to mention attorney fees, loss of time, possible business interruption, and pre- and post-judgment interest on damages.

Obero SPM ensures FLSA compliance

If calculating revenue on commission sales is a problem for your business, there are solutions. You might think of establishing a minimum wage draw, whereby you can ensure that salespeople are paid at least the minimum wage until such a time as monthly commission fees can be compared to minimum wage earnings over the same period.

Obero SPM is an easier, fully automated solution. It is a sales compensation management system that provides full support for recurring revenue commission management, which includes tracking minimum wage compliance. Obero SPM also integrates with virtually any ERP or CRM system.

More specifically, Obero SPM helps ensure FLSA compliance in three ways:

1) Automatically calculates the minimum amount that employees should have earned based on where they live and the number of hours they worked

2) Automatically calculates the minimum wage owing, comparing that to the amount earned through commissions and providing an adjusted amount, where applicable

3) Ensures that employees are within minimum wage guidelines while also capturing advanced payments, based on minimum wage, against future commissions

Click here for more information about Obero SPM’s incentive compensation management capabilities.

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