California rules on outside sales exemption and commissions

California generally permits paying an exempt “outside salesperson” primarily by commissions, and that employee is typically exempt from California overtime requirements—but the exemption turns on the employee’s duties and where working time is spent, not on being paid commissions. Paid sick leave rules still apply to exempt outside salespersons, and California uses the “exempt employee” paid-sick-leave calculation method for them.

1) Who qualifies as an exempt “outside salesperson” in California

Rule (California Wage Orders)

California Wage Orders define an “outside salesperson” as:

“any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.”[1]

Key takeaways

• Age requirement: must be 18+.[1]
• Time-and-place requirement: must customarily and regularly spend more than 50% of working time away from the employer’s place of business.[1]
• Sales activity requirement: time away must be spent selling or obtaining orders/contracts.[1]

2) What the outside sales exemption does (and does not do)

Overtime exemption (DLSE)

California DLSE guidance recognizes outside salespersons as a category of employees exempt from overtime laws.[3]

Wage Order coverage

At least some California Wage Orders state broadly that:

“The provisions of this Order shall not apply … to outside salespersons.”[2]

Practical significance: where this “does not apply” language governs the employer’s industry/order, the Wage Order’s requirements do not apply to outside salespersons covered by that order.[2]

3) Commission pay and the outside sales exemption

Issue

Whether paying commissions affects outside-sales exempt status.

Rule

The definition of “outside salesperson” is duty/time-location based (more than half time away selling/obtaining orders), and does not make exemption status depend on a salary or on how pay is structured.[1]

Application

• A commission-based pay plan can be consistent with outside sales exempt classification so long as the employee satisfies the Wage Order definition (i.e., > 50% working time away selling/obtaining orders/contracts).[1]
• Conversely, paying commissions does not automatically create an outside-sales exemption if the employee does not meet the “more than half time away” test.[1]

4) Paid sick leave: outside sales exempt employees are treated as “exempt employees”

Issue

How California paid sick leave must be calculated for exempt outside salespersons (including those paid commissions).

Holding (California Court of Appeal)

In Hirdman v. Charter Communications, LLC, the Court of Appeal held that the statutory term “exempt employees” in Labor Code section 246’s paid sick leave provisions includes exempt outside salespersons, rejecting the argument that it should be limited to executive/administrative/professional exemptions.[4]

Why it matters for commission-paid outside sales

Even when properly classified as exempt outside sales, paid sick leave still must be provided and calculated under the statute’s method applicable to exempt employees (as interpreted in Hirdman).[4]

5) Federal overlay (FLSA)

Under federal law, the FLSA’s outside sales exemption is an exemption from both minimum wage and overtime requirements for employees employed as bona fide outside sales employees.[5]

Important interaction point: federal law sets a floor; California law may be more protective in other contexts. The California-specific test and consequences should be applied first for California compliance.[1][3]

6) Compliance checklist for commission-paid outside sales in California (high-level)

• Confirm the >50% “away from place of business” reality in practice (not just job description).[1]
• Confirm the work performed away is sales/obtaining orders/contracts (not primarily delivery, installs, support, etc.).[1]
• Treat paid sick leave as governed by the “exempt employee” method for outside sales exempt workers, consistent with Hirdman.[4]
• Apply overtime exemption only if the outside-sales definition is satisfied, consistent with DLSE’s recognition of outside sales as overtime-exempt.[3]

Scope note (to avoid overstatement)

The provided sources address (1) the outside-sales definition, (2) overtime exemption recognition, (3) Wage Order (non)applicability language in one Wage Order, and (4) paid sick leave calculation for exempt outside sales. They do not address other California commission-specific requirements (e.g., written commission agreements, wage statement line items, timing of commission “earned”/vesting rules), which may also be applicable depending on facts and industry.