As seen on Craft Brewing Business –
This Brewery Compensation series is intended to provide guidance on the variety of compensation structures for common positions in the brewing industry. As with part 1, the information here in part 2 is designed to highlight common issues with compensation and is not a definitive guide to the specific federal and state laws that govern payment of employees and independent contractors. Therefore, always consider consulting a legal professional regarding your specific situation.
The first article in the series dealt with compensation for employees working on the brewing sideof operations – head brewers, brewmasters, assistant brewers and other related positions. In part 2, we will look at issues specific to the sales team. These individuals are often the first representative of your brewery in the field, responsible for developing new business and serving as the “rainmaker” for the brewery. Individuals working in the sales field tend to be outgoing and self-motivated, who are drawn to the field because of their independence and enjoyment working with people. Members of the sales team typically spend considerable time outside of the office and are often compensated based on commissions or other per-sale compensation formulas. These employees may be taking over relationships the owners have spent time building and developing and come to represent the face of the business to the outside community.
Independent contractor or employee?
As with all new hires, the first step in bringing on a new worker is to determine whether the individual will be an employee or an independent contractor. The factors for this test are covered heavily in the first article in the Brewery Compensation series. In general, because of the nature of the work, members of the sales team are going to be employees even though the employee will have considerable control over how his or her day is spent.
Exempt or non-exempt?
Assuming the new worker is an employee, the next question to answer is whether the position is non-exempt or exempt. Non-exempt employees are generally paid hourly and are entitled to overtime and meal and rest breaks, while exempt employees are compensated on a salary basis and are paid at a set rate regardless of the number of hours worked. The default classification under federal and state law is non-exempt status; however, there are special exemptions in place for individuals in the sales industry that may affect employment classification.
The federal Fair Labor Standards Act (FLSA) has a special exempt category for individuals involved in outside sales. To qualify for this exemption, the employee’s primary duty must be making sales (as defined in the FLSA) or obtaining orders or contracts for services or use of facilities, for which a client or customer will provide payment. Additionally, the employee must customarily and regularly work away from the employer’s place(s) of business. Because outside sales individuals are making in-person sales visits and opening new accounts within a defined territory, it can be difficult to track the specific hours worked. For that reason, these individuals can be classified as “exempt” and no overtime payment is required.
The FLSA also has a special exempt category for individuals working in a retail or service establishments who are primarily paid through commissions. To qualify for this exemption, the employee must be working in retail or a service establishment — these are businesses that are primarily involved in the direct sale of goods or services to customers, rather than in manufacturing or resale activities. State laws often expand the definition of which employers are involved in the retail or service industries, but businesses that are primarily brewing and manufacturing beer likely will not be classified as a retail or service industry.
Additionally, the employee must pass two salary tests. First, the regular rate of pay must exceed 1½ times the minimum wage for the state or locality. For example, in California, the 2015 minimum wage is $9 per hour, so 1½ times the minimum hourly wage would need to be at least $13.50 for a 40 hour work week to qualify. Second, the employee’s total compensation must be more than 50% commissions. If all three tests are met, the position can be classified as exempt and no overtime payment is required.
Before classifying a sales role as non-exempt or exempt, review your state laws and state wage orders to determine the requirements for outside sales and commissioned sales exemptions and minimum salary requirements. There can be substantial differences between federal and state laws with respect to the payment of wages and working conditions. In order to classify a position as “exempt,” both federal and state requirements must be met.
Commissions
Regardless of whether an employee is non-exempt or exempt, commission payments generally make up part of the compensation for a sales employee. Federal and state laws do not require that a commission be paid for sales made by an individual, but employers often use commission payments to incentivize employee productivity. A commission may be paid in addition to an hourly or salary wage, or can be the sole form of compensation.
Commission plans should generally always be agreed upon in writing, and a written commission agreement signed by the employee is a requirement in several states. By having the commission agreement in writing, both the employer and employee have clear expectations of what is required to earn compensation and the overall payment scheme. Employers can reserve the right to make periodic changes to the commission plan, so long as those changes do not impact payments made on commissions earned under the earlier agreement.
Commission payments also must be paid within a specific time frame after being earned. For example, in California, all wages, including commissions, must be paid at least twice during a calendar month. Having a clear definition of when commissions are “earned” in the written commission plan will help determine in which pay period the commission payment will be paid.
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Lastly, employees who are paid in part or in full on commission must be paid in accordance with their non-exempt or exempt status. Commission payments can be counted toward minimum salary requirements in certain circumstances, but employees must still be paid in accordance with minimum wage and overtime rules. In the event of a dispute about unpaid commissions or unpaid overtime can result in significant penalties, so it is best to be cautious and carefully track payments for commissioned employees.
Expenses
Sales employees often spend most of their time outside of the employer’s business and will therefore incur common business-related expenses such as mileage, cell phone or telephone charges and business lunches. State laws generally require an employer to reimburse these business-related expenses.Employers may therefore choose to provide a company vehicle, company cell phone, company laptop, and/or company credit card to members of the sales team. This is beneficial not only for tracking expenses, but ensures that all data about sales contacts and related information is retained by the company when members of the sales team depart the company.
If company equipment is provided, the employer should have clear policies in writing about use of the equipment and its return upon employee termination. If the employee will be using his or her own equipment, the employer should also have clear policies about how contact and account information is returned to the company and retained on employee-owned devices upon termination of employment.
Employee conduct
Employers in the brewing industry often have to confront how to encourage responsible employee behavior, both during work hours and when off the clock. This can be particularly important for employees who spend most of their time working outside of the office, representing the business without any direct managerial oversight. Regulating work conduct can be accomplished through comprehensive alcohol and drug use policies, harassment policies and clear job descriptions, but regulating off the clock employee behavior can be a delicate balancing act between the employer’s interest in protecting its image and brand and the employee’s right of self-expression.
All employees, including members of the sales team, need to have clear policies in place about representation of the company. Sales team employees should never represent themselves on social media as representatives of the brewing without explicit permission, and should never “check in” or identify themselves as being at a client or customer site during work hours. State laws generally are protective of an employee being able to make lawful lifestyle choices without fear of termination, so care should be taken in drafting policies that govern what an employee can do on and off the clock.
Confidentiality and intellectual property
Members of the sales team are going to be the community face of the business and will have access to information about the brewery’s customers and clients, financial information, brewing recipes and techniques, branding, marketing and related intellectual property. This information has value for the company only if it is kept within the business, so care must be taken in protecting this confidential information both during the employee’s service and after termination.
Confidentiality and intellectual property agreements are therefore very important for members of the sales team and should carefully cover the return of customer and client lists, sales documentation and company financial information once an individual has left employment.
The sales team fills a critical role in the brewing industry that presents its own unique challenges for employee classification and compensation. State laws are myriad and varied, and payment schemes and employer policies need to be carefully evaluated and vetted before being put in place.