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The Retail Employer

 August 2007

Recent Increase in Minimum Wage May Affect Those Paid on a Commission Basis

by David E. Nagle

There was a lot of publicity a month ago, when the first increase in the federal minimum wage in several years took effect. On July 24, 2007, the federal minimum wage for covered, non-exempt workers, rose from $5.15 per hour, to $5.85 per hour. Two more increases in the minimum wage were part of the same legislation: an increase to $6.55 per hour will go into effect on July 24, 2008, and another increase, to $7.25 per hour, will go into effect on July 24, 2009.

But an increase in the federal minimum wage affects other wage requirements as well. This is not in reference to the economic impact—the ripple effect upon wage rates and the job eliminations that are said to occur when the minimum wage is raised. Rather, this is a reminder that certain other standards under the Fair Labor Standards Act are themselves impacted by an increase in the federal minimum wage.

Many retailers take advantage of the so-called “retail sales” exemption from the overtime compensation requirements that are applicable to certain employees who are paid on a commission basis. In order to qualify for the exemption an employee of a retail establishment must receive commissions which make up more than half of his or her compensation for a “representative period” (of at least one month), and the employee’s “regular rate” (all compensation divided by all hours, on a weekly basis), must amount to at least one and one-half times the minimum wage for all hours worked.

For example, take an employee whose compensation is based entirely upon commissions on the sale of appliances. If that employee works 50 hours per week, and earns $500 in commissions per week for a representative period, then the employee’s “regular rate” is $10 per hour. Since more than half of the employee’s earnings are commissions, and the employee’s “regular rate” of $10/hour is in excess of one and one-half times the new minimum wage ($5.85 x 1.5 = $8.78 per hour), then the employee meets the requirements for the overtime compensation exemption, and is not entitled to receive any additional pay due to working over 40 hours in a workweek.

If the same employee only earned $350 per week in commission, then the employee’s “regular rate” would amount to only $7.00 per hour. In order for the overtime pay exemption to be applicable, the employer must now supplement the employee’s commission earnings with additional payments to bring the employee’s “regular rate” up to the $8.78 per hour level for all hours worked (prior to the recent hike in the minimum wage, the commission earnings only had to be supplemented up to a “regular rate” of $7.73 per hour). A lot more money may be involved. In the future, the employer might consider modification of the compensation plan, or cutting work hours, so that the employee does not work more than 40 hours per week, thus rendering the applicability of the overtime exemption moot.

Violations of the Fair Labor Standards Act are always expensive to correct, and there are more lawsuits brought today claiming violations of the wage and hour laws than claiming workplace discrimination. Make sure that your business is in compliance!

David E. Nagle has advised employers with respect to legal issues in the workplace for over 25 years. He is a partner in the Richmond office of Jackson Lewis, a law firm devoted exclusively to the representation of employers in labor, employment, employee benefits and immigration law matters. Jackson Lewis has 400 attorneys in 30 offices across the nation. David may be contacted at (804) 648-4077, or at nagled@jacksonlewis.com.

Calls requesting information on the Labor Law Information Program should be directed to Preston Perrin with the Retail Merchants Association at 804-662-5500.

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Owning a Business with Family, Friends and Spouses

There are a growing number of family-owned businesses in North America. Some of the world’s largest businesses, such as Wal-Mart and Ford Motor Co., are family-owned. Many other successful business ventures, such as Google and Apple, were started by friends. But anyone who has started a business with a friend, family member or a spouse can tell you it’s not always easy to draw the line between business and a personal relationship. So how can you make sure your business succeeds when the lines between business and personal blur? Here a few tips to consider.

Define roles. Experts agree, when starting a business with a friend, family member or spouse, one of the most important steps is to clearly define each person’s role and responsibilities in the business. Especially if you have other people working for you, you must make sure that the lines of responsibility are drawn and that your employees know who to go to for leadership in certain areas.

Create vision and goals together. With all the stress and obligations involved in running a business, even with friends or family, it can be easy to forget goal-setting, a critical part of any company. Take time to sit down with your business partner and clearly create goals. Determine your business’s overall vision and your strategy for achieving it. Working together on this process ensures all members of your team are invested in the success of your enterprise.

Share the dirty work. Make sure all owners have an equal say in the role-defining process to ensure equal buy-in, and share the least-favored tasks equally. If one person has all the mindless, boring tasks while others get the fun, glorious jobs, you can bet that jealousy, even anger, will arise. To keep your business and personal relationships strong, share both the exciting and the unpleasant tasks.

Keep personality and skills in mind. One difficult aspect of working with a friend or a family member is that you know them well. You know their weaknesses and hot buttons. But, you also know their skills and aptitudes better than probably anyone. Make sure that you use this knowledge professionally, keeping your ultimate business goals in mind. Create tasks and define roles that suit their skills and personality. Also, don’t let things get personal by using someone’s weaknesses against them. This might help you win an argument, but it will hurt your business and your relationship in the end.

Require personal responsibility. Each member of the ownership team should agree to being personally responsible for making sure their job gets done. Without personal responsibility, when things slip through the cracks, the blame game begins, and it can get very heated. When one partner lacks personal responsibility, it’s difficult and draining for the others to pick up the slack. As simple as it sounds, this essentially boils down to the golden rule we were taught growing up. Each partner should agree to treat others the way they want to be treated. This ensures that everyone on the team, and ultimately, your business, wins.

Ensure accountability. Defined roles and clear goals don’t mean much if people aren’t held accountable for following them. Choose an objective adviser or board of advisers who can help you answer difficult questions, hold you accountable, act as a mediator and keep you looking toward achieving your goals. It’s usually best not to choose other family members to serve in this capacity, even if they will do it for free. It only complicates the existing relationships to have family members trying to serve the objective mediator role. Find someone everyone on your team trusts equally, even if you have to pay them. Consider using an organization that specializes in small business coaching to keep things neutral and make sure you are en route to achieving your goals.

Each business will have its unique challenges and obstacles when those working together are family or friends. But by using these tips, you can reap all of the benefits of working with people you have relationships with and at the same time, help your business boom.

This article is reprinted with permission of www.ExpressPersonnel.com. Contact Mr. Lars Nordin at Lars.Nordin@ExpressPersonnel.com if you would like to be added to their distribution list.

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Problem Solving with a Team

Ever have to lead a team in a brainstorming activity. The dynamics deliver a lot of great information if you follow the rules. Once the rules are allowed to be violated, the dynamics can self-destruct very quickly.

Clarify your subject and objective first.

  • Insure that everyone understands the objective.
  • Participants should be given time to write down their thoughts on the objective.
  • Select one person to record ideas on a flip chart. It is very important to record each concise thought on a flip chart or white board.

Establish serious rules

  • There are “No Bad ideas!” Ridiculed participants will shut down participation.
  • No jokes or ridicule of participant’s ideas even if they are way outside the box.
  • Anyone may and should add supportive thoughts to original ideas as appropriate.
  • Rotate around the group taking one idea from each person at a time.
  • Capture the full thought & paraphrase so it is recorded correctly.
  • Everyone crosses each idea off their list as they are covered.
  • Add ideas to your list as discussion sparks them.
  • “Pass” when you are out of ideas but check back into the rotation.
  • Anyone can “rap on the table” when discussions get too far off-track.

Always continue until all ideas are captured; there may be a lull but the process will get re-energized.

At the end, process all ideas into logical format.

This article is reprinted with permission of Mike Dunleavey, mikedunleavey@iib.ws, Executive Associate - Business Support Center - Retail Merchants Association.

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