The US Department of Labor released an opinion letter on Tuesday finding that staffing firms may be eligible for overtime exemption under the Fair Labor Standards Act’s “retail or service establishment” exemption. The opinion letter came in response to a question from the American Staffing Association in 2019.

“This is a major win for the industry,” said Stephen Dwyer, senior VP, chief legal and operating officer at the American Staffing Association. “It allows certain commissioned personnel, internal personnel, to potentially quality for exemption from overtime.”

Dwyer noted the “retail or service establishment” exemption has not, historically, been available to the staffing industry. Staffing was included on a Department of Labor list of industries that would not qualify for the exemption; however, that list is no longer in effect and courts have started viewing the Fair Labor Standards Act more expansively. The ASA then brought forward its argument that staffing firms should be exempt.

The ruling includes internal workers such as salespeople and recruiters. In order to qualify for the exemption, the workers must be paid in excess of 1½ times minimum wage and receive more than half their pay in commissions. Staffing firms themselves would also have limitations — no more than 25% of sales can be for resale; resale would include providing temporary employees to another staffing firm that then places them at a client site.

To ensure they qualify, staffing firms should contact their legal counsel before moving forward.

George Reardon, an attorney who focuses on the staffing industry, said the opinion should be helpful in defending exempt treatment of commissioned in-house staffing employees. However, he cautioned rules governing the exemption are dependent on facts.

“Like other rules governing FLSA exemptions and independent contractor qualification, the principles of the retail exemption are vague and unreliable, being dependent on interpretation of the facts by government agencies and courts,” Reardon said. “Given the historical hostility to staffing of Democrat administrations, the imminent changes of labor philosophy in the federal government make future wage and hour interpretations very unpredictable.”

Reardon continued, “Even in initially qualifying staffing situations, this rule will require continual monitoring to ensure that exempt treatment does not slip into noncompliance. How many staffing firms will actually do that? If staff can be effectively compensated as nonexempt, the risk and expense of exemption challenges from government and plaintiff’s lawyers can be avoided.”