(a) Whether compensation representing commissions constitutes most
of an employee's pay, so as to satisfy the exemption condition contained
in clause (2) or section 7(i), must be determined by testing the
employee's compensation for a ``representative period'' of not less than
1 month. The Act does not define a representative period, but plainly
contemplates a period which
can reasonably be accepted by the employer, the employee, and
disinterested persons as being truly representative of the compensation
aspects of the employee's employment on which this exemption test
depends. A representative period within the meaning of this exemption
may be described generally as a period which typifies the total
characteristics of an employee's earning pattern in his current
employment situation, with respect to the fluctuations of the proportion
of his commission earnings to his total compensation.
(b) To this end the period must be as recent a period, of sufficient
length (see paragraph (c) of this section) to fully and fairly reflect
all such factors, as can practicably be used. Thus, as a general rule,
if a month is long enough to reflect the necessary factors, the most
recent month for which necessary computations can be made prior to the
payday for the first workweek in the current month should be chosen.
Similarly, if it is necessary to use a period as long as a calendar or
fiscal quarter year to fully represent such factors, the quarterly
period used should ordinarily be the one ending immediately prior to the
quarter in which the current workweek falls. If a period longer than a
quarter year is required in order to include all the factors necessary
to make it fully and fairly representative of the current period of
employment for purposes of section 7(i), the end of such period should
likewise be at least as recent as the end of the quarter year
immediately preceding the quarter in which the current workweek falls.
Thus, in the case of a representative period of 6 months or of 1 year,
recomputation each quarter would be required so as to include in it the
most recent two quarter-years or four quarter-years, as the case may be.
The quarterly recomputation would tend to insure that the period used
reflects any gradual changes in the characteristics of the employment
which could be important in determining the ratio between compensation
representing commissions and other compensation in the current
employment situation of the employee.
(c) The representative period for determining whether more than half
of an employee's compensation represents commissions cannot, under the
express terms of section 7(i), be less than 1 month. The period chosen
should be long enough to stabilize the measure of the balance between
the portions of the employee's compensation which respectively represent
commissions and other earnings, against purely seasonal or plainly
temporary changes. Although the Act sets no upper limit on the length of
the period, the statutory intent would not appear to be served by any
recognition of a period in excess of 1 year as representative for
purposes of this exemption. There would seem to be no employment
situation in a retail or service establishment in which a period longer
than a year would be needed to represent the seasonal and other
fluctuations in commission compensation.
(d) Accordingly, for each employee whose exemption is to be tested
in any workweek under clause (2) of section 7(i), an appropriate
representative period or a formula for establishing such a period must
be chosen and must be designated and substantiated in the employer's
records (see Sec. 516.16 of this chapter). When the facts change so that
the designated period or the period established by the designated
formula is no longer representative, a new representative period or
formula therefor must be adopted which is appropriate and sufficient for
the purpose, and designated and substantiated in the employer's records.
Although the period selected and designated must be one which is
representative with respect to the particular employee for whom
exemption is sought, and the appropriateness of the representative
period for that employee will always depend on his individual earning
pattern, there may be situations in which the factors affecting the
proportionate relationship between total compensation and compensation
representing commissions will be substantially identical for a group or
groups of employees in a particular occupation or department of a retail
or service establishment or in the establishment as a whole. Where this
can be demonstrated to be a fact, and is substantiated by pertinent
information in the employer's records, the same representative period or
formula for establishing such a period may
properly be used for each of the similarly situated employees in the
group.
