Employment Law for Auto Dealership Employers

FLSA Auto Dealership Exemptions

Auto dealerships benefit from specific FLSA exemptions that differ from those available to most employers. Section 13(b)(10) of the FLSA exempts from overtime requirements any salesperson, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements at a dealership that is non-manufacturing. This exemption applies regardless of the employee's salary level.

To qualify, the employee must be primarily engaged in the selling or servicing function, and the employer must be a non-manufacturing establishment primarily engaged in selling vehicles to ultimate purchasers. The exemption does not extend to all dealership employees, and those in administrative, clerical, or non-sales roles remain subject to standard FLSA overtime requirements.

Commission Pay Structures

Dealership commission pay structures vary widely but typically include draw-against-commission arrangements, flat-per-unit commissions, percentage-of-gross-profit commissions, or hybrid plans combining a base salary with commission. Each structure creates specific compliance obligations under the FLSA and state wage and hour laws.

Under a draw-against-commission arrangement, the draw is an advance against future commissions. Employers must ensure that employees earn at least minimum wage for all hours worked in each pay period. If commissions are insufficient to meet minimum wage after the draw is deducted, the employer must make up the difference. Some states, including California, prohibit employers from carrying forward negative commission balances beyond the pay period.

State Commission Payment Laws

State laws governing commission payment vary significantly. Many states require employers to have written commission agreements that specify how commissions are calculated, when they are earned, and under what circumstances they may be forfeited or charged back. California Labor Code Section 2751 requires a written commission agreement signed by the employee.

Several states require payment of earned commissions upon termination regardless of whether the employee is still employed when the deal closes. Others allow forfeiture of commissions on deals not yet finalized at the time of separation. Understanding the specific commission payment laws in each state where the dealership operates is critical.

Technician Classification and Pay

Service technicians at auto dealerships may be paid hourly, on a flat-rate (flag time) basis, or through a combination. The flat-rate system pays technicians based on the estimated time to complete each repair rather than actual hours worked. This system can create minimum wage compliance issues when a technician's flat-rate earnings divided by actual hours worked fall below the minimum wage.

Employers using flat-rate compensation must track actual hours worked and ensure that total compensation meets minimum wage requirements for all hours. The FLSA mechanic exemption from overtime applies only to mechanics primarily engaged in servicing vehicles at qualifying dealerships.

Practical Compliance Steps

Auto dealership employers should audit their pay plans for FLSA compliance at least annually, ensure all commission and pay plan agreements are in writing and signed by employees, verify that the overtime exemption is properly applied only to qualifying positions, and train managers on proper timekeeping for all non-exempt employees. Documentation of how exemptions are applied and regular review of pay calculations against hours worked help prevent costly wage and hour claims.