When Your Outside Sales Team Isn’t Outside Anymore: The FLSA Exemption Problem

Key Takeaways

• The outside sales exemption requires employees to work primarily at customer locations, not from home
• Remote selling via Zoom and phone doesn’t qualify as “outside sales” under FLSA rules
• Misclassified sales teams can create overtime liability of $1M+ for mid-sized companies
• Companies should audit sales roles immediately if reps spend less than 60% of their time at customer sites
• State laws like California’s may impose stricter standards than federal FLSA requirements

When was the last time your sales reps spent a full day driving to client sites?

If you’re thinking hard about that question, you have a problem. Most companies still classify their sales teams under the outside sales exemption. Same as always. But the job changed. Consequently, your reps aren’t on the road anymore. They’re on Zoom. They’re in their home office making calls, sending emails, and running virtual demos.

The FLSA doesn’t care what you call the position. Furthermore, it cares where the work happens. And if your “outside sales” reps are selling from home, the outside sales exemption probably doesn’t apply. Which means you might owe them overtime.

The Outside Sales Exemption Rule Hasn’t Changed. The Job Has.

The outside sales exemption has two requirements (DOL Fact Sheet #17F). Both have to be true.

First requirement: The primary duty is making sales. Pretty straightforward. If employees are mainly doing service work or account maintenance, they don’t qualify for the outside sales exemption. But that’s not where most companies get tripped up.

Second requirement: They work away from the employer’s place of business. This is the killer for the outside sales exemption analysis.

“Away from” doesn’t mean remote. Instead, it means at the customer’s location. In person. The DOL’s regulations say it clearly: sales made by phone or internet don’t count as outside sales unless they’re just supporting in-person visits (29 CFR 541.500).

So here’s the thing. When your company sets up a sales rep to work from home, gives them a laptop, expects them to log into the CRM, holds them to virtual meeting quotas—that home office becomes an employer place of business (DOL Opinion Letter FLSA2020-17). They’re not working away from your place of business. They’re working at it. Just happens to be in their spare bedroom.

This distinction matters because the outside sales exemption was designed for employees who were genuinely unsupervised in the field. Modern sales technology has fundamentally changed that reality. Now, CRM systems track every call. Video meetings fill the calendar. Meanwhile, employees work from fixed locations where supervisors can monitor their activity just like any office worker.

What Actually Counts as Outside Sales in 2025

Based on current DOL guidance and recent court decisions, I see three patterns right now.

Pattern 1: Actually outside (still meets the exemption)
The rep spends 60% or more of their working time at customer locations. Real visits. In-person meetings. Phone and email are just tools to set things up or follow up. These roles still qualify for the outside sales exemption. Documentation showing regular customer site visits, mileage logs, and in-person sales closings will support this classification (29 CFR 541.502).

Pattern 2: Hybrid field (high risk for the exemption)
The rep is out visiting customers, maybe 40-50% of their time. Regular pattern. But half the job happens virtually. These classifications are risky under the outside sales exemption analysis. You might win if challenged. You might not. The outcome depends heavily on how deals actually close and whether virtual tools are truly “incidental” to in-person selling.

Pattern 3: Inside sales from home (exemption fails)
The rep spends most of their time at a desk. Customer contact is virtual. Maybe they visit a client once a month or once a quarter for relationship building. This isn’t outside sales under any reasonable interpretation of the FLSA. Period. These employees are non-exempt and entitled to overtime pay (DOL Fact Sheet #17F).

Most companies that haven’t reviewed classifications since 2020 have Pattern 3 employees classified like Pattern 1 employees. That gap creates significant wage and hour exposure.

The Quick Outside Sales Exemption Test for HR Directors

Ask yourself five questions. Be honest. Document your answers.

1. Where does the actual selling happen?
Not where you think it should happen. Where does it happen? Track it for a month. If less than half the working hours are at customer sites, the outside sales exemption is at serious risk. Pull calendar data from your CRM. Look at mileage reimbursements. Check meeting locations in Outlook or Google Calendar.

2. How do deals close?
Pull your last 30 sales. How many closed in person at the customer’s office? How many closed over email or on a video call while your rep was at home? If most deals close virtually, you’re describing inside sales with occasional travel, not outside sales.

3. Can you prove the exemption applies with data?
If someone sued you tomorrow, could you show travel logs? Mileage records? Meeting schedules that prove regular field time? Or would you just have a job description from 2018 that says the role “requires extensive travel”? The 2025 Supreme Court case E.M.D. Sales, Inc. v. Carrera confirmed employers bear the burden of proving exemptions apply. Job titles and assumptions won’t cut it.

4. What do the employees actually do all day?
Pull CRM data. Look at calendars. Are they driving to appointments or are they on back-to-back Zoom blocks? The truth is in the time logs, not the job title. Moreover, if employees spend significant time on non-sales activities like merchandising, stocking, or service calls, the primary duty test also fails (29 CFR 541.500).

5. What does state law say about the outside sales exemption?
California case law and advisory opinions interpret the outside sales exemption to require employees spend more than half their time away from any employer location (Ramirez v. Yosemite Water Co., 20 Cal.4th 785 (1999)). New York wants substantial and regular field presence (NY Labor Law § 142-2.14). Washington, Massachusetts, and other states have their own standards. If you operate in multiple states, you have to meet the strictest standard that applies to each employee.

What Outside Sales Exemption Misclassification Costs

Real numbers matter here.

Say you have 25 sales reps. The average salary is $65,000. They work about 50 hours a week. That’s 10 hours of overtime every week.

The regular rate on $65,000 is roughly $31 per hour. The overtime premium (time-and-a-half) is approximately $47 per hour. Ten hours a week is $470. Multiply by 52 weeks. You owe each rep about $24,400 a year.

Multiply by 25 reps. That’s over $600,000 annually.

The FLSA allows employees to go back two years for violations, or three years if the violation is willful (29 USC § 255). Liquidated damages equal the amount owed, effectively doubling your liability (29 USC § 216(b)). For a two-year violation, you’re looking at $1.2 million ($600K × 2 years × 2 for liquidated damages). If deemed willful, add another year: $1.8 million. Plus their attorney fees.  If deemed willful, add another year: $1.8 million. Plus their attorney fees. These figures are illustrative and assume consistent overtime patterns.  Actual exposure depends on specific work patterns, state law requirements, and whether courts determine violations were willful.

That’s just for 25 people working 10 hours of overtime. Most sales roles involve more. Additionally, the reputational damage and HR team disruption from a collective action lawsuit can be substantial. Settlement negotiations, depositions, and document production will consume hundreds of hours of management time.

MorganHR Insight: Small to mid-sized companies (under 500 employees) are particularly vulnerable because they often lack the HR infrastructure to conduct regular exemption audits. Large enterprises typically have employment counsel review classifications annually. Consequently, smaller organizations carry disproportionate risk.

What You Should Do Right Now: Implementation Checklist

Immediate Actions (This Week):

• Pull time and activity data for all outside sales roles
• Calculate the actual percentage of time spent at customer locations vs. the home office
• Review how your last 50 deals closed (in-person vs. virtual)
• Identify roles where field time is below 60%

Short-Term Actions (This Month):

• Conduct formal exemption analysis for at-risk roles
• Document your findings with real data, not assumptions
• Consult employment counsel on state-specific requirements
• Develop a reclassification plan if needed
• Review your broader compensation strategy to ensure changes support competitiveness and internal equity

Important: Conduct exemption audits under attorney-client privilege when possible. If you discover violations, privileged review protects your analysis from discovery in litigation. Work with employment counsel, not just HR, to document findings and remediation plans.

Ongoing Actions:

• Implement timekeeping systems for reclassified roles
• Train managers on overtime authorization procedures
• Update job descriptions to reflect current realities
• Audit sales classifications annually, not just at hire

Stop assuming. Pull real data. Look at where your reps actually spend their time. Not where the job description says they should spend it.

If the outside sales exemption doesn’t fit, fix it. Move people to non-exempt status. Set up time tracking. Yes, remote employees can track time just like everyone else. Calculate overtime properly when commissions are involved—the regular rate must include commissions earned during the workweek, not just base salary (29 CFR 778.117). Work with your HRIS or payroll provider to ensure the system handles this correctly.

Document everything. If you can defend the classification under the outside sales exemption, great. Make sure you can prove it. If you can’t defend it, reclassify before someone files a lawsuit.

Get help with state law. Every state is different. California, New York, Massachusetts, and Washington—they all have their own rules on the outside sales exemption. Federal law is your baseline. State law might be stricter.

Red Flags That Should Trigger an Immediate Outside Sales Exemption Review

Territory revisions:  Your sales reps haven’t had a territory revision since 2020.

Job Description mismatch:  Job descriptions talk about extensive travel that doesn’t happen anymore.

Virtual meeting blocks:  Customer meetings are scheduled in 30-minute Zoom blocks.

Home Office:  Your reps routinely work 50+ hour weeks from home.

Actual work performed:  The onboarding materials describe a job that doesn’t match what people actually do.

Inquiries about overtime:  Employees are asking questions about overtime eligibility.

If any of these are true, you need to review your outside sales exemption classifications. Soon.

Bottom Line: The Outside Sales Exemption and Modern Selling

The outside sales exemption was written for people who were hard to supervise because they were always in the field. Genuinely out of the office. Meeting customers face to face.

That’s not most sales jobs anymore.

Modern sales effort happens on screens. CRMs track every call. Video meetings fill the calendar. Employees work from home, and you can see exactly what they’re doing and when. That’s not outside sales. That’s inside sales done remotely.

The law didn’t change. Your jobs did. The outside sales exemption still requires the same thing it always did: employees who are customarily and regularly away from the employer’s place of business, making sales in person at customer locations (DOL Fact Sheet #17F).

Fix the classification before someone else points out the problem. Because when they do, it won’t be cheap.

Frequently Asked Questions: Outside Sales Exemption

Work Location & Selling Activity

Can outside sales employees ever work from home and still be exempt?
Yes, but home office work must be incidental to in-person selling. If employees spend most of their time at home conducting virtual sales, the outside sales exemption fails. The DOL focuses on where the primary selling activities occur (29 CFR 541.500).

What if our sales process requires multiple virtual touchpoints before an in-person meeting?

That’s fine if the actual sale or contract is obtained during in-person meetings at customer locations. The exemption allows for phone and email as adjuncts to in-person selling. But if deals close virtually while reps are at home, the exemption is at risk (29 CFR 541.503).

What’s the biggest mistake companies make with the outside sales exemption?

Assuming remote work and field work are the same thing. They’re not. The exemption requires work away from the employer’s location, not just away from a physical office. A home office counts as an employer location when that’s where you direct employees to work (DOL Opinion Letter FLSA2020-17).

Compensation & Classification Rules

Does the outside sales exemption have a salary requirement like other FLSA exemptions?
No. The outside sales exemption has no minimum salary threshold (DOL Fact Sheet #17F). It’s based entirely on job duties and work location. However, this also means you can’t “save” a questionable classification by raising someone’s salary.

We’ve classified these roles as outside sales for 10 years. Doesn’t that matter?
No. Past practice doesn’t determine current compliance. If the job changed but the classification didn’t, you have exposure. The FLSA looks at current duties and work locations, not historical classifications.

Role Design & Job Duties

How does the outside sales exemption work for account managers who visit existing clients?

If the primary duty is relationship management, service work, or account maintenance rather than making sales or obtaining new orders, they may not qualify for the exemption even with regular client visits (29 CFR 541.503). Additionally, service visits don’t count as sales activities under the FLSA.

Reclassification & Overtime Compliance

Can we require pre-approval for overtime if we reclassify outside sales roles?
You can require pre-approval, but you must still pay overtime for all hours worked, even if worked without authorization (29 CFR 778.315). You can discipline employees for violating overtime policies, but you cannot refuse to pay earned overtime.

Risk Management, Audits & Business Reality

Should we audit our outside sales exemption classifications every year?
Yes. Sales roles evolve constantly. Technology changes how selling happens. Territory structures shift. Annual reviews help catch classification drift before it becomes a costly problem. Make exemption audits part of your regular compensation review cycle.

What if we have a legitimate business reason for the remote work setup?
Business necessity doesn’t change FLSA classification. If job duties and work location don’t meet exemption requirements, intent doesn’t matter. Pandemic-period reliance on DOL guidance may provide limited defense for past practices—consult employment counsel about your timeline.

Next Steps