F&I personnel paid on commission tend to be exempt from federal overtime requirements, according to Chris Hoffman, co-chairman of Fisher Phillips’ Automobile Dealers Industry Group. However, those staffers will still likely need to keep track of their time similar to an hourly employee, he said.
Hoffman discussed these F&I employment practices with Automotive News on Jan. 7, about a month after co-hosting a webinar on dealership wage and hour law. For those new to the industry or unfamiliar with the topic, here’s a crash course on some basic wage and hour issues related to F&I.
Hoffman said in a statement Jan. 10 that confusion does arise, “particularly for newer operators and in areas where states have implemented changes.”
In that vein, note the discussion here largely surrounds federal law. Your state might have more stringent requirements, and Hoffman encouraged dealers to learn their state’s rules.
The federal Fair Labor Standards Act requires employers to pay time and a half for work in excess of 40 hours in a week. The law offers a specific exemption for dealership sales personnel, but dealership F&I staff don’t fall into that category despite their sales role, he said.
“It’s really quirky,” Hoffman said.
The distinction hinges on the fact that F&I staff sell goods other than the vehicle, he said.
However, F&I staff still qualify for an overtime exemption aimed at general commissioned retail sales workers, according to Hoffman. They merely need to make 1.5 times the federal minimum wage ($7.25 per hour) and derive half of their earnings from commissions, he said.
A similar exemption exists for many states as well, he said.
Hoffman estimated that most, if not all, F&I managers were paid on commission.
Though working beyond a 40-hour threshold won’t trigger overtime for the F&I department, it’s likely a dealership must still keep track of those employees’ hours.
Federal law allows companies to eschew formal timekeeping for managers, according to Hoffman. But though the term might appear in their job titles, F&I managers probably aren’t covered here. With the exception of perhaps some finance directors, F&I personnel don’t meet criteria for eligibility, which include spending half of one’s day supervising others, according to Hoffman.
Fortunately, Hoffman said, the government allows businesses the flexibility to determine their own timekeeping method.
Historically, companies have found it challenging to require timekeeping for commissioned sales personnel.
“They’d rather be making a sale,” he said.
Hoffman said federal law is relatively “lenient” about the structure of commissions qualifying for the overtime exemption, but some states might be more specific on what counts.
Sometimes, a bonus won’t count as a commission, according to Hoffman. But revising pay plan language to structure it as a commission incentive can address this issue, he said.
The pay plan should go beyond the obvious, according to Hoffman. For example, a dealership might include the cost of an F&I product, a variable which impacts the gross profit figure used to calculate commissions, he said. Rebates could be another factor to include, he said.
It’s a matter of “being thoughtful” about the description of a commission, Hoffman said.
“You want to avoid litigation,” he said.
Dealerships would want to reserve the right, in writing, to change pay plans anytime, Hoffman said. However, he said, they should never alter terms retroactively.