By Laurie Nooren, SPHR, PHRca, SHRM-CP
A recent California Court of Appeals decision in Hirdman v. Charter Communications, LLC brought clarity—and a win—for employers on how to calculate California Paid Sick Leave (PSL) for outside sales employees. This decision contradicts previous guidance from the Division of Labor Standards Enforcement (DLSE) and establishes a more streamlined approach for PSL calculations for outside sales employees.
Background
- Outside sales employees are exempt from overtime if they are 18 or older and spend more than 50% of their time away from the employer’s place of business, actually selling or obtaining orders or contracts for tangible/intangible products or services. This cannot be done via phone call, but must be done in person, and does not include delivery, repair, or maintenance of a product.
- Under California Labor Code Section 246, employers must pay exempt employees for PSL in the same way they pay other forms of paid leave.
In 2016, the DLSE issued an opinion letter (https://www.dir.ca.gov/dlse/opinions/2016-10-11.pdf) suggesting that outside sales employees didn’t fit the usual “exempt employee” categories (executive, administrative, or professional). The DLSE said employers should instead calculate PSL for commissioned employees by:
- Using the employee’s regular rate of pay for the workweek in which sick time is taken, or
- Dividing the employee’s total wages (excluding overtime premiums) by total hours worked in the prior 90 days.
The Court’s Decision
The Court of Appeals disagreed with the DLSE’s guidance and its opinion letter. It held that outside sales employees are covered under Section 246’s “exempt” category. That means employers may pay their PSL at the base hourly rate—excluding commissions—so long as that’s how the employer pays other forms of paid leave.
In Hirdman’s case, Charter Communications had paid his sick leave at his base rate without factoring in commissions. The court found this consistent and appropriate with the law, ruling in Charter’s favor.
What This Means for Employers
This ruling allows employers to pay PSL for properly classified exempt employees—including outside sales employees—at the same rate and in the same manner they pay other paid leaves, without including commissions in the calculation. Employers should review their current practices to ensure compliance with this clarified standard for PSL calculation.
Please contact your Silvers HR Consultant if you have questions about this ruling or how it applies to your business.