Jeff’s On Call!: Recruiter Compensation

This post’s inquiry comes from Neil McNulty:

“My thanks to Jeff for his clarification on compensating placement consultants who are employees. I have always been instructed in my 26 years in this business that consultants must be on a fixed base of minimum wage plus commission, or, minimum wage draw against commission…they cannot be 100% straight commission (which most owners would love in order to lower costs), even if the consultants preferred 100% commission. I raised that question because I had an attorney here in VA tell me that as long as the total earnings in commissions, divided by 2,080 (number of working hours in a year), came out to be greater than the minimum wage, we were OK with the law. I told him that we would love that, but that he was incorrect; that for our industry…even if they make $500k in commissions, they still must be receiving either a base of minimum wage, or minimum wage draw against those commissions. Of course, he was not pleased that I questioned his advice because I am not an attorney. Jeff, what are your thoughts on this?

Thanks again, Jeff!”

Hi Neil,

. . . and thanks to you for giving me the opportunity to save so many search businesses out there.

The federal and state wage-and-hour audits, back pay, penalties, and interest awards can be devastating. Then the government compliance agencies can investigate anything “like or related to a claim.” Meaning everyone else’s compensation. So it’s really not clever to avoid the labor laws.

This reply is nasty, but it’s necessary. So as Grandma Allen would say, “Better a quick pain.” Read well, Fordyce friends…

“Averaging out minimum wage” is a contradiction in terms. You can’t. The federal Fair Labor Standards Act (29 USC 206, et seq.) was enacted to prevent any work being performed at any time by any “non-exempt” employee (LIKE A RECRUITER WORKING A DESK) for less than the hourly rate. Not some work hours for less, and other work hours for more. THE HOURLY RATE IS NOT THE MINIMUM WAGE. WE WILL COVER THIS NEXT.

If you think it’s just a semantic difference, you’d better call your state labor department (anonymously). Otherwise, you’ll be in for a shock when one of its auditors calls you for an appointment in your office. He or she won’t be looking for a job.

WE ARE NOW COVERING HOW THE HOURLY RATE IS COMPUTED. Let’s say a recruiter leaves and claims 56 hours (the industry average) was worked every week. The weekly or bi-weekly base rate (fixed amount — salary, draw, or whatever else you call it) is divided by 40 to obtain a “straight time” hourly rate (“base rate”).

NOW YOU WILL LEARN ABOUT SUPERCHARGED OVERTIME OWED. The overtime is computed at time and a half (excess of 8 per day or 40 per week) or double-time (weekends and holidays). So if the recruiter gets an $800 a week draw, the hourly rate is $20, and the overtime rate is $30 (time and a half) or $40 (double-time).

HERE IS WHEN YOU GET NAILED. There are no time cards, sheets, printouts, or other records to substantiate the number of hours. You will think this makes it their word against yours. If so, you’d better call your state labor department again (anonymously).

The employer has the burden of proving hours weren’t worked. Was your ex really aggressive? Yes. You’ll find this out when the claim is easily filed at no expense to your ex. (who can easily represent himself because the state or federal government employees fall all over themselves to help)

THIS IS WHEN YOU DISCOVER YOUR LAWYER IS NOT THE SMARTEST GUY IN THE COURTROOM. There is no way to offset commissions against overtime. Base rate is base rate; commissions are commissions. And overtime has not been paid. That means waiting time penalties on top of the supercharged higher rate. Most states allow for claims going back three years. Let’s see . . . 56 hours per week (industry average) means 16 hours overtime X 156 weeks = 2,496 hours X $30 = 74,880. Double time and waiting time penalties are added bonuses.

“Averaging out overtime” is also a contradiction in terms. It’s not one and a half times (or double-time) the minimum wage. It’s one and a half times (or double-time) the base rate.

Recruiters don’t qualify under the four overtime exemptions to the FLSA (“Executive”, “Administrative”, “Professional” and “Outside Sales”). We’re waiting to see the business card that reads “Executive Administrative Professional Outside Sales Recruiter”. But once you get past the titles, the job of a recruiter doesn’t even remotely qualify. Some goofy administrative ruling, legal opinion, or supposed “law” won’t wiggle you out of this one.

That’s why you’ve been successful for 26 years, Neil. I hope to be with you for 26 more.

Thanks again for asking!

If you have a legal question you’d like to have Jeff answer here on The Fordyce Letter, check out Jeff’s On Call! and submit your question.