Inside Sales Exemption California: Rules on Pay, Breaks, and Commissions

Straightforward information on California’s inside sales exemption, including rules on pay, overtime, breaks, commissions, and federal FLSA requirements. See how misclassification affects overtime, meal and rest breaks, back pay, and when to contact a California employment lawyer.

By Douglas Wade, Attorney

Email | Call (800) 484-4610

Have a quick question? We answered nearly 2000 FAQs.

Table of Contents

1. Introduction

2. The Inside Sales Exemption: What is it?

3. Relevant Pay Period

4. How do wage orders relate to an inside salesperson? What are they?

5. Privileges not applicable to an inside salesperson

6. Salesperson: Inside vs. Outside

7. Are Inside Salespeople Subject to Federal Law?

8. What Happens If You’re Misclassified?

9. Employment Lawyers

Introduction

Exempt and non-exempt are the two main categories for employees. When an employee is considered exempt, they often get a wage and are not eligible for benefits like overtime compensation, food and rest time, etc. Generally speaking, non-exempt workers are entitled to minimum wage, overtime compensation, designated rest and lunch breaks, and more.

The required minimum wage, the necessary rest and meal periods, the appropriate pay periods, the need to pay overtime, the total number of hours worked by the employee, and other significant rules and regulations related to workers and their anticipated working conditions can all be determined by accurately classifying employees.

Generally, an employee must fit under one of the specified exemptions—Executive, Administrative, or Professional—for them to be appropriately categorized as an exempt worker under California law. If an employee does not qualify for one of those exemptions or isn’t otherwise expressly exempt, they should be categorized as non-exempt, and their legal rights are governed by particular laws and regulations. The Inside Sales Exemption is one such particular exemption under both federal and California law.

The Inside Sales Exemption: What is it?

The following criteria must be fulfilled for a person to be appropriately categorized as an inside salesperson:

At least half of the minimum wage must be earned by the employee.
Commissions must account for over fifty percent of the employee’s pay.
The worker must be employed in one of the sectors listed in IWC Wage Order 4 or 7.

Relevant Pay Period

The “representative period” that determines whether an employee has earned sufficient commission to be eligible as an exempt inside salesperson might be as little as one month, but it cannot be longer than a year. Additionally, an employee may be eligible for the exemption in one period of pay but not in another.

How do wage orders relate to an inside salesperson? What are they?

The state legislation governing employment includes California Wage Orders. It is handed out by the IWC (Industrial Welfare Commission of California). It regulates wages, working conditions, and hours worked. These salary orders are divided into many professions and sectors.

Employees in sectors listed in IWC Wage Order Number 4 (professional, clerical, technical, mechanical, & related jobs) and IWC Wage Order Number 7 (mercantile industry) are eligible for the inside sales exemption.

Privileges not applicable to an inside salesperson

According to California law, an employee is not entitled to overtime pay if they are correctly categorized as an inside salesperson.

Inside salespeople are nevertheless entitled to meals and rest periods, though. This corresponds to one or two duty-free, undisturbed 30-minute meal breaks for a maximum 14-hour day and one to three duty-free, undisturbed ten-minute rest periods for a maximum 14-hour day.

In addition, inside salespeople are entitled to reimbursement for any necessary non-sales tasks and relaxation periods.

Salesperson: Inside vs. Outside

An “Outside Salesperson” is any individual who is at least eighteen years old and regularly spends more than half of their working hours away from their employer’s location of business with the goal to sell tangible or intangible goods or to secure orders or agreements for goods, services, or facility use.

A worker performing outside sales must spend most of their day away from their company’s place of business. On the other hand, an inside salesperson is someone who sells things while operating from the company’s place of operation (or their residence if that is the worker’s official workplace). In most cases, telephone-based sales must be reviewed within the inside sales exception.

Are Inside Salespeople Subject to Federal Law?

Indeed. Employees involved in sales may be subject to the Fair Labor Standards Act (FLSA). In particular, the inside sales exemption is limited to workers who:

Make over 150 percent of the minimum wage,
Get at least half of their earnings from commissions, and
Be employed in a service or retail setting.

Incentive-based pay must be substantially proportionate to an individual’s sales productivity for it to be considered a “commission” under the inside sales exemption. This means that a worker will not be eligible for the inside sales exemption if they get a set amount of incentive pay for reaching a specific milestone; instead, the remuneration should be classified as a “bonus” rather than a “commission.” For incentive pay to be considered a commission, it must be substantially proportionate to the employee’s sales productivity rather than being computed as a proportion of sales.

If an employer receives at least 75 percent of their yearly sales revenue from products or services that are not intended for resale and is acknowledged as a service or retail business in their industry, they are considered to be in the retail & service industry under the FLSA.

What Happens If You’re Misclassified?

Misclassification is frequently the result of misinterpreting certain characteristics of the inside sales exemption. For instance, what may be considered a “commission” is actually categorized as a “bonus” if a person consistently receives extra compensation for hitting specific goals. As a result, the employee might not meet the inside sales exemption’s minimum fifty percent commission-derived income criterion.

If an employee is misclassified as an inside sales representative, it typically indicates that the employer has neglected to pay overtime, which is defined as at least 1.5 times the worker’s usual rate of pay for every hour worked beyond eight in one working day or over forty in one week.

The employer may be required to pay one hour’s wages at the worker’s regular rate of remuneration for each day that the employee has not received the necessary meal & rest breaks. The employer is required to pay two hours at the worker’s regular rate of pay if neither a rest break nor a lunch break is offered in a single day.

Employment Lawyers

Are you categorized as an inside salesperson? Are you not sure if that’s correct? Misclassification can lead to overtime denial, missed meals/rest periods, & lost income.

It is essential to consult employment attorneys if you believe you are being misclassified.

You will be able to ascertain whether you have indeed been misclassified and have thus been denied certain rights granted to you under federal & California law, thanks to the confidentiality & privileges of a lawyer-client relationship.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment

Most recent blogs:

California Class Action Lawsuit Basics for Workers and Consumers

Get a clear overview of California class action lawsuits, including how they work for workers and consumers seeking compensation. Find out about typical case types, key legal requirements, settlement outcomes, and the benefits and risks of joining a class.

Meal Break Waiver in California: What Employees Can Agree To

California meal break waiver rules explain when workers may skip lunch and when employers must provide uninterrupted, off-duty meal periods. See how waiver agreements, on-duty meals, and penalty pay work so employees protect rights and businesses follow California labor law.

Predictive Scheduling Laws: State and City Requirements for Employers

Get an overview of U.S. predictive scheduling laws, including covered industries, key city and state rules, penalties, and employer obligations. See which jurisdictions require advance work schedules, how predictability pay works, and how HR software supports compliance with these regulations.

Harassment Training Requirements California: Employer Deadlines, Who Must Train, and Refresher Rules

Get up-to-date California harassment training requirements for employers, including who must train, deadlines, and refresher timelines. Avoid common compliance mistakes by following California rules on sexual harassment training, protected classes, policy obligations, and required documentation.

Inside Sales Exemption California: Rules on Pay, Breaks, and Commissions

Straightforward information on California's inside sales exemption, including rules on pay, overtime, breaks, commissions, and federal FLSA requirements. See how misclassification affects overtime, meal and rest breaks, back pay, and when to contact a California employment lawyer.

How Many Hours Can a Volunteer Work per Day in California? Laws, Limits, and Rights Explained

Find out how many hours volunteers can work per day in California under labor rules, protections, and scheduling limits. Compare volunteer and employee rights, including workers' compensation, harassment protections, discrimination safeguards, and key considerations for nonprofit and public organizations.

Show Up Pay California: Employee Rights for Being Sent Home Early or Given Short Shifts

Show up pay California explains employee rights to reporting time pay when sent home early or given short shifts. Review rules, exceptions, examples, and options for unpaid wages or retaliation claims if your employer ignores California reporting time laws.

Can Managers Take Tips in California? Laws, Tip Pools & SB 648

Can managers take tips in California, and what does Labor Code Section 351 say about tip pooling and supervisors? Find out how SB 648 strengthens enforcement against tip theft, helps workers recover withheld gratuities, and increases penalties for violations.

Can Owners Take Tips in California? A Complete Guide to State Tip Laws and Employee Rights

Find out when California business owners can share in tips, how tip pooling works, and minimum wage obligations. Get a breakdown of employee tip rights, illegal practices, service charges, penalties, and protection options for California workers.

Right to Disconnect Laws in California: AB 2751 for Employers and Employees

See how California's AB 2751 right to disconnect bill could reshape after-hours communication between employers and employees. Review potential effects on work-life balance, stress, productivity, and compliance planning as organizations anticipate possible enforcement.

Defamation California: Key Laws, Legal Defenses, and Damages Explained

Get an overview of California defamation law, including libel, slander, negligence standards, and the difference between public and private figures. Review key defenses, retraction rules, and available damages such as actual, compensatory, punitive, and emotional distress awards.

What Is a Level 1 Background Check and How It Differs from Level 2

See what a Level 1 background check covers and how it compares with a Level 2 screening for hiring. Get clear facts on definitions, state lookback limits, and how better screening supports safer workplaces and less fraud.

California Vacation Rollover Law: Employee Rights, Accrued Time, and Pay Rules

This article covers California vacation rollover rules, employee rights, accrued PTO, payout duties, and employer limits under state law. It explains how unused vacation counts as wages, when employers must pay it out, and options for unpaid wage claims.

SB 553 CA: New Workplace Violence Prevention Requirements for California Employers in 2025

Get a clear overview of California SB 553 workplace violence prevention rules and new obligations for employers starting in 2025. See what policies, training, recordkeeping, and enforcement changes SB 553 brings for injury prevention plans and compliance efforts.

Labor Code 226.7: California Meal and Rest Break Requirements and Employer Penalties

California Labor Code 226.7 explains meal and rest break rules for non-exempt employees and what employers must pay when breaks stop. See how missed breaks trigger premium pay, wage claims, penalties, and class actions for violations of California break requirements.

Building an Onboarding Packet That Welcomes and Retains Employees

Create an onboarding packet that welcomes new hires, sets clear expectations, and supports lasting engagement and retention. Include culture details, training tools, policies, and thoughtful gifts to lower turnover and reduce hiring costs.

Complete Guide to New Employee Paperwork: Required Forms and Documents for 2025

Make new employee paperwork for 2025 easier with a clear checklist of required hiring forms, documents, and compliance steps. Support HR and small business owners with practical tips for organizing onboarding packets, benefit elections, direct deposit, and policy acknowledgments.

Paid Time Off California: Laws, Accrual, Vacation Pay, and Employee Rights

Get clear guidance on paid time off in California, including PTO laws, sick leave rules, accrual, and vacation payout obligations. See how California PTO rules affect vacation requests, paid sick leave, layoffs, FTE status, cash-outs, and employee rights.

Can employers test for THC in California for hiring and workplace safety?

See when California employers may test workers for THC under AB 2188 without violating state protections for off-duty cannabis use. Review allowed testing methods, safety-sensitive role policies, and steps to align workplace drug testing programs with current impairment standards.

California notice to employee as to change in relationship: Requirements, legal steps, penalties, and sample notice

This article outlines California's notice rules for changes in employment status and the steps employers must follow. It also covers required details, timing, penalties, and includes a sample notice for practical use.

Bulletproof Documentation for Employee Records: Reduce Legal Risk and Stay Compliant

Keep employee documentation compliant and consistent to reduce legal risk and protect HR, managers, and staff. Use clear records, performance reviews, and PIPs to support decisions, track progress, and maintain workplace accountability.

Workplace Coaching: Benefits, Styles, and Methods to Improve Performance

Workplace coaching boosts employee performance, strengthens leadership, and encourages a culture of continuous growth within organizations. It refines communication, teamwork, and motivation while improving organizational effectiveness and satisfaction.

Essential Job Functions and the ADA: Insights from the Tenth Circuit Decision

ADA case from the Tenth Circuit upholds employer-defined job duties when safety and security risks are significant. It clarifies accommodation limits and supports consistent qualification standards without lowering business requirements.

California Pay Transparency Law SB 1162: Employer Rules, Compliance, and Penalties

California’s Pay Transparency Law SB 1162 requires employers to disclose pay ranges, maintain records, and submit annual wage reports. Non-compliance can result in financial penalties, lawsuits, and reputational damage for businesses across California.

Is Holiday Pay Double Time? Rules, Calculations, and Eligibility

Holiday pay rules, double time vs time-and-a-half, eligibility, and calculations, including Massachusetts and Rhode Island requirements. Guidance for employers and HR on policies, paid holidays, overtime, hourly and salaried staff, and payroll timing.

How to Apply for Temporary Disability in California: Eligibility, Payments, and Filing Steps

California employees may qualify for temporary disability payments through SDI when a certified medical condition stops them from working. Check eligibility, typical benefit amounts for 2025, and filing steps with the EDD to submit a timely, complete claim.

How Much Does Disability Pay for Obesity? ADA Recognition, Legal Cases, and Employer Implications

Obesity as a disability: ADA recognition, benefit eligibility, and real legal outcomes. Guidance for employers on policies, accommodations, and risk.

California Right to Work: State Status and Union Rules

California lacks a right-to-work law, so private employers may require union membership or dues as hiring conditions. See California’s rules, failed initiatives, and how they differ from right-to-work states.

Paid Parental Leave California: 2025 Updates, Employer Rules, and Employee Benefits

California’s 2025 Paid Parental Leave updates increase wage replacement and flexibility for workers bonding with a child or caring for family. Employers gain clarity on obligations, benefit coordination, and compliance under the revised Paid Family Leave and Disability Insurance programs.

CA Sick Pay Law 2025: Employer Requirements & Employee Rights

California’s 2025 sick leave law mandates at least 40 hours or five days of paid leave for eligible employees. Get clear rules on accrual, usage, carryover, anti-retaliation protections, and notice requirements for employers statewide.

See all blogs: Business | Corporate | Employment

Inside Sales Exemption California: Rules on Pay, Breaks, and Commissions

Introduction

The Inside Sales Exemption: What is it?

Relevant Pay Period

How do wage orders relate to an inside salesperson? What are they?

Privileges not applicable to an inside salesperson

Salesperson: Inside vs. Outside

Are Inside Salespeople Subject to Federal Law?

What Happens If You’re Misclassified?

Employment Lawyers

Free Consultation