Compliance Assistance

U.S. Department of Labor

Employment Standards Administration

Wage and Hour Division

Washington, D.C. 20210

FLSA2009-28

January 16, 2009

Dear Name*:

This is in response to your request for an opinion regarding whether certain insurance agents

qualify for either the outside sales or administrative exemptions under 29 U.S.C. § 213(a)(1).

Based on the information provided, it is our opinion that, depending on the duties actually

performed, an insurance agent may qualify for either the outside sales or administrative

exemption.

Your organization is a trade association representing life insurance companies. You

emphasized in your request that, despite being called “insurance agents” regardless of the

duties being performed, the insurance agents in question fall under two distinct models: (1)

those whose primary duty is sales, and (2) those whose primary duty is servicing clients;

marketing, promoting, and servicing their company’s insurance and financial products;

collecting and analyzing information regarding their clients’ income, assets, and insurance

needs; determining which insurance and financial products best meet each client’s needs and

circumstances; and advising clients on the advantages and disadvantages of different insurance

and financial products. It is your position that insurance agents in group (1) meet the outside

sales exemption, and that insurance agents in group (2) meet the administrative exemption.

Group (1) / Outside Sales Exemption

According to your letter, the primary duty of insurance agents in group (1) is to make sales and

obtain orders for life insurance and other insurance and financial products and services. These

sales are made directly to clients, primarily through face-to-face meetings at the clients’ homes

or places of business. Although these insurance agents perform sales-related activities in their

offices, you state that the in-office activities are “incidental to or in conjunction with” the

insurance agent’s outside sales activities. Typical duties include:

• The agents sell insurance policies and financial products and services directly to clients,

and spend a majority of their time performing tasks directly related to their own sales

activities.

• The agents customarily and regularly meet with clients face to face outside of their

offices (e.g., at a client’s home or business or at a restaurant or club) to sell insurance

policies and financial products.

• The agents communicate with clients by telephone, direct mail, and e-mail as an adjunct

to their in-person sales calls, and these communications occur both outside of and

Unless otherwise noted, any statutes, regulations, opinion letters, or other interpretive material cited in this letter

can be found at

www.wagehour.dol.gov.

within their offices. They also spend time in the office preparing for meetings with

current or prospective clients; communicating with clients by telephone, e-mail and

letter correspondence; answering clients’ questions; preparing and reviewing documents

and forms required to sell insurance products; following up on applications; educating

themselves about various insurance or financial products; compiling and updating client

lists or databases; creating marketing or promotional activities in support of their own

sales activities; attending training on the company’s products; and attending compliance

meetings addressing regulatory issues. In addition to direct selling efforts, agents also

conduct research to select the specific types and amounts of insurance products to

recommend and sell to clients to best meet the client’s needs. You state that the in-

office activities are incidental to or in conjunction with the insurance agent’s own

outside sales activities.

• The agents are responsible for originating their own sales and developing their own

client lists by contacting or networking with current or prospective clients and by

developing and maintaining relationships with sources of leads and referrals. They

make in-person calls on or attend social functions with real estate agents, attorneys,

brokers, and other potential sources of referrals and leads. Insurance agents also make

presentations at seminars or gatherings of trade associations and civic and non-profit

organizations. For instance, the agents may participate in seminars or conferences to

explain new products they sell and to identify and attract new clients. You state that

these marketing and prospecting activities are incidental to and in conjunction with each

insurance agent’s own outside sales activities to obtain additional clients and make

additional sales.

New agents receive training regarding the company’s products, sales techniques, and the

regulations governing their sales activities. The agents typically determine their own hours of

work and regularly travel to see current and prospective clients during the workday, and

sometimes in the evening and on weekends. Other than supervision mandated by regulatory

agencies, how agents conduct their business is not subject to supervision on a day-to-day basis.

The agents generally enter into commission arrangements with insurance companies that

govern their compensation and they are paid primarily or entirely through commissions on the

insurance products they sell to clients. The commissions typically represent a portion of the

first year premiums, renewal premiums, and other monies paid to the company by the insurance

agent’s clients.

Section 13(a)(1) of the FLSA provides an exemption from the statute’s minimum wage and

overtime requirements for “any employee employed . . . in the capacity of outside salesman.”

The Department’s regulations define that phrase as including “any employee”:

(1) Whose primary duty is:

(i) making sales within the meaning of section 3(k) of the Act, or

(ii) obtaining orders or contracts for services or for the use of facilities for which

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a consideration will be paid by the client or customer; and

(2) Who is customarily and regularly engaged away from the employer’s place or places

of business in performing such primary duty.

29 C.F.R. § 541.500. “Primary duty” means “the principal, main, major, or most important

duty that the employee performs.” 29 C.F.R. § 541.700. Section 3(k) of the FLSA defines

“sale” as “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other

disposition.” See also 29 C.F.R. § 541.501.

Under 29 C.F.R. § 541.701, “[t]he phrase ‘customarily and regularly’ means a frequency that

must be greater than occasional but which, of course, may be less than constant. Tasks or work

performed ‘customarily and regularly’ includes work normally and recurrently performed every

workweek; it does not include isolated or one-time tasks.”

The regulations provide further guidance regarding what it means to be “engaged away from

the employer’s place of business” for purposes of 29 C.F.R. § 541.500. “The outside sales

employee is an employee who makes sales at the customer’s place of business or, if selling

door-to-door, at the customer’s home. Outside sales does not include sales made by mail,

telephone or the Internet unless such contact is used merely as an adjunct to personal calls.” 29

C.F.R. § 541.502. Outside sales employees may perform promotional work as an exempt

outside sales activity if it “is actually performed incidental to and in conjunction with an

employee’s own outside sales or solicitations.” 29 C.F.R. § 541.503. Whether promotional

work is to be considered exempt is determined on a case-by-case basis. Id.

Based on the information you have provided, the insurance agents in group (1) appear to meet

the requirements for the outside sales exemption. First, the agents fulfill the sales requirement

of the exemption since, as you state in your letter, their primary duty is to make sales and

obtain orders for life insurance and other insurance and financial products and services.

Second, whether the agents are “customarily and regularly engaged away from the employer’s

place of business” depends on the extent to which they engage in sales or solicitations, or

related activities, outside of the employer’s place or places of business. By meeting clients face

to face outside of the employer’s place of business in order to initiate sales, such as at the

client’s home or business or at a restaurant or club, the agents fulfill the “outside” requirement

of the outside sales exemption. The frequency of performing qualifying exempt outside sales

activities must be “normally and recurrently performed every workweek; it does not include

isolated or one-time tasks.” 29 C.F.R. § 541.701. You state that the agents “customarily and

regularly meet with clients face-to-face- outside of their offices to sell insurance policies and

financial products.” If by “customarily and regularly” you mean “normally and recurrently”

performed every workweek and not on an isolated or one-time basis, then the agents would

meet this test. Of course, agents who do not engage in outside sales activity as a normal and

recurrent part of their workweek fail to meet the exemption’s requirements.

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Finally, the agents may qualify for the outside sales exemption even though they perform some

activities at their employers’ place of business, so long as the inside sales activity is incidental

to and in conjunction with qualifying outside sales activity.

See 69 Fed. Reg. 22,160, 22,163

(Apr. 23, 2004) (copy enclosed); 29 C.F.R. §§ 541.500(b);

Olivo v. GMAC Mortgage Co., 374

F. Supp. 2d 545, 551 (E.D. Mich. 2004). The performance of activities related to the sales of

insurance and financial products made outside the employer’s place of business does not

disqualify the agents from the exemption. Activities such as making phone calls, sending e-

mails, and meeting with clients in the office are considered exempt if performed incidental to or

in conjunction with the agent’s outside sales activities. 29 C.F.R. § 541.503; FOH § 22e02;

Opinion Letter FLSA2006-11 (Mar. 31, 2006).

Therefore, although each agent must be evaluated on an individual basis to determine whether

he or she qualifies for the outside sales exemption, those employees whose job duties match the

duties described above would be exempt from the minimum wage and overtime requirements

of the FLSA. The salary basis test is inapplicable to outside sales employees. 29 C.F.R. §

541.500(c).

Group (2) / Administrative Exemption

According to your letter, although the agents in group (2) make some sales, their primary duty

is to service the insurance company’s business and advise clients on various insurance and

financial products, taking into account the agent’s knowledge of the needs, goals, and risk

tolerance of each client, as well as the agent’s knowledge of and experience with the insurance

industry and market. Typical duties include:

• The agents meet with current or prospective clients, typically in person, to collect and

discuss each client’s life insurance and financial information (e.g., assets, income,

debts, cash flow, tax status, retirement savings, and financial objectives) and needs.

• The agents analyze the information collected from current and prospective clients and

compare and evaluate possible life insurance and financial products to develop

individualized advice and strategies for each client based upon each client’s insurance

and financial status, risk tolerance, needs, and objectives.

• The agents provide individualized advice and recommendations to current and

prospective clients on the purchase of life insurance and other financial products. This

includes explaining and discussing with clients the advantages and disadvantages of

various life insurance and financial products, including the costs, monetary values or

returns, death benefits, and risks of each.

• The agents structure transactions to ensure that they result in the maximum benefit for

clients, while also conforming with the laws, regulations, and requirements governing

the insurance industry (and, where applicable, the securities industry).

• The agents make some sales of life insurance and other financial products.

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• The agents engage in promotion and business development activities, including the

marketing, servicing, and promoting of the life insurance company’s insurance and

other financial products and services. They make themselves visible to the public to

attract, meet and retain potential new clients for their companies and to explain and

promote the life insurance and other financial products offered by the insurance

company with which the insurance agent is associated. They also develop business by

contacting or networking with current or prospective clients and by developing and

maintaining relationships with sources of leads and referrals. They make in-person

calls on, or attend social functions with, real estate agents, attorney, brokers, and other

potential sources of referrals and leads and make presentations at seminars or gatherings

of trade associations and civic and non-profit organizations. For example, they may

participate in seminars or conferences to explaining new insurance products and

services that are offered, and to identify and attract new clients.

The agents typically determine their own hours of work and regularly meet with current and

prospective clients during the workday, and sometimes in the evening and on weekends. They

are not subject to constant supervision on a day-to-day basis.

Section 13(a)(1) of the FLSA provides a minimum wage and overtime pay exemption for any

employee employed in a bona fide administrative capacity as defined in 29 C.F.R. Part 541.

An employee may qualify for an exemption if all of the duties and salary tests are met.

Under 29 C.F.R. § 541.200(a), “employee employed in a bona fide administrative capacity”

means “any employee”:

(1) Compensated on a salary or fee basis at a rate of not less than $455 per week . . . ;

(2) Whose primary duty is the performance of office or non-manual work directly

related to the management or general business operations of the employer or the

employer’s customers; and

(3) Whose primary duty includes the exercise of discretion and independent judgment

with respect to matters of significance.

You ask that we assume for purposes of this letter that the agents in group (2) meet the salary

basis test.

“Work directly related to the management or general business operations” of the employer

refers to work in such functional areas as quality control, research, and marketing.

29 C.F.R.

§ 541.201(b). An employee’s primary duty is “the principal, main, major or most important

duty that the employee performs.” 29 C.F.R. § 541.700(a).

Section

541.203 includes specific examples of occupations that would generally meet the

administrative duties test, including in paragraph (b) “[e]mployees in the financial services

industry” who perform duties similar to the agents you describe. Such employees are

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ordinarily considered to meet the duties requirements for the administrative exemption if their

duties include:

work such as collecting and analyzing information regarding the customer’s income,

assets, investments or debts; determining which financial products best meet the

customer’s needs and financial circumstances; advising the customer regarding the

advantages and disadvantages of different financial products; and marketing,

servicing or promoting the employer’s financial products. However, an employee

whose primary duty is selling financial products does not qualify for the

administrative exemption.

29 C.F.R. § 541.203(b). The preamble to the 2004 revisions to the Part 541 regulations reviews

the pertinent case law drawn from the financial services industry and concludes:

The Department agrees that employees whose primary duty is inside sales cannot

qualify as exempt administrative employees. However, as found by the John

Alden, Hogan and Wilshin courts, many financial services employees qualify as

exempt administrative employees, even if they are involved in some selling to

consumers. Servicing existing customers, promoting the employer’s financial

products, and advising customers on the appropriate financial product to fit their

financial needs are duties directly related to the management or general business

operations of their employer or their employer’s customers, and which require the

exercise of discretion and independent judgment.

Defining and Delimiting the Exemption for Executive, Administrative, Professional, Outside

Sales and Computer Employees, 69 Fed. Reg. 21,122, 22,146 (Apr. 23, 2004); see also Hogan

v. Allstate Ins. Co., 361 F.3d 621 (11th Cir. 2004); Reich v. John Alden Life Ins. Co., 126 F.3d

1 (1st Cir. 1997); Wilshin v. Allstate Ins. Co., 212 F. Supp. 2d 1360 (M.D. Ga. 2002); Opinion

Letter FLSA2006-43 (Nov. 27, 2006).

Your describe the primary duty of the agents in this group as including meeting with current or

prospective clients, typically in person, to collect and discuss each client’s life insurance and

financial information; analyzing the information collected from current and prospective clients

and comparing and evaluating possible life insurance and financial products to develop

individualized advice and strategies for each client based upon each client’s insurance and

financial status, risk tolerance, needs, and objectives; providing individualized advice and

recommendations to current and prospective clients on the purchase of life insurance and other

financial products; and structuring transactions to ensure that they result in the maximum

benefit for clients, while also conforming with the laws, regulations, and requirements

governing the insurance industry (and, where applicable, the securities industry). Based upon

the foregoing, we conclude that these agents satisfy the duties requirement under 29 C.F.R.

§ 541.203(b).

Of course if, based on all the facts in a particular case, an agent’s primary duty is selling insurance and financial

products to clients, the agent will not qualify for the administrative exemption. 29 C.F.R. § 541.203(b)

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The agents satisfy the duties requirements of the administrative exemption by performing office

or non-manual work directly related to the management or general business operations of the

employer, and by performing duties that include the exercise of discretion and independent

judgment with respect to matters of significance. See 29 C.F.R. §§ 541.200(a)(2)-(3);

541.203(b). Similar to the employees discussed in the 2004 preamble in John Alden, Hogan,

and

Wilshin—all of whom were found to satisfy the duties requirements of the administrative

exemption—the agents service their employer’s financial services business by engaging in

promotion and business development activities, including the marketing, servicing, and

promoting of the employing firm’s insurance and financial services and products, and by

making themselves visible to the appropriate segments of the public in order to meet and retain

potential new clients for their employing firm. See Hogan, 361 F.3d at 626-28 (insurance

agents administratively exempt who serviced and advised existing customers, adapted

customer’s policies to their needs, promoted sales, and hired and trained staff, among other

duties);

John Alden, 126 F.3d at 8-14 (administrative exemption applied to insurance marketing

representatives who represented company to third party agents, promoted sales, and kept

informed about market to help match products with customer needs); Wilshin, 212 F. Supp. 2d

at 1376-79 (administrative exemption applied to insurance agent who stayed knowledgeable

about market and needs of customers, recommended products to clients, provided claims help,

promoted company, and directed day-to-day affairs of the office).

The primary duty of the insurance agents you describe includes the exercise of discretion and

independent judgment with respect to matters of significance. In general, the exercise of

discretion and independent judgment involves comparing and evaluating possible courses of

conduct and acting or making a decision after the various possibilities have been considered.

See 29 C.F.R. § 541.202(a); Farmers Insurance Exchange, Nos. 05-35080, 05-35145, 2006

WL 3026037 at *1 (9th Cir. Oct. 26, 2006) (exemption applies to adjusters who “use discretion

to determine whether the loss is covered, set reserves, decide who is to blame for the loss and

negotiate with the insured or his lawyer”). The decisions made as a result of the exercise of

discretion and independent judgment may consist of recommendations for action rather than the

actual taking of action.

See 29 C.F.R. § 541.202(c). You indicate that agents must analyze the

information collected from current and prospective clients and compare and evaluate possible

life insurance and financial products to develop individualized advice and strategies for each

client based upon each client’s insurance and financial status, risk tolerance, needs, and

objectives, thus satisfying this element of the administrative exemption.

Therefore, although each agent in this second group must be evaluated on an individual basis to

determine whether he or she qualifies for the administrative exemption, those agents whose

primary duty is administrative, not sales, and whose job duties match those described above

would be exempt from the minimum wage and overtime requirements of the FLSA.

This opinion is based exclusively on the facts and circumstances described in your request and

is given based on your representation, express or implied, that you have provided a full and fair

description of all the facts and circumstances that would be pertinent to our consideration of the

question presented. Existence of any other factual or historical background not contained in

your letter might require a conclusion different from the one expressed herein. You have

represented that this opinion is not sought by a party to pending private litigation concerning

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the issues addressed herein. You have also represented that this opinion is not sought in

connection with an investigation or litigation between a client or firm and the Wage and Hour

Division or the Department of Labor.

We trust that this letter is responsive to your inquiry.

Sincerely,

Alexander J. Passantino

Acting Administrator

* Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C.

§ 552(b)(7).

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