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)

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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.

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at jeff@placementlaw.com.

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2 Comments on “Jeff’s On Call!: Recruiter Compensation

  1. Thanks very much for posting this,Jeff. I’d like to see it again each morning. I am happy to be past the “Silk Purse Factory” phase of my career but I still get asked about this by others and it is good to have something to point to right after I say “You just can’t DO that.”

  2. Hey, I do have a followup question… The last advice I had from more than one legal firm (and this was 5 or 6 years ago) was that the minimum someone had to be paid was somehow determined by FLSA and that it wasn’t minimum wage but that it was a number that back then was between 1100 and 1200 a month. Since I am not hiring (recruiters anyway) anymore I have lost track and I don’t know if this was ever correct. But it is what I was told.
    I guess the question is “What’s the least someone can be legally paid for a week or a month or whatever, to see if they can make calls and turn into a recruiter?” I don’t think I see that answer above. Is it the minimum wage after all…if kept to strict hours?

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