New DOL Guidance Clarifies That Auto Dealerships Can Satisfy FLSA Minimum Wage Requirements with Manufacturer Incentive Payments

07.06.20

The U.S. Department of Labor (“DOL”) recently issued an opinion letter clarifying that when an automobile manufacturer directly pays a dealership’s employee for work done on behalf of the dealership, the manufacturer’s payment may count toward the dealership’s minimum wage obligation to the employee. This guidance can help dealerships navigate requirements under the Fair Labor Standards Act (“FLSA”) and ensure compliance when implementing manufacturer incentive programs.

Responding to an inquiry from several automobile dealerships, the DOL’s Wage and Hour Division (WHD) specifically addressed the question of whether automobile manufacturer incentive payments are considered wages for purposes of satisfying dealerships’ minimum wage requirements under the FLSA. In an effort to boost sales, manufacturers often offer incentive payments directly to dealership sales consultants as additional compensation for selling certain vehicles or meeting certain sales goals. Participating dealerships typically collaborate with the manufacturer to develop a payment structure and then implement the manufacturer’s incentive program by informing its sales consultants of the program terms. Because dealership sales consultants receive manufacturers’ incentive payments only for work they perform on behalf of the dealership that employs them, the WHD noted that dealerships effectively treat the manufacturer’s payments as wages. 

Under the FLSA, employers are required to pay covered, non-exempt employees the applicable minimum hourly wage for all hours worked up to 40 hours in a workweek. Consistent with its previous opinion letters, the WHD acknowledged that wages for purposes of the FLSA can come in the form of non-cash items, tips, and third-party payments. Considering that a manufacturer paying a sales consultant additional compensation for selling a certain vehicle is akin to when a customer gives a server a tip, the WHD concluded that manufacturer incentive payments can constitute wages as well. 

But there’s a slight caveat. The WHD made clear that it all depends on the employment agreement between the automobile dealership and the sales consultant. Tips and third-party payments only rise to the level of wages under the FLSA if such payments are expressly or impliedly part of an agreement between the employer and the employee. If a dealership communicates terms of a manufacturer incentive program to its sales consultants prior to performance of their sales work and effectively treats the manufacturer’s payments as wages, such payments likely become an implied part of the employment agreement. Accordingly, when a dealership plays a significant role in facilitating the administration of manufacturer incentive payments, the payments likely count toward the dealership’s minimum wage obligations under the FLSA. Given the fact-specific nature of the WHD’s opinion letter on this topic, dealerships should not rely on it as a defense to FLSA wage claims without first consulting legal counsel.