[Code of Federal Regulations]
[Title 29, Volume 3]
[Revised as of July 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR541.112]

[Page 190-191]
 
                             TITLE 29--LABOR
 
         CHAPTER V--WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR
 
PART 541_DEFINING AND DELIMITING THE TERMS ``ANY EMPLOYEE EMPLOYED IN A 
 
                        Subpart B_Interpretations
 
Sec. 541.112  Percentage limitations on nonexempt work.

    (a) An employee will not qualify for exemption as an executive if he 
devotes more than 20 percent, or in the case of an employee of a retail 
or service establishment if he devotes as much as 40 percent, of his 
hours worked in the workweek to nonexempt work. This test is applied on 
a workweek basis and the percentage of time spent on nonexempt work is 
computed on the time worked by the employee.
    (b)(1) The maximum allowance of 20 percent for nonexempt work 
applies unless the establishment by which the employeee is employed 
qualifies for the higher allowance as a retail or service establishment 
within the meaning of the Act. Such an establishment must be a distinct 
physical place of business, open to the general public, which is engaged 
on the premises in making sales of goods or services to which the 
concept of retail selling or servicing applies. As defined in section 
13(a)(2) of the Act, such an establishment must make at least 75 percent 
of its annual dollar volume of sales of goods or services from sales 
that are both not for resale and recognized as retail in the particular 
industry. Types of establishments which may meet these tests include 
stores selling consumer goods to the public; hotels; motels; 
restaurants; some types of amusement or recreational establishments (but 
not those offering wagering or gambling facilities); hospitals, or 
institutions primarily engaged in the care of the sick, the aged, the 
mentally ill, or defective residing on the premises, if open to the 
general public; public parking lots and parking garages; auto repair 
shops; gasoline service stations (but not truck stops); funeral homes; 
cemeteries; etc. Further explanation and illustrations of the 
establishments included in the term ``retail or service establishment''

[[Page 191]]

as used in the Act may be found in part 779 of this chapter.
    (2) Public and private elementary and secondary schools and 
institutions of higher education are, as a rule, not retail or service 
establishments, because they are not engaged in sales of goods or 
services to which the retail concept applies. Under section 
13(a)(2)(iii) of the Act prior to the 1966 amendments, it was possible 
for private schools for physically or mentally handicapped or gifted 
children to qualify as retail or service establishments if they met the 
statutory tests, because the special types of services provided to their 
students were considered by Congress to be of a kind that may be 
recognized as retail. Such schools, unless the nature of their 
operations has changed, may continue to qualify as retail or service 
establishments and, if they do, may utilize the greater tolerance for 
nonexempt work provided for executive and administrative employees of 
retail or service establishments under section 13(a)(1) of the Act.
    (3) The legislative history of the Act makes it plain that an 
establishment engaged in laundering, cleaning, or repairing clothing or 
fabrics is not a retail or service establishment. When the Act was 
amended in 1949, Congress excluded such establishments from the 
exemption under section 13(a)(2) because of the lack of a retail concept 
in the services sold by such establishments, and provided a separate 
exemption for them which did not depend on status as a retailer. Again 
in 1966, when this exemption was repealed, Congress made it plain by 
exclusionary language that the exemption for retail or service 
establishments was not to be applied to laundries or dry cleaners.
    (c) There are two special exceptions to the percentage limitations 
of paragraph (a) of this section:
    (1) That relating to the employee in ``sole charge'' of an 
independent or branch establishment, and
    (2) That relating to an employee owning a 20-percent interest in the 
enterprise in which he is employed. These except the employee only from 
the percentage limitations on nonexempt work. They do not except the 
employee from any of the other requirements of Sec. 541.1. Thus, while 
the percentage limitations on nonexempt work are not applicable, it is 
clear that an employee would not qualify for the exemption if he 
performs so much nonexempt work that he could no longer meet the 
requirement of Sec. 541.1(a) that his primary duty must consist of the 
management of the enterprise in which he is employed or of a customarily 
recognized department or subdivision thereof.