Welcome to the first installment of our series dedicated to role-specific sales compensation. A well-designed compensation plan is more than a framework for remuneration, it's the cornerstone of motivation, talent attraction, and retention. In this post, we're going to talk about compensation for inside sales roles, including how to navigate the complexities introduced by the Department of Labor's (DOL) guidelines.

Types of Inside Sales Roles

It's important to understand the variety of inside sales roles when constructing an equitable compensation strategy. Each role differs in its approach and contribution to the sales pipeline, necessitating tailored compensation models. There will be times during the evolution of an organization when either the way you compensate or the content of the role needs to change in order to continue meeting your goals. Knowing the different types of inside sales roles can help you shape your sales team to align with organizational objectives.

Tele-based Prospecting: These salespeople are the cold callers. Their goal is typically to get as many leads as possible out of a great big pool of potential prospects. This has also evolved into email and social engagement beyond just phone calls of the past. The job focus is on both the quantity of prospects engaged and the conversion to leads. Compensation should incentivize the high volume of leads generated and qualified and may include bonuses along with base pay. The pay mix should be a lower variable (10-20%) as a percentage of total target pay. When these types of roles sit in Marketing, it is normal not to see 100% base pay, but the variable opportunity usually helps offset the high burnout rate of the job.

Inbound Sales: Inbound representatives are the first responders to buyer interest. Their transactional interactions often demand rapid response and product knowledge. This role generally carries a sales quota and can be utilized for client or new business sales. This role does not own the prospecting aspect of the sales process. Given the nature of their role, it is appropriate to design a mix of base pay and performance bonuses (20-30% of total target pay). 

Outbound Sales: This versatile role entails handling both inbound and outbound calls (or outbound only). Representatives in this category often work deals through the entire sales process from prospecting to closure, albeit typically for less complex transactions that require on-site presence. This role is utilized to cover territories or market segments where the cost is prohibitive to manage with a field-based sales role. Compensation for these roles should balance base pay with commission (25-40% of total target pay) to reward both the volume and quality of transactions closed.

These three examples are far from the number of different permutations of inside sales that can be utilized in your organization, but they are illustrative of the growing progression of accountability in the sales process (both inputs of activity and organizational outcomes) and the corresponding component of pay at risk for those sales activities. By recognizing the distinct functions and responsibilities each of these roles serves, sales leaders can craft compensation packages that reward the behaviors they value and that support the organizational objectives.

This includes clarifying their functional engagement with prospects/customers, their ownership of a sales number, and their responsibility in the sales process, to name a few. The trick with inside sales roles, however, is that depending on how your pay mix is balanced, your inside salespeople may legally be entitled to overtime pay.

DOL Requirements

Two weeks ago, I posted about the Department of Labor's (DOL) requirements, which could significantly affect compensation structures. Per the DOL's guidelines, certain roles are exempt from overtime pay — typically those categorized under executive, administrative, professional, or outside sales positions. However, inside sales do not fit neatly into these buckets, particularly because their sales activities are conducted within the employer's premises.

This raises pivotal questions: Does the primary duty of your inside sales team fall under the exemption categories? Do their earnings exceed the minimum salary threshold set by the DOL, which is $684 per week? Are over half of their earnings from commissions? If not, their compensation packages must account for overtime pay.

These exemptions were designed with traditional role definitions in mind, yet the reality of inside sales roles is anything but traditional. The delineation between inside and outside sales has blurred, with inside sales teams often undertaking duties once reserved for field agents — but from within the office or via digital means.

This fluidity requires sales leaders to be vigilant in classifying roles and designing compensation models that are not only legally compliant but also reflective of the evolving landscape of sales methodologies.

Even though inside sales roles are exempt, they are subject to the same considerations for sales compensation that I talk about in my books and other blog posts, so in the next section, we'll explore how to effectively compensate sales roles that are non-exempt.

Compensating for Inside Roles That Qualify for Overtime

When it comes to inside sales roles that do qualify for overtime, compensation structures become a bit more complex, but with the right strategy, they can be both compliant and conducive to high performance.

Understanding Overtime Eligibility: To start, it's imperative to identify which roles are non-exempt and, therefore, eligible for overtime. This typically involves roles where the base pay is below the DOL threshold or where commission does not constitute more than half of their earnings.

Base Pay Considerations: For non-exempt employees, ensuring that the base pay meets at least the federal minimum wage is essential. Sales leaders must factor in the necessity of paying one and a half times the regular rate for hours worked beyond the standard 40-hour workweek.

Structuring Commissions: Since overtime is a factor, commissions for these roles should be carefully planned. They can be a great motivator, but depending on your goals, you may want to structure them so that they do or don't disincentivize working overtime.

Bonus and Incentives Alignment: Similar to exempt roles, non-discretionary bonuses and incentives can supplement base pay, but for non-exempt employees, these must be calculated into the overtime rate when they are paid.

Managing Overtime: Employers may strategically manage the amount of overtime worked to control costs, but this should be balanced with the expectations and demands placed on the sales team.

Record Keeping: Accurate time-tracking and record-keeping are critical to ensure compliance with DOL regulations for non-exempt employees. This is not only a legal requirement but also aids in transparency and clarity in compensation for employees.

Compensation is more than a line item on a budget; it's a reflection of value and a catalyst for performance. As we've explored, whether dealing with exempt or non-exempt roles, the approach must be strategic, mindful of DOL regulations, and aligned with the company's objectives.