Wage & Hour Administrator’s Interpretation on Mortgage Lenders
I just finished my third seminar on this issue (one by the IBA, ABA, and the DOL, Iowa division) and while I do not claim to be an expert on the subject I feel as though I have a pretty good grasp of the situation. To say this is a complex matter is like saying the Grand Canyon is a big hole in the ground. It is by the way. 🙂
Let’s start with the essence of the opinion or interpretation. “Employees who perform the ‘typical job duties’ of a mortgage loan officer do not qualify for the administrative exemption from the overtime requirements of the FLSA.”
The operative phrase here is performs the typical job duties of… So it is not just mortgage loan officers but any employee who performs similar job duties. Such employees must keep time records and be paid time and a half for hours worked in excess of forty hours a week.
What are the typical duties of a Mortgage Loan Officer?
- Contacting potential customers.
- Collecting required financial information from customer.
- Entering information into a computer program which identifies available loan products for that customer.
- Discussing loan products with customer, trying to match customer needs.
- Compiling customer documents and forwarding to underwriter
- Finalizing documents for closing.
It has absolutely nothing to do with job title or officer status. It has everything to do with the duties performed on a regular basis.
The Department Of Labor’s view of the law is “The exemption tests are ‘narrowly construed’ against the employer.” Application of the exemption status is limited to positions and duties that are “plainly and unmistakably” within the terms and spirit of the law.
Administrative Exemption (Must meet ALL of the following)
- To qualify for the exemption an employee must be paid at least $455 a week on a “salary basis.” There can be no partial day deductions and cannot be commission only.
- Performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
- Must have the exercise of discretion and independent judgment with respect matters of significance.
Primary Duty Test Applied To Lenders Who Serve Individual Customers.
The DOL views Mortgage loan officers as producing sales. Producing sales is NOT “directly related to the management, or general business operations” of the bank. (Contrast marketing, human resources, and other staff positions directly related to the management or operations of the organization.)
Supporting individual customers is NOT “directly related to the management or general business operations” of the individual customer because individual customers don’t have “management or general business operations.”
Primary Duty Test Applied To Commercial Lenders (can also apply to Agricultural Lenders)
Must meet all the following:
- If customer is a business seeking advice about a mortgage to purchase land, or a loan to buy an office building, or a loan to acquire a warehouse for storage of finished goods, and
- Employee’s primary duty is supplying advice regarding such decisions, and
- Employee exercises discretion and independent judgment with respect to matters of significance in carrying out that primary duty
- Then the employee MIGHT qualify for administrative exemption because the primary duty is ‘related to the management or general business operations of the customer (when the customer is a commercial business entity.)
- Is the primary duty supporting individuals / consumers as Bank customers? (e.g. consumer lenders, personal bankers, brokers, mortgage loan underwriters) Then the administrative exemption is unavailable.
- Is the primary duty supporting commercial entities / businesses as Bank customers? Then administrative exemption MAY be available.
Coming To Terms With Compliance of The New Reality – A Process of Elimination
- Highly Compensated Exemption
- Outside Sales Exemption
- Restricted Hours Worked to Less Than 40
- Salaried-Non-exempt /Fluctuating Workweek
Highly Compensated Exemption
- Performs non-manual work and is paid $100,000 or more annually (including minimum guarantee of $455 per week.
- Meets one or more of the duties tests in any of the executive, administrative, or professional exemptions (e.g., exercises “independent judgment and discretion”)
- Allows employer to make up difference in salary (to get to $100,000) at end of year, rather than pay overtime.
- Non discretionary bonuses
- Other non-discretionary compensation
- Medical insurance payments
- Life insurance payments
- Retirement plan contributions
- Cost of fringe benefits
- Discretionary bonuses
Independent Judgment and Discretion
The comparison and evaluation of possible courses of conduct.
- The authority to make an independent choice, free from immediate direction with respect to matters of significance as opposed to routine decisions.
- It does not mean the use of skill in applying techniques, procedures, or specific standards.
- The fact that an employee has “high” authority limits does not, alone, show that the primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance.”
Outside Sales Exemption
- Primary Duty is making sales or obtaining orders or contracts for services and the employee is customarily and regularly engaged away from the employer’s place of business in performing the primary duty.
- The Employer’s place of business id described as any fixed site used as headquarters for sales or telephone solicitations, including the Bank, employee’s home, satellite office.
- Outside sales work can include some inside duties. (i.e. time devoted to completing the loan transaction initiated during personal sales calls, and directly related activities such as preparation of proposals or promotional material, reports, arranging trips and logistics, and some similar tasks.
- Mortgage loan originators selling loan packages originated themselves by cold calls or referrals from RE agents, meeting with customers at their homes, flexibility in scheduling other tasks in support of their own sales.
- Outside sales exemption is easier to meet since 2004 revisions. There is no salary test, no more percentage tests and outside sales must only meet “customarily and regularly” tests (i.e. more than occasional.)
- Paid a salary of at least $455 a week
- Primary duty – management of the enterprise, or of a customarily recognized department or subdivision thereof.
- Customarily and regularly directs the work of two or more other employees
- Has the authority to hire or fire others employees, or whose suggestions and recommendations are given substantial weight.
- Interviewing, selecting, and training employees
- Setting and adjusting pay and work hours
- Appraising employee productivity and efficiency
- Handling employee complaints and grievances Discipline employees
- Planning and apportioning work among employees
- Concurrent performance of non-exempt work permitted if the primary duty is management. (typically a branch manager.)
- Two or More Full-time Employees
- The supervision of two or more full-time employees every week” at least 80 hours of subordinate time.
- Not joint or shared supervision with another exempt employee
- Not supervision on the regular manager’s absence.
- Hire or Fire Power
- The frequency with which such recommendations are made or requested
- The frequency with which such recommendations are relied on
- Making such recommendations is part of the employee’s job description
Restrict “Hours Worked”
Does the role require employee to work more than 40 hours in a workweek? If not the institute the following:
- Policy restricting hours worked
- Advance approval for overtime
- Comp. time adjustment within the same workweek
- Management policing
- Employee management training
- Verification of weekly time records
- Periodic audits and verification
Fluctuating Workweek Pay Plan
- Reduces Overtime Expense
- This has been used for many years
- Accepted by the DOL
- Verify that it is legal in your state
- Employee is guaranteed 40 hours of pay, even if they work less hours or even one hour
- Base pay treated as compensation for all hours worked including any overtime hours
- Half-time overtime premium for hours over 40 is 50% of regular rate
- Regular rate is determined each week by dividing the total number of hours worked into the base pay
- 40 hour pay guarantee = $600 (example given)
- Employee works 50 hours this week
- 50 hours / $600 = $12.00 per hour
- 10 hours overtime (50-40) X 50% of $12.00 = $60
- Pay for the week = $660
- Difficult to sell because the more hours you work the less you make
- Fluctuation in hours, above and below 40 hours in a week
- Employees must have a clear understanding of the way the formula works
- Clear description (written policy)
- “the more you work the less you get paid”
Biting the Bullet: Hourly-Non-exempt Compensation
- Employee must record all hours worked on daily basis
- Blackberry time
- Training and travel time
- Community involvement
- Supervisor must review and sign off on weekly basis
- Overtime at time and half the regular hourly rate
- Conversion of salary to regularly hourly rate must include;
- Non-discretionary bonuses
Additional Practical Considerations of Reclassification
- Raises a red flag and may inspire claims
- Undermines professionalism and initiative
- Impact on incentives and commissions
- What happens when the economy rebounds?
- How do you manage lender compensation within the wider payroll context?
Independent Contractor Status – Not a Solution. Factors the IRS considers show employer-employee relationship, rather than independent contract:
- Instructions – Do you give them?
- Training – Do you to or pay for?
- Integration of work performed into employer’s operations (are they generating loans?)
- Services performed personally – no substitutes (can they perform the same services for other or have others do it?)
- Continuing relationship?
- Exclusive relationship?
- Set hours of work?
- Works on employer’s premises?
- Payment by the hours, week or month?
- Reimbursement of business expenses?
- Providing equipment and materials?
- Right to fire/quit?