Mortgage Loan Officers: Are You Paying Them Correctly?

Monday, August 30, 2010 - 01:00

In a move that surprised a number of financial and non-financial institutions, the United States Department of Labor ("DOL") changed its long-standing interpretation of the Fair Labor Standards Act as it relates to Mortgage Loan Officers. The DOL announced that mortgage loan officers would no longer be exempt employees. In short, this means that mortgage loan officers may be entitled to overtime under the Fair Labor Standards Act.

A. Which Employees Are Exempt From Overtime?

Employees who are exempt from payment of overtime fall into several categories including executive employees who have as their primary responsibilities the management of a business or a department or subdivision of a department of a business, who have the authority to hire, fire, promote or effectively recommend such actions and who make at least $455 a week.

A second category of employees exempt from overtime includes those who are "outside sales." Outside sales employees are those whose primary responsibilities are to make sales to and/or secure contracts or orders for the benefit of the purchaser. Outside sales persons are not entitled to any specific minimum pay. However, in order to retain their exemption from overtime, they must be regularly engaged in sales activities away from the employer's place of business.

Yet another category of employees who are exempt from overtime are highly compensated employees. In order to qualify for this exemption, the employee must not only be paid at least $455 per week but must also earn total annual compensation of at least $100,000 per year.1In addition to making $100,000, the job functions performed by these employees must customarily and regularly include one or more of the exempt functions of a professional, executive or administrative employee.

Professionals are also considered exempt from overtime payments. In order to qualify as a professional employee, the employee must be compensated on a salary or fee basis at a rate not less than $455 per week. Additionally, their work must require advanced knowledge (in a field of science and learning which was acquired by a prolonged course of specialized intellectual instruction) which is predominantly intellection in nature and must include the consistent exercise of judgment and discretion.

The final category of employees exempt from overtime is administrative employees. Administrative employees must be compensated on a salary basis, and their primary duties must include the exercise of discretion and judgment with respect to matters of significance, must make at least $455 a week and must perform office or non-manual work that is directly related to the management or general business operations of the employer or the employer's customers.

B. Old v. New Interpretation On Mortgage Loan Officers

Prior to March 24, 2010, the DOL had considered loan officers to be exempt employees - applying the administrative employee exemption to those who perform mortgage loan officer responsibilities. In its most recent opinion prior to its reversal, the DOL opined that mortgage loan officers would be considered exempt because their job responsibilities generally entailed such administrative responsibilities as evaluating which mortgage products would best suit a customer, including advising a customer of the pros and cons of products available to them, evaluating the finances of a customer including analysis of their income, debts and investments, and engaging in activities such as marketing on behalf of the employer.

In Administrator's Interpretation 2010, ( adminIntprtnFLSA.htm) the DOL concluded that mortgage brokers did not meet the qualifications for the administrative exemption. Instead, the DOL concluded that the primary function of mortgage loan officers is nothing more than the sale of a product on behalf of the company.

In reaching the conclusion that the primary function of mortgage loan officers was sales, the DOL examined numerous court decisions and found none that concluded that the job responsibilities of mortgage loan officers was anything more than sales. In fact, close examination of the cases in which this question has been litigated reveals that employers have conceded that the primary function of mortgage loan officers is sales. Moreover, the DOL looked to the method of pay of mortgage loan officers and found that in the vast majority of cases, they are/were paid commissions on mortgages in a similar manner to payment received by many sales people. Additional factors that swayed the DOL included the fact that most mortgage loan officers work at their employer's place of business and, rather than exercising judgment regarding which mortgage would be appropriate for a customer, the loan officers are merely inputting information into computer programs that provide the best model for the customer based on the inputted information.

C. So, What Does This Ruling Mean?

This change means that it is important for each institution that employs mortgage loan officers to carefully evaluate the job functions of the mortgage loan officers to determine exactly what their job entails and what percentage of time is spent in each of the functions performed by each employee. Making assumptions that job functions are performed across an entire group of people based upon their title or classification could lead to misclassifications which in turn can lead to considerable liability or alternatively, making unnecessary overtime payments to employees. Such evaluation is best done through an audit of the mortgage loan officer positions.

Once an audit is conducted, employers can then consider whether it is necessary to pay overtime to its mortgage loan officers or whether they have sufficient responsibilities to fall within an exemption. In evaluating these factors, employers should consider whether employees fall under the executive exemption because they supervise employees, the highly compensated employee exemption because they make more than $100,000 and have additional responsibilities that qualify for an exemption or because they qualify for the outside sales exemption because a majority of their sales activity is performed away from the employer's workplace. However, the inquiry should not stop at this question. In light of the overwhelming practice in the industry to compensate mortgage loan officers on a commission basis, it is equally important to ensure that a) that employees are paid at least minimum wage and b) if that practice continues, employers appropriately include commission payments in their calculation of base hourly rate and overtime.

D. What Should An Employer Do?

As a result of the DOL's change in position, some employers of mortgage loan officers may be tempted to take the position that each of their mortgage loan officers works a straight 40-hour week and to calculate overtime on that basis. However, it is best to avoid such temptation thereby avoiding either individual or class litigation based on a failure to pay overtime. This is particularly true in light of the multitude of wage and hour class actions that are being litigated across the country.

Although mortgage loan officers have, historically, not been required to account for their time with timesheets, if employers in the loan business have not already instituted the requirement that employees submit a statement of hours worked, there is no time like the present to institute such a requirement. Moreover, employers should consider having employees verify, under penalty of perjury, the accuracy of the time submitted.

E. What Does the Future Hold?

Although predictions about future DOL actions impacting financial and non-financial institutions that employ mortgage loan officers cannot be made, it would be prudent for these employers to examine not only the mortgage loan officer position but other positions in their institutions that are currently classified as exempt.

Finally, all employers should be aware that the issuance of Administrator's Interpretation 2010 represented a departure from the prior practice of the Department of Labor with respect to interpretation of regulations. Prior to the issuance of this opinion, the DOL had issued such interpretation in response to specific questions. Going forward, that will no longer be the case.

1 For example, an employee who receives a one-time commission of $100,000 from the sale of a residence who is not otherwise compensated at least $455 per week does not qualify for this exemption.

Sheryl J. Willert is the Managing Director of Williams Kastner, a Fellow of the American College of Trial Lawyers, Past President of DRI, Past President of the National Foundation for Judicial Excellence, a Member of the American Bar Association, the International Association of Defense Counsel, the Federation of Defense and Corporate Counsel, the Association of Defense Trial Attorneys and Treasurer of USLAW Network. Ms. Willert serves as counsel for multiple national, international and local corporations on a myriad of employment-related matters.

Please email the author at with questions about this article.