Since 2010, the Department of Labor (DOL) has held the position that “typical” mortgage loan officers do not fall within the Fair Labor Standards Act’s (FLSA) administrative exemption and thus are entitled to receive overtime for hours worked over 40 in a week. See Administrator’s Interpretation No. 2010-1 (“the AI”). The US Supreme Court in 2015 upheld the DOL’s Administrator’s Interpretation. In the aftermath, FLSA lawsuits by mortgage loan officers (MLOs) seeking unpaid overtime have skyrocketed. Banks and financial services firms that continue to treat MLOs as exempt administrative employees, or fail to properly compensate them for overtime, are at significant risk of liability in collective actions challenging those practices. If an employer is found liable under the FLSA for failure to pay overtime, the damages include (1) payment of back overtime for up to three years, (2) liquidated damages in an amount equal to the back overtime, and (3) payment of the employee’s costs and attorney’s fees. 

Are there any alternatives for maintaining the exempt status of mortgage loan officers? 

Employers should immediately engage in an assessment of their classification of MLOs, under the guidance of legal counsel, if they have not already done so. If it is determined that MLOs have not been properly classified in the past, it is strongly recommended that you engage qualified legal counsel to assist in implementing a remedial strategy. Employers, with the advice of counsel, should also consider whether their MLOs might qualify for another FLSA exemption. 

One option, which many banks take advantage of, is the highly compensated employee (HCE) exemption. The recent changes to overtime regulations that became effective on January 1, 2020, increased the total annual compensation requirement for the HCE exemption to $107,432. Employers should make sure that they have also satisfied the two other requirements of the HCE exemption. 

First, the HCE must be paid a weekly salary of at least $684, no portion of which can be made up of nondiscretionary bonuses or incentive payments. In other words, the MLOs cannot be paid 100% commission; there must be a base salary that is not contingent on production. The rest of the salary can be made up of commissions, nondiscretionary bonuses, and incentive payments. If the HCE does not meet the annual compensation requirement at the end of the year, the employer must provide a make-up payment to reach the salary threshold, or lose the exemption for the entire year. 

Second, HCEs must also have a primary duty that includes office or non-manual work and must customarily and regularly perform at least one of the exempt duties of the executive, administrative, or professional employee. For example, a highly compensated MLO who supervised two other employees or exercised discretion and independent judgment with respect to matters of significance could take advantage of this exemption. 

Another option is the executive exemption, which requires (1) that the employee’s primary duty is “managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise”; (2) that the employee “customarily and regularly direct[s] the work of at least two or more other full-time employees”; and (3) that the employee has the authority to hire and fire, or that the employee’s suggestions on hiring and firing are given particular weight. Employers may want to consider allocating supervisory duties to some MLOs so that they can take advantage of the executive exemption. 

Lastly, employers may consider whether MLOs qualify for the outside sales exemption, or adjust their duties so they do. This exemption applies to an employee whose primary duty is making sales and who is “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” 29 C.F.R. § 541.500. Outside salespersons make sales at the customer’s place of business or home, make in-person calls to referral sources to develop borrower leads, and have considerable flexibility in their schedules. 

If you are unable to take advantage of any overtime exemption for your MLOs, you need to review your recordkeeping and pay practices to ensure that you are paying overtime for all hours worked and paying the correct rate. With the change in regulations, this is a perfect time for employers of MLOs to review their pay practices to ensure that they are in compliance with overtime rules.