Regulation Z, the Fair Labor Standards Act and the Interagency Guidance on Incentive Compensation Plans have all contributed to complicating the employment contract for a mortgage loan officer (MLO). Here are some concepts every financial institution should consider when structuring an MLO employment agreement:

• Do not impose a monetary penalty on an MLO for failing to follow policy (e.g., collecting all required fees) on a per loan basis. That amounts to varying compensation based upon a term of the transaction. Instead, use a quarterly review to adjust commission rates positively or negatively.

• If the commission rates paid to MLOs vary, make certain those differences in compensation are not reflected in the rates the borrowers are charged.

• Make sure that each MLO receives at least the minimum wage and that each MLO is paid for overtime appropriately. Require MLOs to submit records for hours worked. Maintain the records.

• Protect the institution’s financial records and intellectual property by incorporating strict confidentiality requirements and non-solicitation provisions into the employment agreement.

• Consider the inclusion of an arbitration clause to settle disputes, and in so doing minimize the potential for class action litigation.

• Incorporate qualitative factors into the employment agreement so that compensation is not tied exclusively to volume. Incentive compensation based exclusively on quantitative factors is subject to regulatory criticism.