Employers Group Blog Connection

Overtime for Mortgage Lenders – What You Need to Know!

Posted by Nicole Vierzba on Mon, Aug 29, 2011


Until last year, it was commonplace in the banking industry to consider mortgage loan officers exempt from overtime – and with the U.S. Department of Labor’s blessing. Then, on March 24, 2010, the DOL reversed its own position and declared the ‘typical’ loan officer nonexempt. The banking industry responded by doing the only thing it could: converting loan officers to hourly employees and either limiting their hours accordingly or paying out overtime in accordance with the Fair Labor Standards Act. Now that it’s been more than a year since the DOL overruled its original Opinion Letter and issued its Administrative Interpretation, has anything changed?


Generally speaking, before employees may be deemed exempt from overtime under the FLSA, not only must they must be paid a minimum salary at a fixed amount, but the duties they perform must also fall under one of four narrowly defined categories: (1) the executive exemption for individuals who supervise others, (2) the professional exemption (i.e., doctors, lawyers, teachers, etc.), (3) the highly compensated exemption ($100,000 annually) that requires the "regular" performance of certain executive, administrative , or professional duties (not recognized in California,) or the (4) administrative exemption for individuals who are not supervisors but still engage in non-manual work directly related to the management or general business operations of the employer or its customers. It was the last of these four exemptions that was at issue for the DOL in the case of mortgage loan officers.


In its 2010 Administrative Interpretation, the agency’s analysis turned on what constitutes work "related to the management or general business operations" of the employer, or what it labeled ‘administrative’ work. Examples the DOL cited from the regulations include: accounting, budgeting, purchasing, advertising, and human resources, among other functions. The agency said such work should be distinguished from ‘production’ work in support of its principle business purpose or, more specifically, ‘sales’ in service industries. Thus, in banking, if an employee’s primary duty was more aligned with sales than administrative work, the position cannot be deemed exempt under the administrative classification.


After framing the argument in this way, the DOL went on to conclude that a typical mortgage loan officer’s job is not to service the bank’s general business operations but to advance its principle business purpose of securing mortgage loans. In other words, a loan officer was engaging not in sales administration but in sales production. Even the work done incidental to sales was still more in support of the end product of securing the mortgage than servicing the company’s general business operations. Finally, although the administrative exemption also permits work related to the general business operations of the employer or its customers, the DOL was careful to point out that there’s no such thing as business operations for an individual acting alone to secure a home loan. Note: The Mortgage Bankers Association filed suit in U.S. District Court against the DOL in January 2011 regarding this ruling. The suit is based on two arguments: (1) the DOL reversed a previous ruling without using proper procedures of notice and allowance for public comment under the Administrative Procedure Act, and (2) the new interpretation is contrary to the language of the DOL’s regulations, and therefore is arbitrary, capricious, an abuse of agency discretion, and otherwise illegal. There has been no final ruling by the court at this date.

Interestingly enough, the FLSA does allow for an outside sales exemption for employees who generate sales "customarily and regularly" away from the employer’s place of business. In fact, such employees are exempt from both overtime and minimum wage. And there is a limited inside sales exemption for employees in ‘retail or service establishments’; however, the regulations themselves specifically exclude both commercial and savings banks from the definition of retail or service establishments.


What, then, are an employer’s options if it wishes to avoid costly overtime obligations for its mortgage loan officers? Job titles alone do not dictate exemption status; rather, the DOL looks at the duties performed in each position. Theoretically, an employer could restructure a mortgage loan officer’s job to encompass more sales service than sales production but at what cost to generating sales? None of the professional, executive, or highly compensated exemptions are possible for a "typical" mortgage loan officer. Moreover, inside sales is not an option and outside sales is highly impracticable for the position. If you have adopted measures to comply with last year’s ruling, the best option for the time being is, unfortunately, to do nothing. If you have not adapted to the new interpretation and are exempting your mortgage lenders, you should review your situation immediately. Based on the current DOL position, you will need to change their status, review your overtime policy, manage the lenders’ schedules, and regrettably document their working hours.


Article written by: 

Mark Nelson, Senior Helpline Consultant,

Employers Group,

800-748-8484, mnelson@employersgroup.com

Mark L. Sollenberger, Senior Compensation Consultant,

Meyer-Chatfield Compensation Advisors,

814-467-0022 (office) / 814-254-5334 (cell) m.sollenberger@meyerchatfield.com

Lawrence G. Robinson, Senior Executive Compensation Consultant Meyer-Chatfield Compensation Advisors, 858-832-1657 (office)/ 858-361-5161 (cell) l.robinson@meyerchatfield.com


Topics: mortgage, DOL, compensation, wage & hour, lenders, mortgage lenders, FLSA