Mortgage brokers challenged on exemptions from overtimeJ. Larry Stine Fair Labor Standards Act, overtime pay, regulatory compliance On Aug. 23, 2004, the Wage & Hour Division of the U.S. Department of Labor amended the so-called "white collar" exemptions to the general duty of employers under the Fair Labor Standards Act (FLSA) to pay overtime when an employee works more than 40 hours a week. It had been more than 30 years since the regulations had last been amended. Employers and, unfortunately, plaintiff's attorneys are acutely aware of these new regulations. Both camps are discovering that many employers' current practices do not comply with the new regulations (some were not even in compliance with the old regulations). Because noncompliance can be an expensive proposition involving not only back pay and liquidated damages, but also attorneys' fees, compliance is receiving renewed attention. In some parts of the country, Wage & Hour enforcement agencies have audited mortgage brokers and determined that some of them are not in compliance and owe affected employees unpaid overtime. Before Wage & Hour inspectors or a plaintiff's attorney show up at your door (and some mortgage brokers already have experienced this chilling event), you should conduct a self-audit to determine whether your company is in compliance. The damages can be as high as double three years of back wages. For an employee working an average of 50 hours per week, this is the equivalent of 60 percent of each employee's annual income plus attorney's fees, which the FLSA explicitly provides shall be paid by the employer if a private lawyer and not a government agency prevails. This article will help you assess your company's position. If you have any questions concerning a particular employee, you should consult an attorney familiar with the law in this area. At most mortgage brokerages, many employees will legitimately fall within the executive, administrative or outside sales exemptions. Executive exemption To qualify for the executive exemption, the employee must be paid a guaranteed salary of at least $455 a week. An employee paid 100 percent on commission will not qualify for this exemption. In addition to the guaranteed salary, the executive exemption requires that the employee: 1. Supervises two or more full-time employees; 2. The employee's primary duty is management; and 3. The employee has the authority to hire or fire employees or the employee's recommendations to hire or fire are given particular weight. If the employee's primary duty is to sell and supervision is a small part of the job, then the employee probably will not qualify for the executive exemption. Administrative exemption For the administrative exemption, the employee also must receive the guaranteed salary of at least $455 a week, the employee's primary duty must be administrative and the employee must exercise independent discretion and judgment as to matters of significance. If an employee's primary duty is sales (and they don't meet the outside sales exemption discussed in the next paragraph), the employee will not qualify for the administrative exemption. If the employee has to closely follow specific procedures, this may result in a finding that the employee does not exercise independent discretion and judgment as to matters of significance and the exemption will be denied. Outside sales exemption The outside sales exemption applies to employees whose primary duty is outside sales. In other words, the employee must physically leave the office and go out into the world to try and sell his or her product. This employee is not required to be paid a salary, and may be paid 100 percent on commission. However, if an employee spends most of his or her time in the office making sales, and only occasionally leaves the office for sales activities (such as closings), the employee will not qualify for the exemption. If, after you review your employees' jobs, you determine that some of the employees are not exempt and are entitled to overtime but havent been correctly paid, don't despair because you do have a number of options: •First, with careful planning, employees can be paid overtime but earn about the same annual income. •Second, by making some changes in their duties or pay, you may be able to cause some employees who currently do not meet the above tests to meet those tests and qualify for the exemptions. •Third, there is the "window of correction," which an employer may use to correct a past error in pay calculation without incurring liquidated damages or attorneys fees. Now is the time to review these issues. An ounce of prevention--a self-audit or consultation with counsel--is a lot cheaper than either investigation or litigation. The worst thing that you can do is nothing. J. Larry Stine of the law firm of Wimberly, Lawson, Steckel, Nelson & Schneider PC, is the former regional counsel for the U.S. Department of Labor and prosecuted companies for Wage & Hour violations. He also is the author of the nationally recognized treatise on this subject area, Wage & Hour Law: Compliance and Practice. He may be reached by phone at (404) 365-0900 or e-mail [email protected].