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].
