Loan officers: Can they truly be considered exempt?Ari KarenFLSA, exempt and non-exempt, wage and hour laws, DOL
Unless employees meet an exemption to the Fair Labor Standards
Act (FLSA), they will be subject to wage and hour laws requiring
the payment of minimum wage, overtime and record keeping. There are
several exemptions under the FLSA, one of which is referred to as
the administrative exemption. One of the several components of the
administrative exemption requires that the employee's primary duty
be the performance of work related to the management or general
business operations of the employer or the employer's customers
that require independent discretion and judgment of matters of
significance to the business.
It is this portion of the administrative exemption that causes
great confusion and often leads to the misclassification of
employees. An employer familiar with the exemption can prepare
focused job descriptions, employment contracts and other job
structures consistent with the requirements of the exemption. Such
actions can prevent and/or minimize any audit by the U.S.
Department of Labor, even in cases where the exempt classification
is not without doubt.
As such, it is imperative that mortgage brokers understand the
range of functions that may render a loan officer exempt versus
nonexempt. For example, loan officers who merely make cold calls or
take applications over the Internet will normally not meet the
exemption. However, loan officers who oversee the loan approval
process, educate and advise customers about a variety of loan
products, negotiate pricing, have discretion to reject
applications, participate in marketing and mentor junior loan
officers may very well be considered exempt if all other aspects of
the administrative test are met. As long as the employer can show
that the loan officers' duties are primarily focused on such
matters, the administrative exemption may be applicable.
Often, there is a large gray area between exempt and non-exempt
employment within which a business may operate. There are certain
factors that have a significant impact on an auditor's assessment
of the classification. For instance, the number of levels of
supervision can have a significant impact on the determination.
Indeed, the greater the levels of supervision above a loan officer,
the more difficult an exemption will be to justify. Even one level
of supervision between a loan officer and the branch manager could
prove fatal to the exempt classification. On the other hand, a loan
officer who mentors or oversees junior loan officers should have a
much easier time justifying the exemption.
Another example of an issue that tends to undermine
classification applies to the detailed level of controls placed on
how the loan officer does his job. Although an employer is free to
direct and control his staff, the greater the minutiae of control
over how the job is done, the less likely it is that that employee
is to be considered exempt. By way of example, many mortgage
brokers require loan officers to make a certain minimum of calls
per day to sell loans. Beyond the fact that making sales calls
tends to not be considered exempt work, the fact that the employer
is dictating the manner in which the employee chooses to sell loans
undermines the demonstration that the employee works with
significant discretion and is free to use his judgment.
In those cases that fall in the gray area between exempt and
non-exempt, it is the implicit authority and confidence placed in
the loan officer by the employer that will often make the
difference. The greater the trust placed in the loan officer, the
greater the amount of autonomy provided and the better the chance
the loan officer will be considered exempt. Conversely, loan
officers who merely execute instructions but do not make
independent decisions are likely to be considered non-exempt.
Mortgage brokers also must understand that just as important as
what loan officers do is how their job is described. Brokers must
remember that auditors and judges often lack intimate familiarity
with the industry and will thus focus on the language and
terminology used to describe a job. For example, a job description
focusing on specific duties such as obtaining credit scores,
obtaining financial documents and filling out application forms
will not support an exemption. Conversely, job descriptions
highlighting the fact that loan officers oversee the entire loan
process and supervise the collection, analysis and dissemination of
supporting information will support an exempt classification.
Hence, it is not only important how a job is structured, but also
the manner in which the position is described.
Mortgage brokers who wish to use the administrative sales
exemption are encouraged to retain the services of an attorney
experienced in the area of wage and hour laws who can best assess
whether a job meets all of the requirements for exempt status, how
it could be structured as exempt and how to properly support the
exemption through employment contracts and job descriptions. Such
consultation should involve only minimal cost, and its rewards and
avoidance of liability can prove to be significant.
Ari Karen is a partner with Krupin O'Brien LLC, a
national law firm that represents employers in labor relations and
employment law. He may be reached at firstname.lastname@example.org.