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Section 184 extending homeownership in Indian Country

National Mortgage Professional
Apr 12, 2006

Compensating loan officers: Paying minimum wage without spending a dimeAri KarenFair Labor Standards Act, wage-and-hour laws Under the Fair Labor Standards Act (FLSA), all non-exempt employees are to be paid at least minimum wage as well as overtime for all hours over 40 worked in a single workweek. Prior articles I have written have focused on avoiding these requirements by meeting exemptions to the minimum wage and overtime laws. In those articles, we have principally considered two exemptions: the outside sales exemption and the administrative sales exemption. Of course, based on the duties of a particular job, neither exemption may be applicable. For instance, it would be difficult to support an exemption for inside loan officers that principally solicit leads over the telephone, make cold calls or simply process or fill out applications received through the Internet. Hence, such employees must receive at least minimum wage for all hours actually worked on regular pay periods. Simply paying these employees commission will not meet legal requirements. Furthermore, if such employees were to work varied hours (sometimes in excess of 40 hours in a single week), properly calculating their compensation could be next to impossible, as their commission earned in a particular pay period would need to be considered along with their hourly pay, in determining any overtime pay. In other words, a non-exempt loan officer's regular pay rate (upon which overtime is paid) would have to be recalculated every pay period. Of course, most mortgage brokers do not have the time to recalculate pay rates every pay period nor the money to pay overtime rates that take into consideration the commissions received in a particular week. As such, many employers find themselves in a quandary where the employee cannot be classified as exempt, but where legally acceptable payment practices are simply not practical to their continued operations. Fortunately, there may be a solution to this dilemma. An employer can limit an employee's hours to 40 hours a week maximum, pay the employee minimum wage for all hours worked and subtract all hourly pay from all commissions earned in a month. By taking this combination of actions in accordance with the steps outlined below, the employer will comply with all legal requirements, avoid the constant recalculation of pay rates and maintain relatively unchanged labor costs. Indeed, as long as the employer can verify that a minimum wage was paid and that no overtime was worked, the employer will remain in full compliance with FLSA. However, in setting up such an arrangement, an employer must be sure to institute some form of timekeeping system and ensure that the minimum wage pay does not become a draw against commission. In that regard, an employer can only obtain reimbursement of the minimum wage within a set period of time (ideally 30 days) and cannot pursue or expect reimbursement beyond deductions from commission. Hence, if a loan officer terminates employment with a negative balance (i.e., having received hourly pay that was not offset by commission), the employer has no right to reimbursement. Similarly, if the negative balance continues beyond the recovery (the period in which the hourly pay can be recovered), the employer will be unable to obtain reimbursement of the hourly pay. Nevertheless, given the minimal nature of such pay, a loan officer who closes even one loan a month (or potentially even less) will allow an employer to recover all of the hourly pay through deduction from commission. Overall, this arrangement can be highly beneficial. It allows employers with loan officers who work 40 hours or less to effectively continue paying them commission and remain compliant with applicable wage-hour laws. However, it is absolutely essential that the employer and loan officer enter into a contractual arrangement to protect the employer's rights, prevent exaggeration of hours, prevent overtime and provide other legal protections for the employer. Further, the employer should recognize the possibility that if a loan officer does not close any loans or has very minimal production, the employer might be unable to recover the hourly pay. Of course, given the minimal nature of such pay, this would be a problem with only the lowest producers, who could be terminated by the employer at any time. Employers should carefully consider whether the recoverable minimum wage compensation plan is appropriate for their loan officers. Further, for those employers who cannot take advantage of this arrangement, there are other solutions that permit employers to continue their business relatively unchanged, yet stay compliant with all laws. Stay tuned for more articles that will address options for employers whose business does not permit them to utilize the solutions discussed above. Ari Karen is a partner with Krupin O'Brien LLC, a national law firm that represents employers in labor relations and employment law. Please feel free to contact Ari if you have questions regarding state-specific issues concerning employment law. He may be reached at axk@krupinobrien.com.
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