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
[email protected].
