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Connecticut industry appointments update - 11/30/2006

National Mortgage Professional
Nov 29, 2006

Compensating loan processors: When time and a half means more than you thinkAri Karenwage and hour laws, FLSA, overtime As many of you know, federal wage and hour law (the Fair Labor Standards Act [FLSA]) requires employers to pay their nonexempt employees (i.e., those who are subject to the FLSA's strictures) the prevailing minimum wage for all hours worked in a week up to 40 hours. Additionally, the FLSA provides that employers must compensate each nonexempt employee at one and a half times his regular rate of pay for all time he works in a week in excess of 40 hours. States have similar laws governing minimum wage and overtime requirements for nonexempt employees. Mortgage brokers and bankers should be aware of the implications that these laws have with respect to their loan processors. This article addresses how FLSA overtime pay requirements impact nonexempt loan processors' compensation and what mortgage bankers/brokers can do to alleviate or avoid the administrative nightmare that could ensue. Most loan processors will be subject to the overtime pay requirements of the FLSA and applicable state law because these positions typically do not involve personnel and enterprise management or the high levels of skill, education, training, expertise or independent discretion and judgment necessary for an exemption to apply. As a result, mortgage brokers and bankers must pay their nonexempt loan processors at least one and a half times their regular rate of pay for all hours worked in excess of 40. While this seems simple, adhering to overtime pay requirements becomes exceedingly more complicated in light of both the FLSA's definition of "regular rate of pay" and the industry-wide practice of paying a loan processor a guaranteed per loan fee/bonus/commission for each completed loan file. When determining a loan processor's overtime rate, it is not sufficient to merely multiply his hourly pay rate by 1.5. Doing that would not yield the processor's regular rate of pay, as defined by the FLSA. Rather, because the vast majority of loan processors receive a guaranteed payment for each loan file closed, those amounts must be included alongside any salary paid during the applicable pay period when calculating the employee's statutory regular rate of pay. As a result, mortgage bankers and brokers whose loan processors must be paid overtime will be forced to calculate, each pay period, their processors' respective regular rates of pay. This is because the regular rates of pay for each processor will vary depending upon how many loan files he closes in the relevant pay period. To illustrate this, consider an example where a loan processor works 50 hours in a week (thus 10 hours of overtime), his salary equals $10 per hour, the processor closed five loan files that week and the employer pays the processor $50 for each closed file. Even though the loan processor's hourly rate of pay is $10, $15 per hour (i.e., $10 per hour multiplied by 1.5) is not the appropriate overtime rate because the nondiscretionary amounts received for the five loan files the processor closed were not included in determining the regular rate of pay. To calculate the regular rate of pay, all compensation earned in the week - salary plus per loan fees ($1,000 in this example) - must be divided by all hours worked in the week. In this example, the regular rate of pay is $20 per hour ($1,000/50 hours = $20 per hour). The appropriate per hour overtime rate of pay is one and one-half times the regular rate of pay (1.5 multiplied by $20 = $30 per hour). Imagine having to make these calculations every single pay period for each loan processor. Undoubtedly, that prospect is both daunting and wholly unappealing, but fear not - there are ways to avoid this. The foregoing administrative nightmare of calculating a loan processor's regular rate of pay comes into play where: - The loan processor works in excess of 40 hours in a week; - The employer provides a guaranteed or nondiscretionary payment (whether called a fee, bonus, commission or another name) to the processor for each loan file he closes; and - The loan processor is not exempt from applicable overtime requirements. Eliminating any one of those factors will free an employer from the regular rate of pay calculation debacle described above. To avoid tedious overtime requirements, an employer can establish a strict no overtime policy for his nonexempt employees. Such a policy could appear in an employee manual or an employment agreement and should state that loan processors are prohibited from working in excess of 40 hours in a week. Further, the policy should provide that employees will accurately reflect all time worked. The employees should sign an acknowledgment and understanding of the no overtime policy. Additionally, the law requires employers to track and maintain records of time worked by nonexempt employees. Nonexempt loan processors should regularly submit signed timesheets reflecting the hours they have worked. Please note that even with such mechanisms in place, employers must pay nonexempt loan processors the correct overtime rate for all time worked in a week in excess of 40 hours. Thus, employers seeking to eliminate overtime are encouraged to monitor compliance with their no overtime policies. Another way an employer can avoid the complex regular rate of pay calculations is by replacing the nondiscretionary/guaranteed per loan file fee with a truly discretionary bonus plan. Such a plan could still be paid each pay period and would take into account any number of factors, including how many loans the processor closed, client service, efficiency and attitude. However, in order for this policy to work, it must be truly discretionary, with both respect to the amount of the bonus and whether the loan processor will get a bonus at all. Thus, employers implementing such a plan must take care to avoid the appearance that a loan processor will be guaranteed a certain amount, amount per loan or any amount in exchange for closing loan files. In some instances, a loan processor will be exempt from the FLSA's overtime pay requirements. As a result, his employer would not be required to pay the statutorily prescribed overtime premium. To be exempt, he must make a minimum salary, which is currently $455 per week under federal law. Additionally, the loan processor must meet the duties test for the FLSA's executive exemption. To do this, the processor must manage the employer's enterprise or a recognized department or subdivision thereof as a primary function of his job, regularly direct the work of two or more full-time employees or their equivalents and have the authority to hire, fire, promote, demote or discipline employees, or to be able to effectively recommend any of the foregoing personnel actions. In light of these requirements, a mortgage banker or broker, depending upon its business, might have a loan processor who could qualify for the executive exemption. If so, that processor could work in excess of 40 hours a week without implicating complicated regular rate of pay calculations. Mortgage bankers and brokers should examine the hours their loan processors work. If such employees are not regularly working overtime or work small amounts of it, the employers may want to prohibit overtime outright to ensure wage and hour law compliance with respect to processors. In the event that loan processors are working overtime and eliminating overtime is not viable, mortgage bankers and brokers could replace their nondiscretionary per loan file closed compensation with a truly discretionary plan that will ease overtime calculations. A mortgage banker or broker might be able to properly classify one of its loan processors as an exempt executive, thereby allowing that employee to work more than 40 hours in a week and receive nondiscretionary per loan compensation without triggering the need to ascertain their regular rates of pay. Thus, any necessary overtime for an employer's processors could be performed by the exempt processor. Please note that in most instances, only one loan processor will qualify as an exempt executive. Further, as suggested by the executive exemption criteria set forth above, that status is contingent upon there being nonexempt loan processors working under the exempt individual. 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 [email protected]
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