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].
