• The United States Department of Labor Concludes that Mortgage Loan Officers Are Generally Entitled to Overtime and Also Provides Guidance on When Other Employees Are Entitled to Overtime
  • April 28, 2010 | Authors: Scott A. Ohnegian; Daniel W. Zappo
  • Law Firm: Riker Danzig Scherer Hyland & Perretti LLP - Morristown Office
  • On March 24, 2010, the Wage and Hour Division of the United States Department of Labor issued an Administrator’s Interpretation stating that mortgage loan officers are generally non-exempt employees entitled to overtime. The Interpretation overrules two prior Division opinion letters that generally supported categorizing loan officers as exempt employees who are not entitled to overtime. Importantly, the Division’s analysis also supports a broader understanding of the Division’s position regarding the administrative exemption.

    While the Division’s Interpretation uses the job title of "mortgage loan officer," it explains that its focus is broader. The Interpretation is aimed at all “employees who perform the typical job duties of a mortgage loan officer. Those job titles include mortgage loan representative, mortgage loan consultant, and mortgage loan originator.” As with any analysis regarding overtime eligibility, the Division makes it clear that the focus is on duties and compensation, not job titles.

    The Division’s Interpretation analyzes whether mortgage loan officers are exempt employees under the administrative exemption set forth in the wage and hour statute and regulations. Generally, every employee is entitled to overtime unless the employee meets the requirements of one of the exemptions. Previously, employers categorized mortgage loan officers as exempt under the administrative exception. The test for this exemption typically turns on whether the employee’s primary duty is (a) exercising discretion in servicing the business or the customer’s business—exemption applies or (b) working to produce or sell the business’s products—no exemption. Said another way, the test distinguishes between employees who develop product and services or advise customers—the exemption applies, and employees who sell product or services—the exemption does not apply.

    The Division Interpretation concludes that mortgage loan officers are generally non-exempt employees entitled to overtime because their primary duty is to sell loan product. The Division bases its conclusion on its understanding of the general duties of a mortgage loan officer: to collect data and run credit checks on the customer; to run the data through a computer program; and to sell loan product to the customer based on the options the computer program provides. According to the Division, this screening process is for the benefit of the employer, not a service provided for the benefit of the customer. The Division Interpretation concludes that mortgage loan officers who process loans for individuals are generally entitled to overtime. Indeed, while the Division theorizes that a mortgage loan officer who advises only business customers “might” qualify under the administrative exemption, the Interpretation provides no further guidance.

    In broader terms, the Interpretation also provides guidance on the administrative exemption. It suggests that the Division will generally find that inside salespeople are entitled to overtime, particularly if they do not have the ability to exercise independent judgment as part of their duties. Indeed, the Interpretation suggests that the Division is going to be more aggressive in reviewing employers’ use of the administrative exemption. It is now all the more important to analyze case-by-case whether employees are properly categorized as exempt or non-exempt based on their duties and compensation.

    Businesses that misclassify employees and fail to pay overtime face significant risks. An employer might have to pay both unpaid overtime and penalties for misclassified employees. This is particularly true given that wage-and-hour law is an area in which class action lawsuits and administrative audits are common. Not only do federal and state wage and hour divisions conduct such audits, but the IRS also recently began an extensive audit of worker classification. Indeed, even if misclassified employees do not work in excess of 40 hours, there could still be a wage-and-hour violation for an employer’s failure to maintain records tracking non-exempt employee hours.