The Department of Labor is fulfilling its promise to rethink the salary thresholds applicable to an employer’s obligation to pay overtime. The Department published a proposed rule on March 22nd that would expand eligibility for overtime (and minimum wage) to certain previously exempt employees. As explained in a prior update, Labor Secretary Alexander Acosta has acknowledged that the overtime exemption needed updating, as the current thresholds were established decades ago.
As relevant to the mortgage industry, the Department announced in 2010 that it interprets the typical duties of a mortgage loan originator not to qualify for the “administrative” exemption from the federal obligation to pay employees overtime and minimum wage. Mortgage lenders had relied on previous guidance that those originators were exempt, but then had to analyze their originators’ duties to determine whether recharacterization of the originators as exempt or nonexempt was necessary.
Paying overtime compensation to mortgage loan originators can be a complex and difficult task. They often work nonstandard schedules, seeking to be available to potential borrowers, realtors, and others on a near “24/7” basis. Accordingly, keeping track of exact working hours can be tricky. In addition, they likely earn commissions (or a mix of a salary plus commissions), making the calculation of their weekly overtime rate of pay a challenge. The Department recognizes that employers of all types may decide to raise salary levels, reorganize workloads, adjust work schedules, or spread work hours in order to avoid payment of overtime.
Under the Department’s recent proposal, the salary levels for meeting the administrative exemption would increase, broadening the scope of overtime eligibility, but not as much as the Department’s prior attempt, issued in 2016. (A Texas federal court struck down that 2016 rule, holding that the Department exceeded its authority by raising the salary thresholds so high as to essentially supplant other criteria for the overtime exemption.) The current standard salary threshold is $455 per week ($23,600 per year). The Department’s proposal would raise that threshold to $679 per week ($35,308 per year). The Department estimates that raising the standard salary level as proposed would expand access to overtime pay to approximately one to two million currently exempt employees.
Similar to the 2016 rule, however, the recent proposal would allow employers to count nondiscretionary bonuses and commissions to satisfy up to 10% of that standard salary test. In addition, the proposed rule would allow employees to make a final “catch-up” payment at the end of the year to bring an employee’s compensation up to the required level, although that ability is limited – employees still must receive the bulk of their compensation on a weekly basis (i.e., 90% of $679, or $611.10). The employer would have one pay period to make up a shortfall.
The Department also is proposing to address the “highly compensated employee” salary threshold, which the Department proposes to raise to $147,414 per year (from its current level of $100,000 per year), requiring that at least $679 is paid weekly. The Department estimates that new threshold would make approximately 200,000 additional employees eligible for overtime.
The Department proposes to review and update the salary levels every four years, through notice-and-comment rulemaking. (The 2016 rule would have called for automatic updates every three years based on a percentile of full-time salaries for workers in the country’s lowest-wage Census region.)
The proposal does not provide any timetable for issuing a final rule or allowing a post-rule transition/implementation period. (For reference, the 2016 rule would have provided just over six months after publication of the final rule for employers to come into compliance.) In the meantime, it is important for mortgage companies (and all employers) to review carefully the overtime and minimum wage requirements and exemptions under both federal and state law, and consider how an increase in these salary thresholds would affect their compensation agreements and their business.