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Clarification Issued on LO Overtime Pay

Department of Labor issued administrator interpretation

March 25, 2010

By staff

The government has issued guidance -- the first of its kind -- about overtime and minimum wages for originators.

The typical mortgage loan originator is not exempt from minimum wage and overtime requirements, according to Administrator's Interpretation No. 2010-1 dated March 24 and issued by the U.S. Department of Labor Wage and Hour Division.

"The administrator is issuing this interpretation to provide needed guidance on this important and frequently litigated area of the law," the interpretation said. "Employees who perform the typical job duties of a mortgage loan officer, as described below, do not qualify as bona fide administrative employees exempt under section 13(a)(1) of the Fair Labor Standards Act, 29 U.S.C. §."

Exemption from minimum wage and overtime requirements under the Fair Labor Standards Act applies to employees whose compensation is salary- or fee-based at a weekly rate of at least $455, is primarily responsible for administrative duties and whose "primary duty must include the exercise of discretion and independent judgment with respect to matters of significance."

The department described mortgage loan officers as employees who receive internal mortgage leads or receive leads generated by direct mail or other marketing channels and contact prospective borrowers. Such originators obtain credit reports on sales prospects and collect required financial information including information about income, employment, assets, debts and credit. They also load automated underwriting programs with applicant data, deliver documents to processors and underwriters, and guide the loan through closing.

While the government is using the title "mortgage loan officer," the exemption is not based on job title but on actual job duties and compensation.

"The administrative exemption is 'limited to those employees whose primary duty relates to the administrative as distinguished from the production operations of a business,'" the government explained. "Courts have repeatedly found that mortgage loan officers who work inside their employer's place of business have a primary duty of sales ... the administrator is not aware of any court that has found that mortgage loan officers -- working either inside or outside -- have a primary duty other than sales."

The government said its thorough analysis led it to the conclusion that typical originators have the primary duty of making sales and, therefore, don't qualify as bona fide administrative employees.

The department noted that work related to the management or general business operations of the employer's customers -- such as tax experts or financial consultants -- can also qualify for an administrative exemption. But employees whose primary duty is selling financial products do not qualify for the administrative exemption.

The size of the employer is not relevant.

Loan officers have the primary duty of making sales on behalf of their employer, and their primary duty is not directly related to the management or general business operations of their employer or their employer's customers. Individual borrowers seeking advice for their personal financial needs do not qualify as general business operations unless the customer is a business seeking advice about a commercial mortgage or land loan that might qualify under the administrative exemption.

It was the "first ever" administrator interpretation issued by the department, according to Minneapolis-based attorney Tim Selander, who is with Nichols Kaster PLLP. Selander said in a statement that his law firm was the lead counsel in many of the cases cited in the department's interpretation.

Nichols Kaster has reportedly represented thousands of originators during the past decade.

"Today's administrator interpretation is a departure from past DOL statements regarding loan officers' eligibility for overtime pay, and specifically withdraws the DOL's September 8, 2006, opinion letter, which held that loan officers could be exempt from overtime pay under the administrative exemption," Selander stated. "Explaining its new position on the issue, the DOL stated that the prior letter was withdrawn 'because of its misleading assumption and selective narrow analysis.'"

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