The U.S. Department of Labor (“DOL”) has released its final rule addressing which employees are eligible for overtime pay under the federal Fair Labor Standards Act (“FLSA”). The FLSA, among other requirements, mandates “time-and-a-half” for employees who work more than 40 hours in a week, unless an exemption applies. The DOL’s final rule updates the criteria for the exemptions for “white collar” employees, raising the salary levels at which those employees have a right to such overtime pay. The Obama Administration estimates that 4.2 million additional employees will be eligible for overtime pay, including those who make up to $913 per week ($47,476 per year).
In March 2014, the White House directed the DOL to modernize and simplify the “white collar” exemptions from FLSA’s overtime and minimum wage requirements. Those white collar exemptions apply to employees who meet the established criteria for executive, administrative, professional, or outside sales employees, among other types of duties. Generally, the criteria for those exemptions include a duties test (i.e., what do the employees actually do?) and a salary test (i.e., do they earn a salary that is high enough that they arguably do not need FLSA protection?). The DOL had not updated the duties or salary tests for many of those exemptions in decades.
The “administrative” exemption recently sparked panic in the mortgage lending industry, since the DOL changed its stance and declared that the typical duties of a mortgage loan originator do not qualify those individuals for that exemption. Although that interpretation was challenged, the Supreme Court decided that the DOL properly issued the interpretation, causing many mortgage lenders to re-examine the duties of their employees to ensure that they meet the criteria for an exemption. Alternatively, the lender must track the hours worked by those loan originators, determine their “regular rate of pay,” and ensure that those individuals’ salaries and/or commissions result in the receipt of minimum wage, plus time-and-a-half for overtime.
The DOL’s new rulemaking addresses, among other topics, the salary test for all the white collar exemptions. Those exemptions previously called for a salary ceiling of $455 per week. Accordingly, so long as the employees’ actual job duties met the duties test, and they were paid at least that amount, they were exempt from the federal right to receive minimum wage or overtime. As mentioned above, the DOL’s final rule, which becomes effective December 1, 2016, will nearly double that salary, excluding many additional employees from the exemptions, even if their duties are “white collar.” Similarly, for those employees who are “highly compensated,” the DOL’s final rule raises the annual salary threshold to $134,004 (up from $100,000). Those dollar figures will automatically adjust every three years, based on a percentile of full-time salaries for workers in the country’s lowest-wage Census region, currently the South. The DOL declined at this time to make any changes to the duties tests for those exemptions.
Of course, many states address minimum wage and overtime issues, and some provide even greater coverage for employees than the DOL and FLSA. Now is the time for lenders and all other employers to re-examine the duties and salaries of their loan originators, processors, underwriters, and other employees to ensure their compensation complies with federal and state requirements.