36 SEPTEMBER / OCTOBER 2018 HUMAN RESOURCES Debra A. Mastrian Partner SmithAmundsen LLC dmastrian@salawus.com SmithAmundsen LLC is a Diamond Associate Member of the Indiana Bankers Association. Compensation Reminders For mortgage loan officers Most are aware by now that mortgage loan officers (MLOs) are generally nonexempt employees and must be paid overtime. What does overtime include? How is overtime calculated? Here are a few reminders regarding compensation for MLOs. Amounts Included in Overtime The Fair Labor Standards Act (FLSA) requires all compensation, including commissions (whether based on a percentage of total sales or sales in excess of a specified amount, or some other formula), to be included in the regular rate of pay for purposes of calculating overtime, unless the compensation is one of eight specified types of payments, such as holiday and birthday gifts, discretionary bonuses, and certain profit-sharing payments.1 This is true whether the nonexempt MLO is paid on an hourly or salary basis. What if you call the incentive a “bonus” instead of a commission? Discretionary bonuses are not included the overtime calculation, whereas nondiscretionary bonuses are included. Whether a bonus is discretionary (or not) is fact-specific. For a bonus to be discretionary, an employee must have no reason or expectation that he or she will receive the payment, and it must be in the employer’s sole discretion. Both the fact that the payment is to be made (e.g., whether the bonus is given) and the amount must be in the employer’s sole discretion at or near the time of the payment, and not pursuant to a contract, agreement, etc. An example of a discretionary bonus would be a year-end bonus which an employer chooses to give (or not) and has discretion as to the amount. If the bonus is dependent upon quality, accuracy, quantity, efficiency, hours worked, attendance, production or the like, it is nondiscretionary. Typically MLOs are paid a certain set incentive based upon achieving a threshold number of loans and threshold dollar amount of the loans. Note: Stating that you reserve the discretion to pay, or require the MLO to be in good standing, is generally not sufficient to make it discretionary. The Department of Labor and courts typically look at all the facts and circumstances to determine if there is an implied or reasonable expectation that the bonus will be paid. For MLOs, who are expected to achieve threshold loan numbers and dollar amounts and regularly receive incentives if they have achieved those numbers, there is an expectation of payment. Therefore the incentive must be included in the overtime calculation. Calculating Overtime Nonexempt employees are entitled to 1½ times their regular rate of pay for each hour of overtime worked. MLOs are typically paid on a salary (or hourly) plus commission basis. The commission amount is usually not determinable until the last day of a month. The regulations provide that where the calculation and payment of the commissions are not ascertainable until after the regular pay period, an employer can disregard the commission for purposes of computing regular rate until the amount of the commission is ascertainable.2 In the meantime, the employer pays overtime based on 1½ times the MLO’s regular rate exclusive of the commission. Once the commission is ascertainable (e.g., at the end of the month or beginning or middle of the following month), the additional overtime payment for the commission must be calculated by apportioning the commission back to the prior workweeks during which the commission was earned. Generally it is not possible or practicable to allocate the commission to particular workweek (or in proportion to the amount of
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