Proposed Overtime Rule Could Hit Lenders' Bottom Line

A proposed new rule from the U.S. Department of Labor (DOL), if enacted, could significantly impact mortgage workers' paychecks, and affect mortgage companies' bottom line.  The proposed change to the requirements of the Fair Labor Standards Act (FLSA) for exempting an employee from overtime pay, could affect 4.6 million workers according to DOL estimates.

Under current rules an employee qualifies for the "white collar exemption" if they meet two tests.

• The "salary level test". The employee must be paid a fixed salary of at least $455 per week ($23,660 on an annual basis).
• The "duties test". The employ must primarily perform executive, administrative, or professional duties as outlined by DOL.

The second test will apparently remain unchanged by the proposed rule, but the salary level will be increased to $970 per week or $50,400 annually.  Employees earning below that level must be be paid overtime wages at a minimum of 1.5 times their regular hourly salary.

In a client memo, law firm Hutchison PLLC says says there has been a lot of debate over when the proposed rule may go into effect as it apparently has not yet been published in The Federal Register but the Secretary of Labor indicates it could be as early as this spring.  Congress, however, can challenge the proposed rule under the Congressional Review Act.

The law firm makes several suggestions about ways in which the memo's recipients should begin preparing for the rule:

• Identify through payroll records those employees currently classified as exempt who could become non-exempt (those earning between $23,660 and $50,400 - what the firm calls "the zone of danger.")
• Analyze the hours worked by those employees in the "zone" to determine how many hours in excess of 40 they work each week.
• Determine if a salary increase above the new exempt level is possible for those employees who currently earn below it and consistently work more than 40 hours a week. Alternatively determine whether it is possible to reallocate or reduce job duties to keep hours worked at 40 hours per week.

Otherwise, the memo says, "Be prepared to pay overtime to these employees and plan for increased labor costs once the final rule becomes effective."

A DOL fact sheet on the proposed rule contains additional information.  First, FLSA regulations as a general matter cover only businesses that have an annual gross volume of sales made or business done exceeding $500,000.  There are exceptions including hospitals, businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies which come under FLSA regulations regardless of their business volume.  There is no exception for small business but there is a floor "below which employers may not pay their employees."

The Department last updated the white collar overtime regulations in 2004. That update, which included setting the standard salary level test amount of $455 per week, has been in effect since August of that year.