Lenders Aren’t Out of the Woods Yet on Compensation

By Ari Karen
Many lenders heard the news that the Department of Labor’s new rule raising the salary for exempt status was enjoined by a federal court in Texas. Although the injunction is currently under expedited review by the U.S. Court of Appeals for the 5th Circuit, lenders should not be lulled into a false sense of security.
In many respects, the injunction should not have a significant impact on lenders’ pay practices with respect to loan officers. If lenders are already following proper wage-hour practices, few loan officers should be considered exempt under any of the tests that require a salary. In other words, loan officers should either be considered outside sales exempt (for which no base salary is required) or non-exempt. Further, branch managers — to whom the salary increase would be germane — are typically paid in such a manner that the salary is clawed back from commissions. As long as the manager earns more than the heightened salary it should have relatively no impact on the branch managers’ bottom line compensation.
A loan officer is being paid a salary, and treated as administratively exempt, is entitled to the proposed salary increase. In this case, a lender should reevaluate such practices as it is likely not compliant with wage-hour law.
Indeed, as it pertains to sales staff, the only employees the salary increase should significantly impact (if it becomes law) would be the relatively few team leaders who are highly compensated employees.
The fact is that lenders, who discovered wage-hour exposure because of the heightened attention to pay practices associated with the new rule, were in violation of the Fair Labor Standards Act for reasons unrelated to that rule. Accordingly, the final outcome of the rule is not as important as a lender’s continued attention to implementing compliant wage-hour practices and resolving outstanding wage-hour violations.
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