While new federal overtime rules would affect a small portion of the financial services industry, they are causing headaches for banks and credit unions trying to determine salary levels, job descriptions and payment methods for some employees.
Mortgage loan officers, who work long hours with low salaries but high commissions, and branch managers in low cost-of-living areas could be the ones most affected, according to local and national banking officials who have been preparing for the new overtime regulations for months or even years.
The current threshold for overtime for salaried employees is $23,660 per year. Any employee who makes less than that must be paid overtime for working more than 40 hours a week.
The new threshold of $47,476 takes effect Dec. 1.
It’s not likely to be a major issue for banks and credit unions, but it has required some changes.
Wesley Weymers, president and CEO at The Gratz Bank in Dauphin County, said about five of the bank’s 50 or so employees would be affected. He said the bank already has addressed what it believes will be the financial effects by requiring employees to pay for some of their health insurance. He said the bank also considered cutting insurance for employees’ dependents, and also he could see banks cutting some full-time employees to add part-timers, though Gratz hasn’t.
“We’ve pretty well addressed it,” Weymers said. “We’ve anticipated it and taken care of it. The industry, I’m sure, will absorb it. It’s not a make-or-break type of rule.”
Karen Carmack, senior vice president of human resources at F&M Trust in Chambersburg, said the bank hired a third-party consulting firm in the fourth quarter of 2015 to help it through the process. The number of employees affected is “far less than 5 percent” of the bank’s 272 employees, according to F&M Trust President and CEO Timothy Henry.
Carmack said the bank has upgraded some salary ranges to rise above the overtime threshold and could implement other changes.
“There are some changes we’re going to have to make, and we’re in the process of finding out what they are,” she said. “The bottom line for us is that we don’t expect it to be a material financial expense at the end of the day.”
But many banks are deciding what they will do with certain employees. Mortgage loan officers and many consumer lending positions, bank officials said, often receive the bulk of their pay from commissions, but they do receive a salary as well. It’s normal for them to work long hours at their own discretion chasing commissions.
The commission is not applicable to the salary threshold, so while a mortgage loan officer could make over $100,000 a year, perhaps only $30,000 of it comes from salary. Under the new overtime rules, the mortgage loan officer in that scenario would receive overtime compensation for working more than 40 hours. Salary and commission levels differ from bank to bank.
In a 2010 U.S. Department of Labor decision, that specific position of mortgage loan officer and the various job titles used at different banks — mortgage loan representative, mortgage loan consultant, mortgage loan originator — lost their exemptions as administrators and had to be paid overtime if their salary fell under the threshold.
The case went to the U.S. Supreme Court, which in 2015 ruled in favor of the Department of Labor.
The banking industry adjusted but the change in salary threshold — the first since 2004 — will qualify many mortgage originators for overtime pay and force another change in salary structure for mortgage loan officers.
“The mortgage originator position may end up being affected, for sure,” Weymers said. “There are ways to compensate them, maybe bump the salary up and give less commission. The intentions of (the new regulations) are good, and I certainly understand it. I’m just not sure it was considered from a business point of view.”
Ephrata National Bank President and CEO Aaron Groff said the bank’s mortgage staff already was paid at an hourly rate and is paid overtime. The mortgage division opened two years ago, so it already operated under the changes of 2010.
“It’s called management,” Groff said about how the bank handles overtime with its mortgage staff. “It’s long hours, it’s evening hours, it’s whenever it’s best for the consumer. We’re always tracking it, seeing if we need to bring someone else on.”
Cristeena Naser, vice president and senior consultant for the American Bankers Association’s Center for Securities, Trusts and Investments, said there will be other issues as well. In low-cost-of-living areas, a position like a branch manager may have been making less than the proposed threshold, despite a person in same position at the same bank making more in a different area.
There are also legal questions that need to be answered, as she said even something as simple as answering emails in off hours could qualify for overtime.
“I know (lawyers) are just licking their lips in anticipation of this,” she said.