Judge Finds Team Leads Earning Commissions Not Exempt from Overtime

A federal judge in Kansas recently found that team leads at a mortgage company, who were paid in part based on commissions, were not exempt from the Fair Labor Standards Act’s (FLSA) overtime mandate.

FLSA generally requires that employers pay covered employees at the overtime rate for any hours in excess of forty hours in a week, but has a number of exemptions. The “executive, administrative, highly compensated, and combination exemptions” all require that exempt employees be paid on a salary basis (or in some cases on a fee basis) and that they earn at least a specific amount per week ($455 for the time period analyzed by the court).  Salary is defined by regulation to include “a predetermined amount” that “is not subject to reduction because of variations in the quality or quantity of the work performed.”

The company’s team leads were compensated per a written schedule consisting of: commissions for each of the loans that the team lead personally produced, an override percentage for the loans produced by loan officers on their team, a headcount override based on the number of loan officers on the team the previous month, and a fixed $1,000 monthly “advance” that would be recaptured from the team lead’s subsequent headcount override (and could exceed the headcount override).  Team leads were paid twice a month, with the commissions and overrides paid once per month based on the previous month’s loans. The company considered the team leads to be exempt from the FLSA overtime mandate.

The district court found on the facts of this case that the company’s did not pay team leads a salary.  Because their compensation was based on work completed the prior month, it was not a predetermined set amount and was based on the quality and amount of work completed. The district court rejected the defendant’s argument that because the compensation structure was fixed, the team leads were paid a predetermined amount; the fact that team leads did not know what their compensation would be prior to completing the work indicates it was not, in fact, predetermined.  The court also found that the company did not pay the team leads on a fee basis.

The court granted the plaintiffs’ motion for partial summary judgment, finding that the team leads were not exempt employees for overtime purposes.