Offit Kurman labor and employment attorney Ari Karen writes a weekly blog, “Compensation and Compliance Matters,” on the National Mortgage News website. In one of his recent posts, “The Hazards of Reimbursing Branch Managers for Expenses,” Mr. Karen explains what lenders should know about 1099 payments. He advises that lenders re-examine such practices and discontinue them when necessary.
“Many lenders still have relationships with branch managers where, in addition to normal W-2 compensation, they pay managers money via 1099s for various expenses,” explains Mr. Karen. “Lenders should be aware that 1099 payments have become a focus for auditors due to the concern that they could be a vehicle for the payment of compensation that is no longer permissible under Dodd-Frank.”
Federal and state regulators are starting to pay close attention to bank manager reimbursements and 1099 payments. “To be clear, all expenses should be paid directly by the lender whenever possible, thus minimizing the need for reimbursements,” explains Mr. Karen. The only time 1099 payments can be justified as reimbursement is when it involves the lease of building and/or equipment owned by the Branch Manager.
As it pertains to compensation for services, there is almost no circumstance where 1099 Compensation for performing services is permissible. It can lead to problems under Dodd Frank and with the Internal Revenue Service (IRS). Whatever services are performed by managers should be considered part of their job and the compensation for such services should be paid as part of their regular wages.
If you have questions about Bank Manager Reimbursements and 1099 Payments, please contact Mr. Karen at firstname.lastname@example.org. Mr. Karen is a principal of the firm in its Labor Employment Group as well as the Founder and Director of C3 Compliance Solutions, Inc., Offit Kurman’s subsidiary mortgage compliance consulting business.
A sought after national speaker to lenders audiences nationwide, Mr. Karen writes a weekly blog on “Compensation and Compliance Matters,” in the National Mortgage News, one of the leading on- line publications to the mortgage banking industry.