Fair Labor Standards Act

White-Collar Exemptions in the Modern Work Place Gao ID: HEHS-99-164 September 30, 1999

GAO recommends that the Department of Labor comprehensively review current regulations under the 1938 Fair Labor Standards Act and restructure white-collar exemptions from overtime pay in order to better accommodate today's workplace and anticipate future workplace trends. Demographic, technological, and industrial changes during the last 50 years have caused both employers and employees to question the act's applicability today. Employers worry about their liability for violations of a salary-versus-wages test for exemption, about the rise in the number of highly skilled and well-paid technicians performing the same jobs as exempt professionals with academic degrees, and about confusion and inconsistency in classifying for exemption such employees as administrators and professionals whose jobs require judgment and discretion. Employees worry that more employees than ever are potentially exempt because of inflation's erosion of salary-level limitations and that low-income supervisory employees are not protected from oversimplification of the test that exempts employees because their job duties involve managerial or professional skills.

GAO noted that: (1) in 1998, between 20 and 27 percent of the full-time U.S. workforce--or 19 to 26 million workers--were executive, administrative, or professional employees covered by white-collar exemptions of the FLSA; (2) in recent years the percentage of employees covered by these exemptions has been increasing; (3) the number of employees working in certain service industries nearly doubled between 1983 and 1998, and there is a higher percentage of white-collar employees in the service sector than in other sectors of the economy; (4) overall, the workforce covered by the exemptions also became increasingly female--the proportion of women increased from 33 percent in 1983 to 42 percent in 1998; (5) in the 16 years following the 1938 enactment of the FLSA, the Department of Labor (DOL) established the key regulatory tests defining whether an employee can be classified as an exempt white-collar worker; (6) these tests included the salary basis test--the requirement that exempt white-collar workers be paid a salary, not an hourly wage--as well as the various salary-level and duties tests; (7) since 1954, major statutory and regulatory changes to the white-collar exemptions have been few, and primarily limited to increases in the salary-test levels and to changes to coverage of specific types of employees; (8) employers worried about potential liability for violations of the salary-basis test; (9) employers also believed that the regulations limiting the exemptions to white-collar nonproduction employees did not take into account the effect of modern technology on employment; (10) employers complained that the parts of regulatory duties tests that call for independent judgment and discretion on the part of administrators and professionals led to confusing and inconsistent results in classifications of similarly situated employees; (11) employee representatives believed that inflation has severely eroded the salary-level limitations originally envisioned by the DOL regulations; (12) the representatives contended that the duties test for executive employees has been oversimplified, leading to inadequate protection of low-income supervisory employees; (13) although various proposals have been advanced to address the concerns raised in this report, the conflicting interests of employers and employees have made resolution difficult; and (14) to resolve these issues, the desire of employers for clear and unambiguous regulatory standards must be balanced with that of employees for fair and equitable treatment in the work place.


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