Fair Labor Standards Act

White-Collar Exemptions Need Adjustments for Today's Work Place Gao ID: T-HEHS-00-105 May 3, 2000

The Fair Labor Standards Act sets minimum wage and hour standards for most American workers, exempting "white-collar" executive, administrative, and professional workers. Shifts in the American economy since the law's enactment affect these exemptions in today's work place, and the regulations underpinning the exemptions have changed. Employer and employee representatives believe that adjustments are needed to update the regulatory structure. Their concerns about the operation of the exemptions involve all aspects of the regulations--the salary-basis test, the salary-test levels, and the duties requirements. The Department of Labor has not updated these tests in decades, and although it made some attempts to revise the regulations in the 1980s, it is reluctant to revise them because of the difficulty of getting consensus. However, given the economic changes in the 62 years since the act's passage, it is important to readjust these tests. To avoid a piecemeal approach to reform, GAO recommends that the Department comprehensively review the regulations and make needed adjustments to meet the needs of the modern work place.

GAO noted that: (1) GAO's data showed that an increasing number of American workers are covered by the exemptions--GAO estimates that between 19 and 26 million workers (between 20 to 27 percent of the full-time workforce) were covered by the exemptions in 1998; (2) based on GAO's high estimate of 26 million, GAO's estimate represents an increase of 9 million workers over GAO's 1983 estimate of 17 million exempt full-time wage and salary workers; (3) the rapidly growing services sector had a higher proportion of exempt workers than other sectors, and is responsible for much of the overall increase in numbers of exempt workers; (4) similarly, GAO's data indicated that more women than men entered full-time white collar exempt positions over this period; (5) despite these shifts in the American work place, there have been few changes in the laws and regulations establishing the exemptions since 1954; (6) for most American workers, the rules for determining whether they are exempt from the FLSA, and thus its requirements for overtime pay, have remained largely unaltered in the past 46 years; (7) from the perspective of either the employer or the employee, the exemption rules are overdue for adjustment; (8) for employers, the rules have become increasingly rigid and inflexible, particularly in view of the technological advances in the work place; (9) for employees, inflation and oversimplification have reduced the protections formerly provided by the regulations; (10) as currently set, the rules provide far less protection for the worker, particularly for lower-income supervisors; (11) however, equitable adjustment of the regulatory structure is difficult, requiring a balance of the often-conflicting interests of employers and employees; and (12) because the regulations are made up of many interlocking provisions intended to balance these competing interests, piecemeal corrections can lead to unsatisfactory results.

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