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Statement for the Subcommittee on Labor, Health and
Human Services, and Education
Committee on Appropriations
U.S.
Senate
Washington, D.C.
January 20, 2004
Mr. Chairman and Members of the Subcommittee:
I am pleased to appear before you today to discuss the Department of
Labor's proposed revision of the Fair Labor Standards Act's "white-collar"
regulations. These regulations set forth the criteria for determining who is
excluded from the Act's minimum wage and overtime requirements as an executive,
administrative, or professional employee. The regulations that the Department
is revising appear in Title 29 of the Code of Federal Regulations, at Part 541.
When Congress passed the Fair Labor Standards Act (FLSA) in 1938, it
chose not to provide definitions for many of the terms used, including who is
an "executive, administrative or professional" employee. Rather, in Section
13(a) of the Act, Congress expressly granted to the Secretary of Labor the
authority and responsibility to "define and delimit" these terms "from time to
time by regulations."
As you are aware, there has been an enormous amount of press coverage
since the proposed rule was published in March 2003. Given the importance of
this issue, the amount of press coverage has been deserved. However, much of
the reported information has been misleading and inaccurate. I welcome the
opportunity today to set the record straight regarding the intentions of the
Department in issuing an update to the Part 541 regulations. I also welcome the
opportunity to re-emphasize the Department's goals in undertaking this
important task.
Let me also state to the members of this subcommittee that the comments
from both Congress and the public have been a tremendous help to the
Department. I believe the final rule will successfully address the concerns
that have been raised, and will be stronger as a result of the comment process
There are many reasons for updating this half-century old rule. The
primary goal is to have better rules in place that will benefit more workers.
Because the rules have not been updated in decades, changes are necessary now
to provide hardworking Americans who currently do not automatically have that
right, the opportunity to receive overtime pay. Had these changes been made 10
years ago, lower-wage workers would have had an additional $8 billion in their
paychecks. The proposed rule would lead to guaranteed overtime for an
additional 1.3 million low-wage workers. The main purpose of this effort is to
restore the intent of the FLSA - to restore overtime protections, especially to
low-wage, vulnerable workers who have little bargaining power with employers.
Of the 1.3 million workers who would be guaranteed overtime pay under the
Department's proposal, all earn less than $22,100 per year; nearly 55 percent
are women; more than 40 percent are minorities; nearly 25 percent are Hispanic;
and nearly 70 percent have only a high school education or less.
The job "duties" tests have not been updated since 1949 and are plainly
written for an economy that has long passed us by. As I have pointed out many
times, the existing regulations identify occupations such as leg men, straw
bosses and key-punch operators - all occupations which no longer exist in the
21st century workplace. The salary basis test was set in 1954. The minimum
salary levels were last updated in 1975, some 29 years ago. Under the salary
rates that are still in effect today, an employee earning only $8,060 a year
may qualify as an exempt "executive." Another important goal is to create rules
that can be more easily read and understood. Greater certainty and clarity will
allow workers to be paid properly. Under the current rules, burdensome and
costly class actions lawsuits are often necessary to sort out the rights of
employees and the obligations of employers. This is harmful to workers who
often must wait years to realize their rights, and burdensome to employers who
otherwise could use litigation costs to grow and expand their businesses and
create new jobs. Indeed, overtime is the fastest growing area of employment
litigation in America. Overtime litigation costs are currently draining an
estimated $2 billion a year out of resources that could be better used to grow
the economy and create jobs.
Clear, concise and updated rules will better protect workers and
strengthen the Department's ability to enforce the law. With more clearly
defined rules in place, the Department will be able to more quickly and
efficiently settle overtime pay disputes, and build upon its strong enforcement
record on behalf of workers.
The existing regulations require three basic tests for each exemption:
(1) a minimum salary level, now set at $155 per week for executive and
administrative employees and $170 per week for professionals under the basic
"long" duties tests for exemption, whereas a higher salary level of $250 per
week triggers a shorter duties test in each category; (2) a salary basis test,
requiring payment of a fixed, predetermined salary amount that is not subject
to reduction because of variations in the quality or quantity of work
performed; and (3) a duties test, specifying the particular types of job duties
that qualify for each exemption.
Our proposal would increase the minimum salary level required for
exemption as a "white-collar" employee to $425 per week, or $22,100 per year.
This is a $270 per week increase, and the largest increase since the Congress
passed the Fair Labor Standards Act in 1938. Under this change, all employees
earning less than $22,100 a year automatically would be entitled to the
overtime protections of the FLSA. Under the existing rules, even a worker
earning minimum wage would not be automatically entitled to overtime
protections. We believe that this change would result in an estimated 1.3
million additional workers becoming eligible for overtime pay for the first
time, sharing up to $895 million in additional wages every year.
As in the current regulations, the Department's proposal also includes a
streamlined test for higher-compensated "white-collar" employees. To qualify
for exemption under this section of the proposed rule, an employee must: (1) be
guaranteed total annual compensation of at least $65,000, regardless of the
quality or quantity of work performed; (2) perform office or non-manual work,
and (3) meet at least one or more of the exempt duties or responsibilities
specified for an executive, administrative, or professional employee. This is
the same concept found in the current rule's "Special Proviso for High Salaried
Executive," commonly referred to as the "short test." The test for these
"highly compensated" workers has been the subject of many of the comments we
have received.
The Department's proposal would simplify, clarify and update the duties
tests to ensure that the regulations are easy for employees and employers to
understand and for the Department to enforce. The current rule provides two
sets of duties tests for each of the three exemption categories. There is both
a "short" duties test and a "long" duties test for each of the executive,
administrative and professional exemptions. The current long duties tests only
apply to employees earning between $8,000 and $13,000 a year. Given these low
levels, these tests essentially have been inoperative for a decade.
Accordingly, to simplify this complex process the Department's proposal would
eliminate the long duties test and instead rely on the existing "primary duty"
approach found in the current short tests. To be exempt, an employee must
receive the required minimum salary amount and have a primary duty of
performing the duties specified for an executive, administrative or
professional employee.
Under the Department's proposal, the executive exemption adds a third
requirement to the current short test that makes it more difficult to qualify
as an exempt executive. In other words, fewer workers would qualify as exempt
executives under the proposal than qualify for the exemption under the current
regulations. Under the proposal, an exempt executive must (1) have a primary
duty of managing the entire enterprise or a customarily recognized department
or subdivision thereof, (2) direct the work of two or more other workers, and
(3) have authority to hire or fire other employees or have recommendations as
to the hiring and firing be given particular weight. This third requirement is
from the long duties test, and its addition makes the exemption more difficult
to achieve.
The Department did not propose substantial changes to the professional
exemption. To the extent debate in Congress and comments submitted expressed
concern that the Department was upsetting the law in this area, let me say that
the Department intends to clarify that this is not the case.
In any rule-making process, certain areas receive more public comment
than others. The Department's proposed revision to the administrative exemption
is one such area. The major proposed change to the duties test for the
administrative exemption is replacing the "discretion and independent judgment"
requirement, which has been a source of much confusion and litigation, with a
new standard that exempt administrative employees must hold a "position of
responsibility with the employer." To meet this requirement, an employee must
either customarily and regularly perform work of substantial importance or
perform work requiring a high level of skill or training. In our proposal, the
Department specifically sought comment about replacing the "discretion and
independent judgment" element of the test. Both proponents and opponents of
this proposed change submitted lengthy and helpful comments that the Department
very carefully and deliberately is considering.
Despite what has appeared in the press, let me emphasize that it has
never been the intent of the Department to upset the overtime rights of
hardworking American workers. The recent debates in the Senate and House have
helped the Department identify areas in which the intent of these revisions
needs to be made clearer. For example, it is not, nor has it been, the intent
of the Department to change the overtime status of police, firefighters,
paramedics, EMTs and other first responders. Similarly, it is not, nor has it
been, the intent of the Department to change the overtime rights of registered
nurses, licensed practical nurses and other similar health care employees. The
Department also did not intend to substantially change the educational
requirements for the professional exemption.
Furthermore, the overtime status of "blue collar" workers will not
change. "Blue collar" employees in production, maintenance, construction and
similar occupations such as carpenters, electricians, mechanics, plumbers, iron
workers, craftsmen, operating engineers, longshoremen, and construction workers
will not see their right to overtime change. This regulation will not affect
workers subject to a collective bargaining agreement. These and other critical
issues will be addressed in the final rule, and the Department extends its
gratitude to Congress for raising issues that need more explicit clarification.
As the Department pointed out to the Subcommittee in July of last year,
updating the Part 541 regulations is a bi-partisan issue. This is not a
Republican or Democratic issue, and it is not a new idea. The Carter
administration recognized in 1979 that the rules were antiquated and placed
Part 541 reform on the Department's regulatory agenda. This issue has been on
the Department's regulatory agenda for more than two decades. The last
Administration before this one to suggest that these regulations be modernized
was the Clinton administration.
Significantly, the U.S. General Accounting Office (GAO) in 1999 issued a
report on the "white-collar" exemption regulations and recommended the path we
find ourselves on today. The GAO chronicled the background and history to the
exemptions, estimated the number of workers who might be included within the
scope of the exemptions, and identified the major concerns of employers and
employees. The GAO concluded that "given the economic changes in the 60 years
since the passage of the FLSA, it is increasingly important to readjust these
tests to meet the needs of the modern work place," and recommended that "the
Secretary of Labor comprehensively review the regulations for the white-collar
exemptions and make necessary changes to better meet the needs of both
employers and employees in the modern work place. Some key areas of review are
(1) the salary levels used to trigger the regulatory tests, and (2) the
categories of employees covered by the exemptions."
Finally, I would like to address recent media stories suggesting that
the Department of Labor is giving employers "tips" on how to evade overtime
requirements. These news reports are completely false and potentially harmful
to workers' rights as they may give some employers the impression that they can
ignore the FLSA overtime requirements. The news reports refer to a single
paragraph in the economic analysis section of the preamble to the Notice of
Proposed Rulemaking published last March. This paragraph discusses the
estimated range of potential impacts of this rulemaking and does not contain
"tips" or "instructions" on how to cut pay or avoid paying overtime. The
Department is legally-required to discuss the range of likely effects in an
economic impact analysis. This must be performed for every significant rule
that DOL issues.
The Department of Labor has "zero tolerance" for employers who try to
play games with the overtime laws. I am proud to say that the Department's Wage
and Hour Division has increased enforcement by 60 percent in the past two
years, and collected in fiscal year 2003 a record $212 million in back wages
for employees.
In conclusion, the Department continues to work on developing a final
rule that is based on the comments we have received and the debate we have
heard. We are working diligently to achieve a rule that takes into
consideration the concerns that have been expressed and that makes sense for
the 21st Century Workplace. It will also protect the overtime rights of
American workers far better than the half-century old regulation now on the
books. Today's workers are not protected at all - they are severely
disadvantaged by rules that few can understand in the context of the modern
workplace. They are disadvantaged if they have to go to court to get overtime
wages they have rightfully earned. And, they are disadvantaged if they have to
wait years for that money to find its way into their pockets. Mr. Chairman, it
is time to update this rule. I would be happy to answer any questions Members
of the Subcommittee may have.
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