Fair Labor Standards Act:

White-Collar Exemptions in the Modern Work Place

HEHS-99-164: Published: Sep 30, 1999. Publicly Released: Sep 30, 1999.

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Pursuant to a congressional request, GAO provided information on employer compliance with the white-collar exemptions under the Fair Labor Standards Act (FLSA), focusing on: (1) how many employees are covered by the white-collar exemptions and how the demographic characteristics of these employees have changed in recent years; (2) how the statutory and regulatory requirements have changed since the enactment of FLSA; (3) the major concerns of employers regarding the white-collar exemptions; (4) the major concerns of employees regarding the white-collar exemptions; and (5) the possible solutions to the issues of concern raised by employers and employees.

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.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Labor convened a series of stakeholder meetings in 2002, to review the regulations for white-collar exemptions, including the salary levels used to trigger the regulatory tests and the categories of employees covered by the exemptions. After much review and consideration of stakeholder comments, in March 2003, Labor published proposed revisions in the Federal Register to the regulations. These revisions seek to clarify exemption categories and definitions and update the salary levels used to determine whether a worker is exempt.

    Recommendation: The Secretary of Labor should 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.

    Agency Affected: Department of Labor


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