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Executive Summary #bg1457es on Jobs and Jobs and Labor Policy

July 12, 2001

Executive Summary: Modernizing the Fair Labor Standards Act for the 21st Century

By

The time has come to modernize the 63-year-old Fair Labor Standards Act (FSLA) to meet the realities of the 21st century workplace. The focus of reform must go beyond conventional deliberations about raising the minimum wage. Policymakers should concentrate on removing outdated and counterproductive statutory and regulatory barriers to innovative workplace compensation plans that benefit both workers and business.

Modernizing the FLSA has the potential to improve the ability of today's working parents to balance their work and family life, increase flexibility in establishing policies that meet the varying needs of different workers and businesses, and meet the challenges of competing in the worldwide marketplace. Substantive reform can be accomplished without issuing a single new federal mandate. Congress can accomplish the critical reform of FLSA simply by freeing employers and workers from the inflexible and confusing requirements of a law that was written for a different era.

THE NEED FOR REFORM

America's economy and labor force have changed significantly since the FLSA was first enacted, yet few provisions of the Act have been updated to reflect those changes. The mix of jobs has shifted away from manufacturing toward services, and technology has changed the duties and responsibilities of nearly every job. The old line between workers and managers has blurred as businesses have reduced management layers and workers have been given the duties and decision-making responsibilities once reserved for supervisors. Outdated FLSA rules have led to confusing and inconsistent classifications of similarly situated workers, and advances in telecommunications have rendered old FLSA rules unfair regarding the treatment of inside and outside sales employees. Perhaps most significantly, in more than 70 percent of two-parent households both parents are employed and face substantial challenges in balancing the demands of the family and the workplace.

POLICIES FOR THE 21ST CENTURY

As the 107th Congress begins its debate over the minimum wage and the FLSA, legislators should consider five important principles to ensure that both workers and employers receive the greatest benefit from modernizing the law. These principles should form the foundation of effective FLSA reform: The Act should allow for a variety of innovative compensation and benefit options; the options should be voluntary, not mandated by government; the options should be flexible and revocable; compliance should be simplified to the greatest extent possible; and the legislation should provide reasonable protections for both workers and employers.

POLICIES FOR REFORM

Flexible Credit Hour (comp-time) Programs.
In 1978, Congress recognized the benefit of flexible schedules when it passed the Federal Employees Flexible and Compressed Work Schedules Act that allows federal employees the choice of taking overtime pay either in cash or in the form of paid time off. Policymakers should strongly consider extending to all workers the same opportunity that federal employees have enjoyed for over 20 years.

State Flexibility.
Since 1996, Congress has wisely given the states the responsibility and flexibility to bring welfare recipients into the workforce and authority to design and implement their own workforce development programs. To build on those successful approaches, policymakers should also give the states the flexibility they need to adapt their own entry-level wage policies to local economic, demographic, and development needs.

Bonus and Gainsharing Programs.
The FLSA limits the use of bonus and gainsharing programs by employers and restricts their benefit to workers. In 2000, Congress removed the FLSA restrictions on the ability of employers to offer stock options to non-exempt workers. Policymakers should take the next step and remove obstacles to performance bonuses and gainsharing plans in the FLSA.

Update the Exemption Tests.
The FLSA "white-collar" exemptions are not defined in the Act, but rather in regulations that have remained essentially unchanged since 1954. These antiquated rules often lead to confusing and inconsistent classifications of similarly situated employees. To remedy this problem, policymakers should update and simplify the FLSA salary-basis and duties tests to ensure clarity and practical application.

Treat Sales Workers Fairly.
Under the FLSA, outside and inside sales employees are treated differently even though they perform the same type of work in many instances. The only reason these two sales forces are treated differently is that one works face-to-face with customers and the other uses modern technology to communicate. Congress should add an exemption to the FLSA that would allow employers to treat inside and outside sales employees consistently and limit the divisiveness created under current law.

CONCLUSION

The FLSA was enacted to protect unskilled, low-pay workers. But today, when both parents have to work and the need for flexibility in work schedules is so great, the rigid provisions of the FLSA hurt American workers more than they help. Modernizing the FLSA will make it possible for employers to create a more family-friendly workplace for American workers and make performance bonus programs more widely available. This will help to increase employee effectiveness and job satisfaction while decreasing turnover rates and absenteeism. New federal mandates are not necessary to achieve this: Congress can accomplish the intended reform of FLSA simply by freeing employers and workers from the inflexible requirements of a law that was written 63 years ago.

D. Mark Wilson is a former Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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