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concentrate on removing outdated and counterproductive statutory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
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 Outdated FLSA rules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
POLICIES FOR THE 21ST CENTURY
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)
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
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
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
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.
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.