Under the Fair
Labor Standards Act, the Department of Labor (DOL) has the
responsibility to set the rules that determine which workers
qualify as executive, administrative, and professional employees
who are exempted from the Act and its requirement of
time-and-a-half overtime pay. On April 23, 2004, DOL issued a final
regulation updating these definitions. The Economic Policy
Institute (EPI), among others, has been highly critical of the new
regulation, alleging that it would threaten the overtime protection
of millions of workers. EPI's analysis, however, is flawed.
these rules are complicated and must apply to a wide variety of
jobs. Evaluating the regulation, in turn, is bound to be difficult,
and allowances should be made for differences of opinion.
Nonetheless, EPI's analysis of the new overtime rules, "Longer
Hours, Less Pay,"
contains such glaring errors, regarding the content of both the old
and new regulations, that they call into question the quality of
the entire analysis.
EPI ignores the fact
that the "long test" is irrelevant for the vast majority of
Under the current
rules a detailed "long test" is used to evaluate duties and
determine if workers qualify for the executive, administrative, or
professional exemptions, but this only applies to employees earning
$250 per week or less-barely above minimum wage. Still, EPI
compares the new rules to the long test as if the long test
actually applied to the majority of workers, which it does not. The
relevant, real-world comparison is with the less detailed "short
test," and in all cases the new regulations are equivalent to or
stricter than the short test.
Citing a twenty
percent limit on time spent by an executive on non-executive work
and a requirement that an executive must oversee a recognized
department or subdivision, EPI claims that the removal of these
requirements will "make it much easier for employers to reclassify
supervisors" and thus exempt some workers from overtime. Neither of
these rules, however, applies to the vast majority of supervisors
right now, and their "removal" was actually accomplished not by the
current Secretary of Labor, but by years of wage inflation and the
failure of prior administrations to update the white-collar
Because EPI has
misunderstood the current overtime rules, its estimate that 1.4
million supervisors will lose statutory overtime protection under
the new rules likely includes a large number of workers who do not
have overtime protection under the current rules.
The 50 percent "rule
of thumb" is alive and well.
The language is
changed a bit, but the basic concept is still the same: as a
general rule, an employee's primary duty will generally be the one
that he or she spends the most time doing. A foreman who spends
most of his time welding and incidentally supervises two other
welders is not an executive under either the current or new
The two versions
of this rule say much the same thing, using many of the same words:
the determination of an employee's primary duty must be "based on
all the facts in a particular case." The proportion of time spent
in various tasks will be "a useful guide" but "is not the sole
EPI argues that
the new primary duties test no longer uses this as a "good rule of
thumb." It is true that the phrase "good rule of thumb" is dropped
from the new regulation, but the rule itself is very much intact.
While the new rules may arguably place less emphasis on the "50
percent" rule, the claim that this piece of guidance has been
removed is a gross oversimplification.
educational requirement for the "learned professional" exemption is
Under the current and new regulations,
the "learned professional" exemption is limited to those performing
work that requires advanced knowledge "customarily acquired
by a prolonged course of specialized intellectual instruction."
Both the current and new regulations make an exception for the rare
case of a professional who gains this knowledge otherwise. Both
rules even give the same examples, verbatim: "the occasional lawyer
who has not gone to law school, or the occasional chemist who is
not the possessor of a degree in chemistry."
Nonetheless, EPI "conservatively"
estimates that, under the new rule, 900,000 non-degreed employees
will be reclassified as learned professionals and thereby lose
overtime protection. This estimate, however, was extrapolated from
DOL's analysis of its preliminary regulation, not the final rule.
The language from the preliminary regulation has been revised in
the final rule and the educational requirement is now left
essentially unchanged. EPI's estimate is based on regulatory
language that DOL considered but ultimately rejected.
white-collar rules are a long overdue update and simplification of
the existing regulation and are unlikely to result in large numbers
of workers losing overtime protection. EPI's contrary assessment
contains several serious flaws and should be used with caution.
Paul Kersey is Bradley Visiting Fellow in Labor Policy at
The Heritage Foundation.