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WebMemo #536 on Jobs and Jobs and Labor Policy

July 14, 2004

Closer Examination, Fewer Changes: A Rebuttal of EPI's White CollarExemption Analysis

By

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.

 

By necessity, 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,"[1] 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 workers.

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 rules.

 

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 regulation.

 

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 test."

 

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.

 

The educational requirement for the "learned professional" exemption is not changed.

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.

 

Conclusion

DOL's final 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.


[1] "Longer Hours, Less Pay," The Economic Policy Institute, July 14, 2004, at http://www.epinet.org/briefingpapers/152/bp152.pdf.

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