FLSA in Practice
February 2003

About this Survey

The Fair Labor Standards Act (FLSA) sets U.S. standards for minimum wage, overtime pay and child labor, but specifically exempts some employees from its requirements. For example, executive, administrative, professional and outside sales employees are exempt from minimum wage and overtime requirements, as defined by regulations set by the Department of Labor. These regulations are commonly referred to as the “541 Rules” because they appear in Section 541 of the Code of Federal Regulations.

Some believe that the change of power in the U.S. Senate in 2003 has increased the possibility of changes to the Fair Labor Standards Act in the near future. In addition, the Department of Labor appears to be close to changing the regulations concerning FLSA’s “white collar” exemptions.

WorldatWork surveyed its members in January 2003 to understand their positions with potential changes to areas of FLSA. This survey brief reports respondents’ opinions and does not necessarily reflect the opinion of WorldatWork.

Methodology

In January 2003, surveys were sent electronically to 11,793 WorldatWork members. Of this sample, 1,276 responses were received, an 11% response rate. Nine hundred and thirty-seven (73%) of these respondents were from companies in the private sector, while 339 (27%) were from public sector organizations. A typical member of WorldatWork is employed at the manager/assistant director level or above in his or her organization and has at least five years of experience in HR or compensation. In addition, he or she is most frequently employed at the headquarters of a large company. 95% of the U.S. Fortune 500 companies employ a member of WorldatWork.

Summary of Findings

• Among professionals who work frequently to comply with the 541 rules and FLSA exemption tests, more than 95%believe that the current exemption tests for administrative, executive and professional employees are in need of revision in today’s work environment.

• 90% believe the 3-part executive exemption test needs be either somewhat or completely revised and another 4% believe it should be eliminated entirely.

• More than 90% of respondents feel that the 3-part administrative and professional employee exemption tests need at least some or wholesale revision.

• More than half of WorldatWork members who responded believe that the minimum salary amounts for computer professionals need to be revised, and an additional almost 40% think the computer professionals minimum salary test should be eliminated entirely.

• Nine out of ten respondents who have both inside and outside sales representatives believe the current regulation that distinguishes between inside and outside sales representatives should be revised.

• A number of possible provisions which might be contained in legislation allowing private sector employees to receive compensatory time in lieu of overtime pay seem “reasonable and fair” to most respondents -- including mandating standard FLSA remedies for employers who coerce or force employees to take comp time in lieu of overtime pay, and having a written agreement between employer and employee regarding compensatory time policies and practices.

Survey Results

Because of their familiarity and frequent interaction with the exemption tests, WorldatWork members are well positioned to offer opinions about the 541 Rules: a combined 95% of respondents are either “very familiar” (59%) or “somewhat familiar” (36%). Only 5% of respondents had minimal or no familiarity with the tests.

Figure 1: How familiar are you with the exemption tests or “541 Rules”?

Almost half of all respondents (47%, combined monthly, weekly and daily) work with the exemption tests at least once a month, and nearly a quarter of the respondents (24%, combined weekly and daily) deal with the tests at least once every week. 

Figure 2: In your position, how often do you deal with the exemption tests?

Even with their frequent interaction and familiarity with the rules, more than half (51%) of responding organizations do not document the type of FLSA exemption test used when evaluating a position or job. On the other hand, 14% document every position, and slightly more than a third (35%) document some but not all positions.

Figure 3: Does your organization document the FLSA exemption test used when evaluating a position or job?

Executive Exemption Test

There are three parts to the exemption test for executive employees, and the survey contained questions about each part of the test. Overall, nine out of ten respondents believed that the three-part test needs to be revised at least minimally.

Part 1: Executive Duties Test

Under current regulations, an employee who is exempt from FLSA as an “executive” must perform duties related to management of the enterprise or of a recognized department or subdivision, including supervision of at least two employees, authority to hire and fire employees, and must regularly exercise discretion. While slightly more than a third (37%) said the executive duties test is fine as is, 56% indicated that the test should receive some revision or a complete revision.

Part 2: Salary Basis Test

FLSA regulations indicate that an executive must also be compensated on a “salary basis” meaning that the employee receives a fixed amount of compensation that (with certain exceptions) is not subject to quality or quantity of work performed.  While almost half (47%) of respondents favor keeping the salary basis test as it is, 12% believe it should be eliminated entirely, perhaps reflecting the relative unlikelihood in today’s work environment that an executive might not work on a “salary basis.”

Part 3: Minimum Salary Test

The 541 Rules indicate that an executive must not have a salary less than $155 per week ($250 for the FLSA “short” test). An overwhelming percentage of respondents indicated that this salary level probably does not reflect today’s work environment: 58% said the amount should be revised and more than a third (35%) said this part of the test should be eliminated entirely.

Overall Executive 3-part Test

In aggregate, only small percentages of respondents believed either that the 3-part executive test is fine as it is today (5% no revision), or that the 3-part test should be entirely eliminated (4%).  The vast majority (90%) believe that the executive test should be either completely or somewhat revised to reflect modern realities.

Administrative Exemption Test

As with executive employees, the 541 rules contain a three-part exemption test for administrative employees.  Part one is an administrative duties test, part two is a salary basis test and part three is a minimum salary requirement.

Part 1: Administrative Duties Test

Under current regulations, an employee who is exempt from FLSA as an “administrative” employee must perform duties related to management policies and/or general business operations. So-called “administrative” personnel perform staff functions, as opposed to line functions such as producing a product or providing a service.  WorldatWork members strongly believe (combined 81%) that this duties test needs to be either somewhat (47%) or wholly revised (34%). This level of support for revision for the administrative duties test (combined 81%) is much stronger than support for revision of the executive duties test (combined 56%), reported above.

Part 2: Administrative Salary Basis Test

An administrative employee must also be compensated on a “salary basis” meaning -- identically to the executive test -- that the employee receives a fixed amount of compensation that (with certain exceptions) is not subject to quality or quantity of work performed.  While 47% of respondents indicated that the salary basis test for executives was a concept that needed no revision, only 36% of respondents held a similar belief regarding the administrative salary basis test.  53% of respondents believed that the administrative salary basis test needed either some or complete revision, whereas only 39% said that the executive salary basis test needed either some or complete revision.

Part 3: Administrative Minimum Salary Test

Finally, and identical to the executive minimum salary test, an administrative employee must not have a salary of less than $155 per week ($250/wk for short test). As with the response to the question of executive minimum salary test, the vast majority of respondents believe either that the dollar amounts need to be revised to reflect today’s work environment (62%), or that the test should be eliminated altogether (31%).

Overall Administrative 3-part Test

When asked about the 3-part administrative test in totality, greater than 90% of respondents believe that it should either be completely revised (64%), or at least somewhat revised (29%).

Professional Employees and Computer Professionals

Like both executive and administrative, professional employees have a three-part exemption test. In addition, a provision for computer professionals was added in 1991. Overall, 98% of respondents feel that the professional three-part test needs to be revised to some extent. Additionally, 92% feel the computer professionals’ test needs at least some revision. The following delineates responses to each part of the three-part test, and the opinions of WorldatWork respondents about these tests.

Part 1: Professional Duties Test

An employee who is exempt from FLSA as a “professional” must have duties that require advanced knowledge in a field of science or learning, work that is original or creative in character in a recognized field or artistic endeavor, work as a certified teacher in an educational institution, or work in certain computer-related occupations.  The professional must also consistently exercise discretion and judgment that is intellectual and varied, not routine or mechanical.

Nearly three quarters of all respondents indicated that they believe that this professional duties test is no longer valid in today’s work environment and needs to either be completely or somewhat re-written.  24% said the professional duties test has stood the test of time and needs no revision.

Part 2: Professional Salary Basis Test

A professional must also be compensated on a “salary basis” meaning that the employee receives a fixed amount of compensation that is not subject (with certain exceptions) to quality or quantity of work performed. Identical to the response provided for the administrative salary basis test, 36% of respondents indicated that they believe the professional salary basis test is fine as is, but a strong 53% majority opined that the salary basis test  for professionals needs somewhat or complete revision.

Part 3: Professional Minimum Salary Test

A professional employee who does not conduct computer-related work must have a salary not less than $170 per week. While the vast majority (62%) of respondents indicated that the dollar amount of the professional minimum salary test needs to be revised, nearly a third said that the test should be eliminated altogether (32%).

Overall Professional 3-part Test

Overall, a combined 95% said the three-part professional test either should be at least partially (66%) or wholly revised (29%).

Computer Professionals Minimum Salary Test

In 1991, the minimum salary for exempt professionals who do computer-related work on an hourly basis was set at not less than $27.625 per hour (which equals 6 ½ times the minimum wage rate that was in place when the order was enacted), while an exempt salaried computer-related professional was established at $155 per week (long test) and $250 per week (short test).  As with the administrative, executive, and non-computer related professionals, the vast majority of respondents indicated that the dollar amounts should either be revised (54%) or eliminated entirely (38%).

Sales Employees

The FLSA regulations distinguish between inside and outside sales representatives such that outside sales representatives are classified as exempt, but inside sales representatives are not. Among the survey respondents, 37% reported having both inside and outside sales employees, and among this group of respondents, nine out of ten felt this regulation needed at least some revision or eliminated entirely.

Compensatory Time

In recent years, a number of proposals have been discussed and proposed that would provide private-sector workers the choice between time off or overtime pay when they work more than 40 hours in a single week. The following table details the views of WorldatWork member respondents regarding some possible provisions to so-called “comp time” legislation.

In terms of what respondents believe is “reasonable and fair” to both employer and employee regarding comp time, 87% said that they believed “written agreement between employer and employee containing rules and guidelines” was fair.  In addition, more than 80% indicated that standard FLSA remedies should apply to employers who intimidate, threaten or coerce an employee into selecting compensatory time instead of overtime pay.

The least “reasonable and fair” concept, according to respondents, was the notion of allowing employees to request a compensatory time cash out at any time and receive their cash within 30 days -- 66% of respondents thought that concept was favorable to employees. Although more than half (52%) of respondents said it seemed reasonable and fair that only those employees who worked for 12 months and at least 1,250 hours would be eligible for comp time, 39% of WorldatWork member respondents said this possible provision was favorable to employers.

Finally, when asked about wage and hour legal activity against their organization, only a very small percentage of respondents indicated that they had indeed faced wage and hour class action activity. A substantially larger percentage (15%) said they had dealt with compliance actions related to wage and hour within the past two years.

Respondents with wage and hour compliance actions in past 2 years

Respondents with wage and hour class actions pending against organizations

Respondent Demographics

The vast majority of respondents to the survey (73%) reported employment in private sector organizations, and there was a diversity of organization sizes represented among the respondents.

Industries

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