Computer Services Personnel: Overtime Pay Under the Fair Labor Standards Act

The Fair Labor Standards Act of 1938 (FLSA), as amended, is the primary federal statute in the area of minimum wages and overtime pay. Through administrative rulemaking, the Secretary of Labor has established two tests through which to define eligibility under the Section 13(a)(1) exemption: a duties test and an earnings test. In the 106th Congress, legislation was introduced by Representatives Andrews and Lazio that would have increased the scope of the exemption: first, by expanding the range of exempt job titles, and then, through a relative reduction in the value of the earnings threshold or test. For example, were the minimum wage increased to $6.15 per hour, as pending proposals would do, the value of the computer services exemption threshold would be 4.5 times the federal minimum wage. Ultimately, neither bill was enacted, but the issue has re-emerged as H.R. 1545 (Andrews) and H.R. 546 (Quinn).

Order Code RL30537 CRS Report for Congress Received through the CRS Web Computer Services Personnel: Overtime Pay Under the Fair Labor Standards Act Updated February 7, 2005 William G. Whittaker Specialist in Labor Economics Domestic Social Policy Division Congressional Research Service ˜ The Library of Congress Computer Services Personnel: Overtime Pay Under the Fair Labor Standards Act Summary The Fair Labor Standards Act of 1938 (FLSA), as amended, is the primary federal statute in the area of minimum wages and overtime pay. Section 13(a)(1) provides, inter alia, that the Act’s wage and hour (overtime pay) requirements will not apply to “any employee employed in a bona fide executive, administrative, or professional capacity ....” Through administrative rulemaking, the Secretary of Labor has established two tests through which to define eligibility under the Section 13(a)(1) exemption: a duties test and an earnings test. The Department of Labor (DOL), through many years, had defined a professional as one who has undergone “a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship.” After a review of then-current practice in the field, DOL (in a series of decisions beginning in the 1960s) decided that it was not able to determine that computer services workers were “professional” for Section 13(a)(1) purposes. Thus, such workers continued to be fully covered by the wage and hour provisions of the FLSA. In 1990, Congress adopted free-standing legislation directing DOL to promulgate regulations defining the status of computer services workers and to include in that definition an earnings test: not less than 6½ times the federal minimum wage. Although DOL proceeded as directed, Congress revisited the issue in 1996. It removed the computer services exemption from Section 13(a)(1), creating a new categorical exemption in Section 13(a)(17). Here, unburdened by the issue of defining professional, Congress set its own standard. It also froze the earnings test at $27.63 per hour — decoupling it from the general minimum wage. With the increase in the general wage floor, part of the 1996 amendments, that came to equal 5.4 times the minimum wage. Some might argue that the rationale for exemption of computer services personnel, in the absence of a significant hearings record, may not be entirely clear. Further, given the broad definition of a computer services professional in the legislation, for example, some may question which workers in the industry would not be exempt. Still, legislation continued to be introduced that would have broadened the exemption further. None, however, was enacted. However, in the spring of 2004, the Administration’s revision of Section 13(a)(1) of the FLSA, dealing with compensation for executives, administrators, or professionals, provided yet another option for employers of computer professionals. The new rate, under Section 13(a)(1) would provide a new reduced rate for such workers. This paper explores treatment of computer professionals under the FLSA. Contents Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 13(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 General Definition of “Professional” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Various Tests and Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Refining the Concept of “Professional” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Seeking Legislative Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Congress Addresses the Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Regulations Issued by the Department of Labor . . . . . . . . . . . . . . . . . . . . . . 8 Congress Restructures the Exemption, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 New Statutory Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Declining Value of the Salary Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Legislative Proposals During the 106th Congress . . . . . . . . . . . . . . . . . . . . . . . . 11 Legislative Proposals During the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . 13 Legislative Proposals During the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . 13 New Legislation Proposed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 New Section 13(a)(1) Regulations Proposed by DOL . . . . . . . . . . . . . . . . . 14 Comment and Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Computer Services Personnel: Overtime Pay Under the Fair Labor Standards Act Most Recent Developments Under the Fair Labor Standards Act, not all workers are treated in precisely the same manner in terms of wages and hours. Computer services personnel is a case in point. Through a number of years, employers had sought to classify them at professionals — and, thus, to exempt them from minimum wage and overtime pay — but to no avail. Then, in 1990, Congress adopted special legislation directing the Department of Labor to reassess its treatment of such workers. The Department did so; but, in 1996, Congress created a new provision of the FLSA [Section 13(a)(l7)], declaring such workers (under certain circumstances) to be as categorically exempt. Although the 1996 amendments were adopted, it was suggested that some finetuning continued to be needed. Various proposals dealing with computer services legislation continued to be introduced through the 108th Congress. Although none of the new proposals was adopted, the Administration proposed a more general revision of the Section 13(a)(1) requirement, dealing with executives, administrators, and professionals. As ultimately promulgated in the spring of 2004 (and given effect in August of that year), the new provision would have made it somewhat easier for computer services workers, with others, to qualify for exemption. Whether the new regulation will be sufficient to deal with computer services personnel — or will need further congressional involvement — remains somewhat unclear. This report traces the manner in which one industry, computer services, has been treated for wage and hour purposes under the Fair Labor Standards Act. Introduction The Fair Labor Standards Act of 1938 (FLSA), as amended, is the basic federal statute dealing with minimum wages, overtime pay, and related standards. Three sections are of immediate relevance for this report. Section 6 is the Act’s basic minimum wage provision. Section 7 requires that one and one-half times one’s regular rate of pay (“time-and-a-half”) be paid to workers for hours worked in excess of 40 per week. Section 13 is devoted to exemptions. In Section 13(a)(1), Congress exempted both from minimum wage and overtime pay protections “any employee employed in a bona fide executive, administrative, [or] professional” capacity (the EAP exemption), adding that such terms were to be “defined and delimited by regulations of the Administrator” — i.e., now, the Secretary of Labor. CRS-2 Initially limited, largely, to industrial workers associated with interstate commerce, wage/hour coverage under the FLSA has gradually been expanded to include a larger portion of the workforce. Speaking generally, employers have urged a broadening of exemptions while workers have urged expanded coverage. In some cases, precise exemptions have been written into the Act; at other times, exemption has been flexible, leaving discretion to the Secretary of Labor. The result after 60 years, some have argued, is a statute that is inordinately complex and difficult to interpret — though others would argue that it is necessarily precise.1 Section 13(a)(1) Under the Fair Labor Standards Act of 1938 (FLSA), special minimum wage and overtime pay treatment (an exemption) was allowed for certain persons who could qualify as bona fide executive, administrative or professional employees [Section 13(a)(1)]. Definition of a bona fide executive, administrative or professional employee was left to the discretion of the Secretary of Labor who, through the years, has developed qualifying criteria.2 To be exempt under Section 13(a)(1), two criteria must normally be met. First, the worker must be paid a salary above a threshold established by the Secretary: the salary test. Second, the worker must be engaged in duties that would meet, in this instance, the standard of a professional (the duties test) as specified by the Secretary. In addition, the worker would be required to devote not more than 20% of his or her time to duties that are not regarded as executive, administrative, or professional.3 Definition of executive, administrative and professional and establishment of the elements necessary to qualify as bona fide have proved contentious: in part because persons so defined and, thus, falling within the Section 13(a)(1) exemption, are stripped of minimum wage and overtime pay protection under the Act. Further, in rapidly evolving fields, it has not always been clear who actually is a bona fide professional and who is simply a technically skilled worker. In computer sciences, for example, job descriptions, academic requirements, and work patterns varied widely and were, early, in near constant flux. Thus, the Department, after lengthy consideration, determined that it was not practical to render a clear definition of professional in the computer services field, delaying a finding till the discipline had stabilized. 1 See, for example, Jeanne Saddler, and Albert Karr, “Minimum-Wage Exemptions Baffle Many,” The Wall Street Journal, Mar 23, 1989, p. B2. Although it is now dated in some places, the best overview of exemption patterns under the FLSA is “Volume IV of the Report of the Minimum Wage Study Commission,” Exemptions from the Fair Labor Standards Act (Washington: GPO, 1981), 492 p. 2 While there are different qualifying factors established by the Secretary for each classification (executive, administrative, or professional), the computer services issue revolved around the concept of professional. 3 The “time-duties” requirement was changed under the new Section 13(a)(1). But, prior to the 2004 administrative changes in the Act, it remained a significant factor. CRS-3 In the absence of any change in the DOL position established in the mid-1960s, Congress took action. In 1990, with P.L. 101-583, the 101st Congress directed the Secretary to promulgate regulations that would permit certain computer services workers to qualify as exempt under Section 13(a)(1). It specified certain job titles (or sub-disciplines) that would be included in the exemption and set the wage level necessary for such workers to qualify.4 DOL published rules implementing the legislation in 1991; but, the matter was not entirely resolved.5 In 1996, with P.L. 104-188, Congress restructured the provision. It moved the exemption for computer services personnel from Section 13(a)(1) — where it was predicated upon the concept of bona fide executive, administrative or professional status (with qualifying tests) — to a new Section 13(a)(17), a categorical exemption which rests upon conditions specified by Congress. Thereafter, the extent to which computer industry workers met DOL’s tests for professional status would be a moot issue. In the 106th Congress, legislation was introduced that would have rewritten the Section 13(a)(17) exemption to refine the types of computer-related work covered by the exemption and to restructure the exemption. The proposals died at the close of the 106th Congress, but the issue re-emerged in the 107th Congress. But, no new legislation was adopted. General Definition of “Professional” The eligibility criteria developed by the Secretary for the EAP exemption are precise. Bona fide professionals are to be paid at rates befitting their status as a professional — and their work is to be substantively different from that of factory, clerical or other workers categorized as non-professional. The Department’s regulatory structure is intended to assure that workers are not given a pro forma title so that they can be paid a rate lower than that intended by Congress. Various Tests and Standards In Section 29, Part 541.3, of the Code of Federal Regulations (CFR), the duties test and time duties test for a “professional” are set forth in detail. An “employee employed in a bona fide ... professional capacity” is a worker: (a) Whose primary duty consists of the performance of: (1) Work requiring knowledge of an advance[d] type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual 4 No hearings were conducted on the measure. It was adopted by voice vote after relatively modest debate. See Congressional Record (hereafter cited as CR), Oct. 18, 1990, pp. H10563-H10564, and Oct. 27, 1990, p. S17679. The issue had been raised briefly during consideration of the FLSA Amendments of 1989. See CR, Apr. 12, 1989, pp. S3741-S3742; May 17, 1989, p. S5477; and Nov. 1, 1989, p. H7855. The enactment seems to have sparked a mixed reaction within the industry. See New York Times, Jan. 28, 1991, p. D3; Washington Post, Jan. 25, 1991, pp. F1-F4; and Bureau of National Affairs, Daily Labor Report (hereafter cited as DLR), May 13, 1991, p. A1. 5 Federal Register, Feb. 27, 1991, pp. 8250-8251. The rules took effect on Mar. 29, 1991. CRS-4 instruction and study, as distinguished from a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes [italics added], or (2) Work that is original and creative in character in a recognized field of artistic endeavor (as opposed to work which can be produced by a person endowed with general manual or intellectual ability and training), and the result of which depends primarily on the invention, imagination, or talent of the employee, or (3) Teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in the school system or educational establishment or institution by which he is employed; and (b) Whose work requires the consistent exercise of discretion and judgment in its performance; and (c) Whose work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical, or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time; and (d) Who does not devote more than 20 percent of his hours worked in the workweek to activities which are not an essential part of and necessarily incident to the work described in paragraphs (a) through (c) of this section; ...6 In addition, there are qualifying earnings tests which, normally, would be updated periodically through the rulemaking process. However, the current salary tests have remained in place since established on an interim basis in 1975. By the mid-1990s, DOL estimated that slightly in excess of 30 million employed wage and salary workers were minimum wage/overtime pay exempt under Section 13(a)(1) in the three categories of executive, administrative, or professional.7 Refining the Concept of “Professional” DOL has been precise in setting standards for professionals exempt under Section 13(a)(1). Over time, it has applied the definition within specific work situations through opinion letters issued by the Wage and Hour Division; but, until the legislation of the 1990s, its treatment of computer services personnel was rooted in 1960s experience. Responding to a request that certain computer services workers be designated as professionals, the Wage-Hour Administrator (spring 1966) stressed “discretion and independent judgment.”8 Even were a portion of a worker’s time devoted to 6 See 29 CFR. 541.3(a) forward. These standards applied with respect to computer services workers for whom a Section 13(a)(1) professional exemption was sought prior to enactment of P.L. 101-583 in 1990. With the new Section 13(a)(1) regulations, implemented in August 2004, the regulations would change again. See discussion below. 7 U.S. Department of Labor, Employment Standards Administration, Minimum Wage and Overtime Hours Under the Fair Labor Standards Act, 1998 Report to the Congress (Washington: GPO, June 1998), Table C1a95. Calculated on an hourly basis, the qualifying wage would range from $4.25 per hour to $6.25 per hour. See also Federal Register, Feb. 19, 1975, pp. 7091-7094. 8 Opinion letter, signed by Clarence T. Lundquist, United States Wage-Hour Administrator, (continued...) CRS-5 activities that were within the concept of “professional,” there would still remain the duties time test to be satisfied: i.e., that a major portion of his or her work must be professional in character. An inquiry of a year later drew a similar reply. DOL affirmed that while a computer operator’s work was “highly technical and mechanical” and “based on skill,” it did not require advanced learning of a scholarly character. It is “reasonably clear that he is not performing work involving the regular and continuing use of knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study ....”9 By the early 1970s, computer technology was rapidly developing as a specialized discipline; and, in that context, DOL commenced a reevaluation of its treatment of workers in the data processing field. These employees, the Department noted, “are identified by a multitude of titles, including program operator, programmer, systems analyst, and many others. They have varied experience and training, and perform a variety of tasks which are difficult to measure in terms of their significance and importance to management.”10 Reviewing its application of the Section 13(a)(1) exemption in the computer technology field, DOL solicited outside input with diverse results. Employer representatives “contended that computer programmers and systems analysts should be considered professional employees” and, thus, be minimum wage and overtime pay exempt. Some urged that a “junior programmer” should also be exempt. Employee spokespersons, pointed out that data processing was still a “relatively new occupational area,” still “in a state of flux,” and that “job titles and duties are not regularized and overlap and intermix in a confusing manner.” They contended “that to expand the exemption was an invitation for employers to work such employees longer hours with no additional compensation.” Both employers and employees concurred that a college degree was not “a requirement for entry into the data processing field.”11 Ultimately, the Department concluded that “there is no need to change the definition of professional employee” in the regulations as it would affect computer services personnel. Instead, it would authorize exemptions based upon specific circumstances and work situations.12 Through the early 1970s, DOL maintained its ad hoc approach,13 emphasizing that the professional exemption under Section 13(a)(1) required knowledge “of an 8 (...continued) Apr. 14, 1966. 9 Ibid., May 22, 1967. 10 Federal Register, Sept. 10, 1970, pp. 14268-14269. 11 Federal Register, Dec. 2, 1971, pp. 22976-22979. 12 Ibid. 13 Federal Register, May 7, 1973, pp. 11390 and 11404. CRS-6 ‘advanced type’ which is customarily acquired by a prolonged course of specialized intellectual instruction and study.”14 It maintained that a bachelor’s degree was a standard prerequisite for a professional, defining its concept of “a prolonged course of specialized instruction and study” as “four academic years of preprofessional and professional study in an accredited university or college.”15 It affirmed that it could not “give a blanket determination as to the exempt status of any group or class of employees since the problem is a factual one dependent upon the particular situation with respect to each individual employee.”16 It viewed itself as “constrained by judicial decisions to interpret exemptions from the Act’s provisions narrowly [and] ... limited to those who come plainly and unmistakably within their terms and spirit.”17 Various Departmental initiatives for revision of the regulations governing Section 13(a)(1) would be considered during the Ford and Carter Administrations. With the advent of the Reagan Administration, general reform would be suspended; the Department would continue to follow its policies of the 1960s and 1970s. Seeking Legislative Solutions When the Department of Labor did not adopt regulations more broadly exempting computer services personnel, Congress took up the issue. There has now been more than a decade of legislative activity in this area. Congress Addresses the Issue In the 101st Congress (1989-1990), Senator David Durenberger, with others, proposed an amendment to general FLSA legislation that directed the Secretary of Labor to interpret the wage/hour “professional exemption” of Section 13(a)(1) in a manner “that permits computer systems analysts, software engineers, and other similarly skilled professional workers to qualify ... for such exemption.” Under the Durenberger amendment, the exemption would seem to have applied to salaried workers and to hourly paid workers if their hourly wage was “at least 6½ times greater than the applicable minimum wage” under the FLSA.18 No hearings had been conducted with respect to the issue. The amendment, offered on the floor, was 14 Opinion letter, signed by Warren D. Landis, Acting Wage-Hour Administrator, June 9, 1974. 15 Opinion letter, signed by Warren D. Landis, Deputy Wage-Hour Administrator, Mar. 5, 1976. 16 Opinion letter, signed by Warren D. Landis, Acting Wage-Hour Administrator, Nov. 10, 1975. 17 Opinion letter, signed by Warren D. Landis, Deputy Wage-Hour Administrator, Mar. 5, 1976. It has been the tradition of the Department to view exemptions narrowly. As Landis stated here: “This is so because an application of an exemption deprives an employee of the monetary benefits which the Act otherwise provides.” 18 CR, Apr. 12, 1989, p. S3741. CRS-7 adopted in the Senate without a roll call vote.19 However, the legislation was vetoed by President Bush. An attempt by the House to override the President’s veto failed.20 Subsequently, a revised version of the FLSA/minimum wage legislation was adopted and signed by the President late in 1989; but, in the process, the computer services exemption had been dropped.21 During the summer of 1990, legislation had been adopted in the Senate to deal with FLSA wage rates for American Samoa. When it was called up in the House, an amendment was offered by Representative Austin Murphy, reintroducing the computer services issue.22 On a voice vote, the House adopted the consolidated bill.23 The Senate concurred in the House (Murphy) amendment, again by voice vote,24 and on November 15, 1990, the measure was signed by President Bush (P.L. 101-583). As it related to the computer industry, P.L. 101-583 provided, in part, for the following: Not later than 90 days after the date of enactment of this Act, the Secretary of Labor shall promulgate regulations that permit computer systems analysts, computer programmers, software engineers, and other similarly skilled professional workers as defined in such regulations to qualify as exempt executive, administrative, or professional employees under section 13(a)(1) ... Such regulations shall provide that if such employees are paid on an hourly basis they shall be exempt only if their hourly rate of pay is at least 6½ times greater than the applicable minimum wage ... Thus, Congress took three steps. First. It mandated development of regulations that would “permit” the designated computer services personnel to be exempt from FLSA wage/hour requirements under Section 13(a)(1) if the requisite salary test were met: as bona fide “executive, administrative, or professional”employees. But, it did so without amending Section 13(a)(1) directly. Second. It mandated that DOL, within 90 days following enactment, promulgate the Section 13(a)(1) regulations applicable to the computer industry. Third. It established, by statute, the qualifying salary test for a Section 13(a)(1) exemption for the computer industry. It did not direct that the Secretary regard the computer services salary test as a guide for other industries; but, it did provide a precedent that the Department could hardly have missed. Regulations Issued by the Department of Labor Responding to its mandate, DOL issued an interim final rule on February 22, 1991. It noted that there had been”[i]nsufficient time” allowed “for the Department 19 Ibid., pp. S3741-S3742. 20 The Durenberger language does not appear to have been a factor in the veto decision. 21 CR (permanent set), Nov. 1, 1989, p. 26805. 22 CR, Oct. 18, 1990, p. H10563. 23 Ibid., p. H10565. 24 CR, Oct. 27, 1990, p. S17679. CRS-8 to issue a proposal for comments, review the comments, and promulgate a final rule to be effective 90 days after the law was enacted.” But, it invited a submission of comments through a 60-day period preliminary to publication of a final rule. Since no hearings had been conducted on the issue and the legislative history was sparse, DOL may have been uncertain about the precise intent of Congress.25 The final rule made a number of technical and definitional changes in 29 CFR 541, the broader regulation applying the Section 13(a)(1) exemption. For example, it amended the definition of professional (541.3(a)) by adding the following: (4) Work that requires theoretical and practical application of highly-specialized knowledge in computer systems analysis, programming, and software engineering, and who is employed and engaged in these activities as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer software field, as provided in 541.303; and ... In 541.303, it presented an inventory of job titles indicative that an overtime pay exemption might be in order, other criteria having been met, but added: “... because of the wide variety of job titles applied to computer systems analysis and programming work, job titles alone are not determinative of the applicability of this exemption.” In 541.3(b), DOL stated that consideration for an exemption would also rest upon “an employee’s primary duty” — i.e., one or more of the following: (1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; (2) The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (3) The design, documentation, testing, or modification of computer programs related to machine operating systems, or (4) A combination of the aforementioned duties, the performance of which requires the same level of skills. It explained that “employees engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment,” as with persons whose work is “highly dependent upon, or facilitated by, the use of computers and computer software programs,” would not be included as eligible for the overtime pay exemption.26 At least since the 1970s, the Department had argued that the concept of professional for Section 13(a)(1) purposes involved, as a prerequisite, a substantial academic education. Here, in response to P.L. 101-583, DOL modified its stance. In 541.303(c), the final rule stated with respect to computer professionals: (c) The exemption ... applies only to highly-skilled employees who have achieved a level of proficiency in the theoretical and practical application of a 25 Federal Register, Feb. 27, 1991, p. 8250-8251. 26 See 29 CFR 541, paragraphs as indicated in the text. body of highly-specialized knowledge in computer systems analysis, programming, and software engineering, and does not include trainees or employees in entry level positions learning to become proficient in such areas or to employees in these computer-related occupations who have not attained a level of skill and expertise which allows them to work independently and generally without close supervision. The level of expertise and skill required to qualify for this exemption is generally attained through combinations of education and experience in the field. However, DOL added: “While such employees commonly have a bachelor’s or higher degree, no particular academic degree is required for this exemption, nor licensure or certification, as is required for the exemption for the learned professions.” Of course, employees who may not qualify for exemption as a professional could potentially qualify under another component of Section 13(a)(1) because of their managerial and administrative duties. Congress Restructures the Exemption, 1996 Under P.L. 101-583, Congress directed DOL to promulgate new regulations concerning the Section 13(a)(1) computer services exemption. The result had been regulatory, not statutory — except with respect to the earnings threshold. Five years later, Congress would adopt a different approach. During the 104th Congress (1995-1996), several hearings were conducted on the concept of the minimum wage but not upon specific legislation. None of them focused upon the computer personnel exemption — nor was that a major issue during consideration of the proposal. In August 1996, new FLSA legislation was adopted and signed by President Clinton (P.L. 104-188). New Statutory Language Under the 1996 FLSA amendments, a new categorical exemption was created as Section 13(a)(17). Congress, thus, by-passed entirely the sub-paragraph Section 13(a)(1) reference to “executive, administrative, or professional.” In doing so, it first decreed that certain computer services personnel would be exempt from the minimum wage and overtime pay protections of the FLSA and, second, specified the conditions that would permit that exemption to have effect. The new statutory language read: (17) any employee who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker, whose primary duty is — (A) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; (B) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (C) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or (D) a combination of duties described in subparagraphs (A), (B), or (C) the performance of which requires the same level of skills, and CRS-2 who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour. In effect, Congress took discretionary initiative away from DOL, in the case of computer services personnel, and acted directly. With the targeted workers positioned under Section (13)(a)(17), there was no longer any need for the Wage and Hour Division to define “bona fide” or “professional.” The exemption was now categorical with a statutory salary test for workers “compensated on a hourly basis.”27 Declining Value of the Salary Test In a floor statement explaining the earnings test incorporated within Section 13(a)(17), Representative William Goodling affirmed his understanding that it was “merely restating the law indicating that if they are making 6.5 times the minimum wage,” the targeted computer services workers would not qualify for overtime pay under the FLSA. “The amendment simply maintains the current exemption level for 6.5 times $4.25, or $27.63 per hour.”28 Representative Steve Gunderson, however, stated the view that: “The amendment freezes the rate at which certain computer professionals are exempt from the minimum wage at $27.63 per hour. The current exemption amount is at 6.5 times the minimum wage ....” If the threshold (“6½ times”) “was allowed to float with the minimum wage,” Representative Gunderson observed, the dollar volume threshold would continue to increase. Under P.L. 104188 it wouldn’t do so; but, he explained, the FLSA “was intended to protect those who were underpaid, not highly paid professionals.”29 Under P.L. 104-188 (the 1996 amendments), the threshold was, indeed, 6½ times the minimum wage at the time the new amendments were adopted ($4.25 x 6½ = $27.63). However, P.L. 104-188 also raised the minimum wage to $5.15 per hour. Because the $27.63 figure was now frozen in the statute, the “6½ times” formula was reduced. Had the threshold been allowed to float (i.e., 6½ times the new minimum wage), the new earnings test would have been $33.48 per hour. As a result of moving from a floating threshold to a fixed (frozen) figure, the new ratio became 5.4 times the minimum wage.30 Legislative Proposals During the 106th Congress In 1989, the issue of a wage/hour exemption for certain computer services personnel quietly emerged as a legislative issue, with a change in the statute being 27 How the specific job descriptions within the new exemption would be defined, the percentage of time spent in covered work, etc., was still, presumably, left to the Secretary to determine. Italics added. 28 CR, May 23, 1996, p. 12309. 29 Ibid., p. 12278. 30 If the minimum wage is increased to $6.15 per hour as has been proposed in legislation of the 106th Congress and if the $27.63 figure is not altered, then the ratio will be 4.5 times the minimum wage. CRS-3 approved in 1990. In 1996, Congress revisited the issue and altered the structure of wage/hour regulation for computer services workers. But, the industry continues to be marked by evolution both of systems and work patterns. Thus, the statutory language of 1990 and 1996 may be perceived as needing further alteration. In the 106th Congress, Representative Robert Andrews, with others, introduced legislation (H.R. 3038) that would have rewritten Section 13(a)(17). The bill had basically three provisions. First. The proposal, in effect, would have repealed the existing Section 13(A)(17) and would then have started over. Second. Although its language generally paralleled that of the existing code, H.R. 3038 would have redefined and broadened the types of computer-related work that could qualify one as overtime pay and minimum wage exempt under a reconstructed paragraph (17) — basically keeping abreast of a developing and rapidly changing field. It read: (17) any employee who is a computer systems, network, or database analyst, designer, developer, programmer, software engineer, or other similarly skilled worker — (A) whose primary duty is — (i) the application of systems or network or database analysis techniques and procedures, including consulting with users, to determine hardware, software, systems, network, or database specifications (including functional specifications); (ii) the design, configuration, development, integration, documentation, analysis, creation, testing, securing, or modification of, or problem resolution for, computer systems, networks, databases, or programs, including prototypes, based on and related to user, system, network, or database specifications, including design specifications and machine operating systems; (iii) the management or training of employees performing duties described in clause (i) or (ii); or (iv) a combination of duties described in clauses (i), (ii), or (iii) the performance of which requires the same level of skills; and ... The term “network” was intended to include “the Internet and intranet networks and the world wide web.” Third. H.R. 3038 would have set the earnings test for the exemption at $27.63 per hour as in the 1996 amendments.31 31 H.R. 3038 did not directly specify a dollar amount. Rather, it provided: (B) who, in the case of an employee who is compensated on an hourly basis, is compensated at the rate set by the amendment enacting this paragraph made by section 2105(a) of the Employee Commuting Flexibility Act of 1996. This, of course, is the language freezing the threshold at $27.63 and abandoning the original formula of “6½ times” the statutory minimum wage under Section 6. CRS-4 Introduced on October 7, 1999, H.R. 3038 was referred to the Committee on Education and the Workforce. No further action on the Andrews bill occurred during the 106th Congress. As the 106th Congress advanced, momentum developed for enactment of new minimum wage legislation. H.R. 3081, introduced by Representative Rick Lazio, with others, called for an increase in the minimum wage to $6.15 per hour. Further, it would have altered wage/hour coverage for certain sales personnel, and would have exempted persons employed as a “licensed funeral director or licensed embalmer” from wage/hour coverage under the FLSA. In language largely identical to H.R. 3038 (Andrews), the Lazio bill would have redefined wage/hour treatment of certain computer services personnel, similarly setting the earnings test at “not less than $27.63 an hour” but stating that amount, directly, in monetary terms.32 While the Lazio bill would have increased the minimum wage to $6.15 per hour, it made no change in the threshold of earnings that would permit minimum wage and overtime pay exemption. Thus, it altered the ratio of the threshold to the minimum wage — establishing a new threshold formula, by indirection, at the equivalent of 4½ times the minimum wage. H.R. 3081 was referred to the Committee on Ways and Means and to the Committee on Education and the Workforce for consideration of the provisions falling under the jurisdiction of the two committees. On November 9, 1999, the tax provisions of the measure were marked-up in Ways and Means which reported the bill on November 11 (H.Rept. 106-467, Part I). The Committee on Education and the Workforce did not act immediately. On January 28, 2000, the Committee on Education and the Workforce was discharged from further consideration of the legislation: no hearings were held and no report was filed. On March 9, 2000, H.R. 3081 was passed by the House of Representatives. The Senate had earlier adopted different and separate minimum wage language: an amendment to S. 625, the Bankruptcy Reform Act of 1999 — but the latter did not deal with the exemption for computer services personnel. Ultimately, as the 106th Congress drew to a close, the computer services legislation was laid aside, and it died as the Congress adjourned. Legislative Proposals During the 107th Congress On February 8, 2001, Representative Quinn introduced H.R. 546, an umbrella proposal dealing mostly with non-labor issues. Added at the end, however, were provisions to raise the minimum wage to $6.15 an hour after April 1, 2002, and, among other changes in the FLSA, to broaden the wage/hour exemption with respect to computer services personnel. The computer services personnel provisions were later introduced as a free-standing bill by Representative Andrews: H.R. 1545. The bills were essentially identical — and similar to the proposals of the 106th Congress. 32 The labor-related provisions constitute a relatively small proportion of H.R. 3081, the bulk of the package dealing with issues not related to the FLSA or labor standards. CRS-5 The same pattern of referral was followed: H.R. 1545 to Education and the Workforce; H.R. 546 to Ways and Means and to Education and the Workforce. Various other FLSA-related proposals were introduced during the 107th Congress, some as part of composite legislation and others free standing.33 The primary focus, however, appeared to be upon an increase in the minimum wage — which, in turn, some argued, would need to be linked to tax benefits for business. While hearings were conducted on certain of the FLSA-related bills, the computer services personnel legislation did not receive immediate attention. Neither bill was acted upon during the 107th Congress. Legislative Proposals During the 108th Congress The treatment of computer services workers under the FLSA was the subject of new legislative initiatives during the 108th Congress, given impetus by a regulatory change initiated by DOL. New Legislation Proposed On March 3, 2003, Senator Graham of South Carolina introduced S. 495, a proposal that would amend Section 13(a)(17) of the FLSA to redefine the treatment of certain computer services workers with respect to minimum wage and overtime coverage. A companion bill (H.R. 1996) was introduced by Representative Joe Wilson, also of South Carolina, on May 6, 2003. The bills list certain types of computer services workers who could be minimum wage and overtime pay exempt (“any employee who is a computer systems, network, or database analyst, designer, developer, programmer, software engineer or other similarly skilled worker”) and provide an inventory of duties that such exempt workers could be expected to perform. The bills were referred, respectively, to the Committee on Health, Education, Labor, and Pensions and to the Committee on Education and the Workforce, but did not advance beyond their referral. New Section 13(a)(1) Regulations Proposed by DOL On March 31, 2003, DOL proposed a general restructuring of the regulations implementing the minimum wage and overtime pay treatment of certain bona fide professional (or executive and administrative) employees under Section 13(a)(1). The proposed rule (29 C.F.R. Part 541) was contentious and provoked several legislative initiatives designed to block its issuance in final form and/or 33 See CRS Report RL30993, The Fair Labor Standards Act: Wage/Hour and Related Issues Before the 107th Congress, by William G. Whittaker. CRS-6 implementation.34 None of these alternative measures was adopted and, in late August 2004, the new regulation took effect. The new rule provided several new elements. First. To qualify for exemption (i.e., to be exempt from minimum wage and overtime pay), a worker would need to earn at least $23,600 per month.35 Second. For any worker earning in excess of $100,000 a year, there would be a presumed exemption (so long as he or she was engaged in any single executive, administrative, or professional duty). Thus, two standards were established for computer services workers: Section 13(a)(1), a new standard which could include anybody earning at least $23,660 a year (with duties that were considered appropriate); with a second standard, Section 13(a)(17), a categorical exemption as a computer services workers who were paid at least $27.63 — roughly $57,470 a year.36 How these two options would mesh is not entirely clear. Nor, is it clear how one might distinguish a Section 13(a)(1) exempt worker at $23,660 a year from a Section 13(a)(17) exempt worker at $57,470. Given these options, arguably few employers would seek exemption from minimum wage and overtime pay standards under Section 13(a)(17) when they could easily (and more economically) comply with the standard potentially offered by Section 13(a)(1) under the Department’s new regulation. Of course, an employer could still classify his or her employee as an executive or administrator under the Section 13(a)(1) exemption, as the case may be, and secure exemption. Comment and Policy Considerations Wage/hour treatment of computer services personnel has been intermittently an issue before the Department of Labor and the Congress through the past 25 years. Although it does not appear to have attracted great attention, it has raised a number of considerations of policy. These focus both upon specific legislation and upon the broader implications of the issue. Whether and/or how to exempt certain computer services personnel from the minimum wage and overtime pay protections of the FLSA reflects continuing change in the field. Some may argue that the rationale for such action (exemption) is not entirely clear. Further, who are the workers who would actually be affected by this exemption? How many of them are there? In which sub-categories of computer services personnel are they most numerous? And, who are those other similarly skilled workers? What types of employers (firms) are/would be affected by the 34 See CRS Report RL32088, The Fair Labor Standards Act: A Historical Sketch of the Overtime Pay Requirements of Section 13(a)(1), by William G. Whittaker. 35 Since few workers, presumably, would have qualified for exemption as bona fide executives, administrators, or professionals, they would likely have been covered under the FLSA even without the new minimum standard. 36 See Federal Register, Apr. 23, 2004, p. 22122 ff. CRS-7 exemption? Precisely, how would the changes proposed in the 108th Congress affect the earnings and work patterns of specific computer services workers? Prior to 1990, the Department of Labor encountered difficulties in determining the “professional” status of categories of computer services workers. To surmount that hurdle, the legislation of 1990 mandated that the regulations governing wage/hour treatment of such workers under the FLSA be written in a manner that would allow these workers more easily to be classified as exempt. With the 1996 amendments, Congress stepped directly into the process and created a new categorical exemption [Section 13(a)(17)] under which certain computer services workers, meeting a specified earnings threshold and duties test, could be classified as exempt from FLSA overtime pay and minimum wage protection. Subsequent legislative proposals have been directed at redefining the Section 13(a)(17) exemption. In the case of Section 13(a)(17), Congress acted directly to exempt the computer workers, setting specific exemption criteria. There was no further concern, under that exemption, with the concept of professional — since the targeted workers (paid on an hourly basis) would be categorically exempt by statute. With the changes projected under Section 13(a)(1), that exemption may have been significantly broadened through the rulemaking process. In the latter case, the targeted workers (salaried) would need to meet a professional test — but that test could be different from that set statutorily by Congress under Section 13(a)(17). This could raise a number of questions. First. How will Section 13(a)(1) and Section 13(a)(17) mesh? Second. In defining exemptions in the executive, administrative and professional category, some may query whether it is more useful for Congress to act directly (as in 1990 and 1996) or, rather, to offer general guidance to DOL and then allow that agency to proceed administratively? Third. If Congress does continue to act in areas where professional standards and skill requirements are rapidly changing, will it find itself drawn, inevitably, year after year, into revisiting these issues? Would on-going direct congressional involvement be useful (continuing oversight) — or be tedious and possibly lend itself to neglect? Fourth. How much discretion ought properly to be left to the Department in matters that have a broad impact with respect to the wages and hours of America’s workers and the personnel policies of their employers? Fifth. If the Department does not act in a timely fashion to define and delimit the pattern of exemptions under the FLSA (as in the case of Section 13(a)(1) where it has that authority), will Congress necessarily be drawn into the process?