The “White-Collar” Exemptions to Overtime Pay Under Current and Proposed Regulations: An Economic Analysis

The “White-Collar” Exemptions to Overtime Pay Under Current and Proposed Regulations: An Economic Analysis

Order Code RL32349
CRS Report for Congress
Received through the CRS Web
The “White-Collar” Exemptions to Overtime Pay
Under Current and Proposed Regulations:
An Economic Analysis
April 8, 2004
Gerald Mayer
Economic Analyst
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

The “White-Collar” Exemptions to Overtime Pay Under
Current and Proposed Regulations:
An Economic Analysis
Summary
The Fair Labor Standards Act of 1938 (FLSA) requires employers to pay time-
and-a-half to nonexempt employees who work overtime. The main policy objectives
of requiring employers to pay time-and-a-half for overtime are to reduce involuntary
unemployment and lessen overwork.
Employers are not required to pay overtime to bona fide executive,
administrative, and professional employees. The Department of Labor (DOL) has
proposed new regulations to administer the white-collar exemptions. As of April 8,
2004, the regulations are under review by the Office of Management and Budget
(OMB).
Under current regulations, to be classified as a white-collar worker an employee
must meet each of three tests: a salary basis test, a salary level test, and a job duties
test. The proposed regulations would make changes to each of these tests. Among
the changes, the proposed regulations would raise the minimum weekly salary level
tests from either $155, $170, or $250 to $425. An exemption would be allowed for
“learned professionals” who acquire advanced knowledge through a combination of
work experience and education.
Estimating the potential effects of the proposed regulations is complicated by
several factors. It is difficult to estimate the number of exempt and nonexempt
workers using available survey data, many of the proposed changes are open to
different interpretations, and the immediate impact of the changes may differ from
the long-term impact.
According to estimates for 2002 by the Congressional Research Service (CRS),
approximately 1.0 to 1.1 million employed full-time wage and salary executive,
administrative, and professional employees earned more than the current salary test
levels but less than $425 a week. If these employees are currently exempt they would
be nonexempt under the proposed regulations. An estimated 1.0 million employed
full-time learned professionals with six or more years of work experience had at least
a high school education but less than a bachelor’s degree. If these employees are
currently nonexempt they may be exempt under the proposed regulations. Finally,
if the proposed changes create incentives that do not exist under current regulations,
employers may convert some nonexempt hourly white-collar workers to exempt
salaried workers. In 2002, an estimated 8.4 million employed full-time white-collar
workers were paid by the hour.
A CRS analysis of CPS data for 2001 and 2002 suggests that cyclical changes
in the levels of employment among lower wage workers who may have been
nonexempt (instead of exempt) and learned professionals who may have been exempt
(instead of nonexempt) under the proposed regulations were consistent with the
policy objective of reducing involuntary unemployment during an economic
downturn. The report may be updated as issues warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Objectives of Overtime Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Economic Framework for Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Involuntary Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Overwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Model of Perfect Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Merit Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Current and Proposed Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Estimating the Number of Exempt and Nonexempt Employees . . . . . . . . . 10
Data Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Immediate Versus Long-Term Effects . . . . . . . . . . . . . . . . . . . . . . . . . 13
DOL, EPI, and CRS Estimates of the Short-Term Effects
of the Proposed Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Cyclical Changes in Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Characteristics of Potentially Exempt and Nonexempt Employees . . . . . . . 17
Nonexempt Employees Under Current and Proposed Regulations . . . 18
Exempt Employees Under Current and Proposed Regulations . . . . . . 18
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appendix A: Salary Level and Job Duties Tests Under Current and
Proposed Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix B: Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Confidence Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Tables
Table 1. Characteristics of Potentially Exempt and Nonexempt Employees
Under Current and Proposed Regulations, 2002 . . . . . . . . . . . . . . . . . . . . . 20
Table A1. Summary of Current and Proposed Salary Level and Job Duties
Tests for Executive Employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table A2. Summary of Current and Proposed Salary Level and Job Duties
Tests for Administrative Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table A3. Summary of Current and Proposed Salary Level and Job Duties
Tests for Professional Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

The “White-Collar” Exemptions to Overtime
Pay Under Current and Proposed
Regulations: An Economic Analysis
Introduction
The Fair Labor Standards Act of 1938 (FLSA, P.L. 75-718) requires employers
to pay time-and-a-half to employees who work over 40 hours a week at a given job.
The FLSA includes various exemptions to this requirement. The largest group of
workers exempt from overtime pay are bona fide executive, administrative, and
professional employees. The Department of Labor (DOL) has proposed new
regulations that administer the white-collar exemptions to the FLSA.1,2 As of April
2, 2004, the regulations are being reviewed by the Office of Management and Budget
(OMB). An issue before Congress is whether, and how, to respond to changes in
current regulations.3
The main policy objectives of requiring employers to pay time-and-a-half for
overtime are to reduce involuntary unemployment and lessen overwork. The
proposed regulations, if issued as final regulations, may redefine some exempt
employees as nonexempt and some nonexempt employees as exempt.4 The purpose
of this report is to examine whether certain changes in the proposed regulations are
consistent with these objectives.
The report is in four parts. The first section describes the policy objectives of
requiring employers to pay time-and-a-half for overtime. Next, the report provides
an economic framework for analyzing overtime pay and the white-collar exemptions.
The report then summarizes both the current and proposed regulations that administer
the white-collar exemptions. Finally, using selected demographic, social, and labor
market characteristics, the report compares exempt and nonexempt employees under
1 U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales and Computer Employees, Federal Register,
vol. 68, no. 61, Mar. 31, 2003, pp. 15560-15597. (Hereafter cited as U.S. Department of
Labor, Defining and Delimiting Exemptions for Executive, Administrative, and Professional
Employees.)
2 Unless stated otherwise, in this report the term “white-collar workers” is used to refer to
executive, administrative, and professional employees.
3 For a description of the evolution of the white-collar exemptions, 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.
4 “Nonexempt” employees are workers who are eligible for time-and-a-half for overtime.
“Exempt” employees are not eligible for time-and-a-half.

CRS-2
current regulations with employees who may become exempt or nonexempt under
certain changes proposed in the revised regulations.
Legislation in the 108th Congress
In the first session of the 108th Congress, legislation was introduced to change
or postpone final implementation of DOL’s proposed overtime regulations. H.R.
2665, introduced by Representative Peter King, and S. 1485, introduced by Senator
Edward Kennedy, would amend the FLSA to prevent DOL from implementing new
regulations that would exempt from overtime any employee who is not exempt under
current regulations. An amendment introduced by Representative David Obey to the
FY2004 appropriations bill for DOL (H.R. 2660) would have prevented DOL from
using FY2004 funds to implement regulations that would exempt from overtime any
employee who is not exempt under current regulations. The Obey amendment was
defeated by a vote of 213 to 210. In the Senate, a similar amendment, sponsored by
Senator Tom Harkin, was approved by a vote of 54 to 45. The House later approved,
by a vote of 221 to 203, a motion instructing House members to the conference
committee on H.R. 2660 to accept the Senate amendment. The Consolidated
Appropriations Act of 2004 (H.R. 2673, P.L. 108-199), an omnibus appropriations
bill that included FY2004 funding for DOL, did not contain the Senate overtime
amendment. S. 1611, introduced by Senator Arlen Specter, would establish a
commission to study and make recommendations to modernize the overtime
provisions of the FLSA.5
In the second session of the 108th Congress an amendment offered by Senator
Tom Harkin to S. 1637 (a bill to amend the Internal Revenue Code to comply with
World Trade Organization rulings on tax benefits for U.S. exports) would amend the
FLSA to prevent DOL from implementing new regulations that would exempt from
overtime any employee who is not exempt under current regulations. Two votes on
a cloture motion to limit debate on S. 1637 have not received the necessary 60 votes,
and no vote has been taken on the Harken amendment to S. 1637.6 Congress may
also use the Congressional Review Act to prevent final regulations from taking
effect.7
5 A hearing on the proposed regulations was held in the Senate on July 31, 2003. U.S.
Congress, Senate Committee on Appropriations, Subcommittee on Labor, Health and
Human Services, and Education, Proposed Rule on Overtime Pay, 108th Cong., 1st sess., July
31 2003, S. Hrg. 108-233 (Washington: GPO, 2004). A second hearing was held by the
same subcommittee on Jan. 20, 2004. U.S. Congress, Senate Committee on Appropriations,
Subcommittee on Labor, Health and Human Services, and Education, Department of
Labor’s Proposed Rule on Overtime Pay, 108th Cong., 2nd sess., Jan. 20, 2004, S. Hrg. 108-
394 (Washington: GPO, 2004).
6 Jumpstart Our Business Strength (JOBS) Act, Congressional Record, vol. 150, Mar. 22,
2004, p. S2852. Bureau of National Affairs, “Senate Welfare Reauthorization Bill Stalls
Over Democrats’ Minimum Wage Proposal,” Daily Labor Report, no. 63, Apr. 2, 2004, p.
A-3. Bureau of National Affairs, “Senate Democrats Again Block Tax Bill, Insist on
Overtime, Unemployment Votes,” Daily Labor Report, no. 67, Apr. 8, 2004, p. A-14.
7 For a description of procedures under the Congressional Review Act, see CRS Report
(continued...)

CRS-3
Policy Objectives of Overtime Pay
Section 7(a) of the FLSA requires employers to pay time-and-a-half to
nonexempt employees who work overtime. Employers must pay nonexempt
employees one-and-a-half-times their regular rate of pay for hours worked in excess
of 40 hours a week at a given job. The regular rate of pay includes all payments for
employment, except for paid vacation and holidays, contributions to a health
insurance or retirement plan, income from stock option plans, and discretionary
bonuses.8 The time-and-a-half requirement in federal law does not apply to hours
worked in excess of a given number per day. The FLSA does not prevent employers
from paying more than time-and-a-half for overtime or from paying exempt
employees a premium wage for overtime.9
Section 13(a)(1) of the FLSA exempts bona fide executive, administrative, and
professional workers, as well as outside sales workers, from overtime coverage. It
also gives the Secretary of Labor the authority to administer the exemptions.10
Requiring employers to pay time-and-a-half for overtime is intended to achieve
two main policy objectives. First, time-and-a-half is intended to reduce involuntary
unemployment. The FLSA was signed into law in June 1938. During the 1930s, the
United States was in the midst of a prolonged economic depression. In 1929, the
civilian unemployment rate was 3.2%. It increased to 24.9% in 1933 and did not fall
below 10% until 1941.11 It was argued that a penalty for overtime hours would
shorten the workweek and increase employment. The second policy objective of
requiring time-and-a-half for overtime is to reduce overwork. During debate over the
FLSA it was argued that some employees worked overly long hours, which was
harmful to individual health and public safety.12 President Franklin D. Roosevelt said
that the FLSA was needed “to conserve our primary resources of manpower.”13
7 (...continued)
RL31160, Disapproval of Regulations by Congress: Procedure Under the Congressional
Review Act, by Richard S. Beth.
8 Commerce Clearing House (CCH), Labor Law Reporter: Wages Hours, Chicago, CCH,
2002, pp. 39221-39222. For a discussion of the exemption of stock option plans from the
regular rate of pay, see CRS Report RL30542, Stock Options and Overtime Pay Calculation
Under the Fair Labor Standards Act, by William G. Whittaker, pp. 1-8.
9 If a state has higher overtime standards or a higher basic minimum wage, the higher
standards normally apply.
10 Title 29, Code of Federal Regulations, Chapter 5, Part 541. (Hereafter cited as 29 CFR
541.)
11 Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public
Policy, 7th ed., Reading, Mass., Addison-Wesley, 2000, p. 30. (Hereafter cited as
Ehrenberg and Smith, Modern Labor Economics.)
12 Jonathan Grossman, “Fair Labor Standards Act of 1938: Maximum Struggle for a
Minimum Wage,” Monthly Labor Review, vol. 101, June 1978, p. 25.
13 Willis J, Nordlund, “A Brief History of the Fair Labor Standards Act,” Labor Law
(continued...)

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Opponents argued that the act amounted to government planning and would increase,
not reduce, unemployment.
Economic Framework for Analysis
Economics provides a framework for analyzing the policy objectives of
overtime pay and the white-collar exemptions. According to standard economic
theory, governments may intervene in labor markets for a number of reasons. These
reasons include policies to reduce involuntary unemployment and to improve
competition.14 In addition, governments sometimes require certain kinds of behavior
that policymakers believe may improve individual or public welfare. These
requirements are called “merit goods.”15
Involuntary Unemployment
To many economists, involuntary unemployment is one of the most visible signs
that a market economy is not functioning properly.16 Involuntary unemployment
occurs when there are qualified individuals who cannot find work at prevailing
wages.17 Involuntary unemployment that is due to inadequate demand — for
consumption goods, investment goods, or both — is generally associated with an
economic slowdown or recession.
As a means of reducing involuntary unemployment during an economic
downturn, time-and-a-half for overtime is intended as an incentive for employers to
reduce overtime hours before laying off workers.18 When unemployment rises, it
13 (...continued)
Journal, vol. 39, Nov. 1988, p. 719. (Hereafter cited as Nordlund, A Brief History of the
Fair Labor Standards Act.)
14 Governments may also intervene in private markets to produce “public” goods (e.g.,
national defense), improve the distribution of earnings or income, or correct instances where
the market price of a good does not fully reflect its social costs or benefits (called,
respectively, negative and positive “externalities”).
15 An example of a “merit good” is the requirement that drivers wear seatbelts.
16 Joseph E. Stiglitz, Economics of the Public Sector, 3rd ed., New York, W.W. Norton &
Co., 2000, p. 85. (Hereafter cited as Stiglitz, Economics of the Public Sector.)
17 Paul A. Samuelson and William D. Nordhaus, Macroeconomics, 16th ed., New York,
McGraw-Hill, 1992, pp. 260-261.
18 A penalty for overtime hours may increase the number of persons employed but may
reduce the total number of hours worked. A penalty for overtime hours raises the average
cost per hour worked. (For persons who work overtime, a penalty raises the average hourly
wage. If the penalty reduces overtime, fixed costs — for example, for employer-paid health
insurance — are spread over fewer hours.) The higher average cost per hour may cause
employers to substitute capital goods for hours worked (reducing the total number of hours
worked) and to substitute additional workers for overtime hours (increasing the number of
persons employed). Ehrenberg and Smith, Modern Labor Economics, p. 152. Daniel S.
(continued...)

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generally increases more for less skilled than for more skilled workers.19,20 One
reason for this difference is that labor costs consist of both variable and fixed costs.
Labor is sometimes called a quasi-fixed factor of production. Fixed labor costs vary
with the number of workers employed, while variable costs vary with the number of
hours employees work. Variable costs consist mainly of wages. Fixed costs include
fringe benefits (e.g., health insurance) as well as hiring and training costs.21
Hiring and training costs generally increase with skill level. Thus, the costs of
hiring and training executive and professional employees are generally greater than
the costs of hiring and training workers with less responsibility.22 Because of the
greater investment employers often make in skilled workers, in an economic
downturn employers are more likely to lay off less skilled workers.23 But, since
overtime costs more than straight-time, requiring time-and-a-half for overtime for
less skilled workers may lessen the amount of involuntary unemployment during an
economic downturn.24,25
18 (...continued)
Hamermesh, Labor Demand, Princeton, NJ, Princeton University Press, 1993, pp. 174-177.
(Hereafter cited as Hamermesh, Labor Demand.)
19 Bruce E. Kaufman, The Economics of Labor Markets, 4th ed., Fort Worth, Dryden Press,
1994, pp. 192-193. Robert Topel, “What Have We Learned from Empirical Studies of
Unemployment and Turnover?” American Economic Review, vol. 83, May 1993, p. 112.
20 One study concluded that professionals experience less unemployment than persons in
other occupations. Professionals were defined as professional, technical, and related
workers as well as sales and clerical workers. Unemployment among professionals was
compared to unemployment among service workers, craftsmen, and laborers. Mark
Dynarski and Steven M. Sheffrin, “New Evidence on the Cyclical Behavior of
Unemployment Durations,” in Kevin Lang and Jonathan Leonard, eds., Unemployment and
the Structure of Labor Markets, New York, Basil Blackwell, 1987, pp. 167-168.
21 Variable labor costs also include payroll taxes that vary with earnings. Walter Y. Oi,
“Labor as a Quasi-Fixed Factor,” Journal of Political Economy, vol. 70, Dec. 1962, pp. 538-
539. Hamermesh, Labor Demand, pp. 44-48. Lloyd G. Reynolds, Stanley H. Masters, and
Colletta H. Moser, Labor Economics and Labor Relations, 11th ed., Englewood Cliffs, N.J.,
Prentice-Hall, 1998, pp. 94-95. (Hereafter cited as Reynolds et al., Labor Economics and
Labor Relations.)
22 Randall K. Filer, Daniel S. Hamermesh, and Albert E. Rees, The Economics of Work and
Pay, 6th ed., New York, Harper Collins, 1996, pp. 195-197. (Hereafter cited as Filer et al.,
The Economics of Work and Pay.)
23 Gary S. Becker, Human Capital: A Theoretical and Empirical Analysis, with Special
Reference to Education, 2nd ed., New York, Columbia University Press, 1975, pp. 32-33.
24 Fiscal and monetary policy are macroeconomic options for reducing involuntary
unemployment during an economic slowdown or recession. In a downturn, reducing wages
may be an alternative to layoffs.
25 The employment effects of a penalty for overtime may be diminished if straight-time
wages are adjusted downward, so that employees’ total weekly pay is unchanged. Some
evidence suggests that, after the FLSA was enacted in 1938, some employers reduced the
regular hourly rate of pay so that the payment of overtime did not change their total wage
(continued...)

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Overwork
Overtime may be voluntary or involuntary. Overtime is voluntary if workers
have the option to accept or decline employer requests to work overtime. Overtime
is involuntary if workers do not have the option to accept or decline employer
requests to work overtime. The difference will generally depend on the degree to
which labor markets fit the model of perfect competition. For example, one of the
characteristics of the model of a competitive labor market is that there are many
employers and many workers. If a labor market does not have many other employers
offering similar work at similar wages, employees may have few alternative
employment options and may work overtime when they would rather not.
Model of Perfect Competition. According to standard economic theory,
competitive markets generally result in the most efficient allocation of resources,
where resources consist of individuals with different skills, capital goods (e.g.,
computers, machinery, and buildings), and natural resources. If labor markets fit the
model of perfect competition, workers are paid according to the value of their
contribution to output. In competitive labor markets, wages include compensation
for unfavorable working conditions. The latter theory, called the “theory of
compensating wage differentials,” recognizes that individuals differ in their
preferences or tolerance for different working conditions — such as the number of
hours worked (including overtime), health and safety conditions, vacation time, and
job security.26
If labor markets do not fit the model of perfect competition, overtime may be
involuntary. In imperfect labor markets, requiring employers to pay time-and-a-half
for overtime may either discourage employers from requesting, or requiring, overtime
or ensure that workers who work overtime are paid a premium wage for overtime
hours.
Reducing involuntary overtime may be a difficult policy to implement. First,
identifying the appropriate labor market may be difficult. Labor markets can be local
(e.g., for unskilled labor), regional, national, or even international (e.g., for top
executives). Second, labor market competitiveness is difficult to measure.27 Labor
25 (...continued)
bill. (U.S. Congress, House Committee on Ways and Means, The National Recovery
Administration: Message from the President of the United States, House Document 158,
75th Cong., 1st sess. (Washington: GPO, 1937), p. 90; Nordlund, A Brief History of the
Fair Labor Standards Act, p. 723.) A more recent study concluded that straight-time wages
partially, but do not completely, adjust in response to premium pay for overtime hours.
Stephen Trejo, “The Effects of Overtime Pay Regulation on Worker Compensation,”
American Economic Review, vol. 81, Sept. 1991, pp. 735-736.
26 Filer et al., The Economics of Work and Pay, pp 376-390. Ehrenberg and Smith, Modern
Labor Economics, pp. 251-259.
27 Requiring time-and-a-half for overtime may create an incentive for employees to work
more hours. Some employees may, therefore, work overtime although they would otherwise
prefer a shorter workweek. Some evidence suggests that workers want to work more
(continued...)

CRS-7
markets may also change because of economic, technological, or policy changes. In
addition, requiring time-and-a-half for overtime is intended to reduce involuntary
unemployment and lessen overwork. In one case, time-and-a-half is required for less
skilled workers who may be more likely than skilled workers to lose their jobs during
an economic downturn. In the other case, time-and-a-half is required for workers in
imperfect labor markets. The two groups of workers may not be the same. In an
economic downswing, requiring time-and-a-half for less skilled workers may reduce
involuntary unemployment. But requiring time-and-a-half to lessen involuntary
overtime depends on the competitiveness of the relevant labor markets.
Merit Goods. Finally, some policymakers may believe that employees who
voluntarily work overtime are not acting in their best interests or in the best interests
of others. Policymakers who believe that a 40-hour work week is a merit good may
favor limits on the number of hours worked or may favor incentives — such as time-
and-a-half for overtime — that discourage employers from offering overtime. The
general criticism of this view is that, in competitive markets, individuals are in a
better position than governments to judge what is in their best interests.28
Current and Proposed Regulations
The FLSA includes several exceptions and exemptions to the requirement that
employers pay workers time-and-a-half for overtime. White-collar workers are the
largest group of employees exempt from time-and-a-half for overtime. This section
provides a brief summary of current and proposed regulations that administer the
white-collar exemptions to the FLSA. (The tables in Appendix A provide more
detail on the current and proposed regulations.)
Under current regulations, executive, administrative, and professional workers
are generally exempt from time-and-a-half for overtime if they meet each of three
tests: a salary basis test, a salary level test, and a job duties test.29 Under the salary
basis test, an employee must be paid a salary, and not an hourly wage. Salaried
workers are employees who receive their full salary for any workweek in which they
perform any work without regard to the number of days or hours worked.30 Under
27 (...continued)
overtime than the amount that is offered by employers. Overtime hours may, therefore, be
rationed, either by seniority or by rotating the opportunities for overtime among workers.
Reynolds et al., Labor Economics and Labor Relations, pp. 62-63, 470.
28 The view that governments may know what is in the best interests of individuals has been
called paternalism. Stiglitz, Economics of the Public Sector, p. 87.
29 According to DOL, “... the application of most exemptions [is] determined on a workweek
basis.” U .S. Department of Labor, Wage and Hour Division, Handy Reference Guide to the
Fair Labor Standards Act (FLSA). Available on the internet at
[http://www.dol.gov/esa/regs/compliance/whd/hrg.htm].
30 Executives must be paid on a salary basis; administrative and professional employees may
be paid on a salary or fee basis. The salary basis test does not apply to executive,
(continued...)

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the job duties test, an employee’s “primary duties” must involve, executive,
administrative, or professional activities. Depending on an employee’s salary, an
employee must meet one of two duties tests, commonly called the “short test” and the
“long test.” The long test has more requirements than the short test. The long test
applies to executive and administrative employees with weekly salaries of at least
$155 but less than $250 and to professional employees with weekly salaries of at
least $170 but less than $250. The short duties test applies to executive,
administrative, and professional employees with weekly salaries of $250 or more.31
White-collar workers who are paid less than the minimum salary levels are
nonexempt, regardless of their job duties. The duties tests have remained essentially
unchanged since 1949. The salary levels in the short and long duties tests were last
raised in 1975.32
A salary requirement does not apply to doctors, lawyers, and teachers.
Regulations do not include a specific salary level test for academic administrative
personnel. Under Section 13(a)(17) of the FLSA, certain employees in computer-
related occupations are exempt from overtime pay if they are paid by the hour and
their wage is $27.63 or more an hour.33
The FLSA also exempts employers from paying overtime to outside sales
workers. An outside sales worker is a salesperson who regularly works away from
his employer’s place of business and who does not devote more than 20% of work
hours to work performed by nonexempt employees of the employer. Outside sales
workers are not subject to a salary test.34
30 (...continued)
administrative, and professional employees in the motion picture producing industry.
White-collar workers in the motion picture producing industry are exempt if they meet the
appropriate job duties test and are paid a weekly base rate of at least $250. Thus, for
example, white-collar workers in this industry who meet the appropriate duties test are
exempt if they are paid a daily rate that results in weekly pay of $250 (calculated on the
basis of a six-day workweek). (29 CFR 541.601.) The proposed regulations would raise
this weekly base rate to $650. (U.S. Department of Labor, Defining and Delimiting
Exemptions for Executive, Administrative, and Professional Employees, p. 15597.)
31 29 CFR 541. A person working full-time, year-round at a weekly salary of $155 earns
$8,060 annually; a person with a weekly salary of $170 earns $8,840 annually; and a person
earning $250 a week earns $13,000 annually. For comparison purposes, an employee
earning the federal basic minimum wage of $5.15 an hour and working 40 hours a week
year-round earns $206 a week and $10,712 annually.
32 DOL proposed increases in the salary levels in 1981. By order of President Ronald
Reagan, the increases were postponed indefinitely. U.S. General Accounting Office (GAO),
Fair Labor Standards Act: White-Collar Exemptions in the Modern Work Place, Report No.
GAO/HEHS-99-164, Washington, GAO, Sept. 1999, p. 15.
33 A person earning $27.63 an hour and working 40 hours a week year-round earns $57,470
annually. For a discussion of the origins of the statutory exemption for computer services
workers, see CRS Report RL30537, Computer Services Personnel: Overtime Pay Under
the Fair Labor Standards Act, by William G. Whittaker.
34 29 CFR 541.5.

CRS-9
The regulations proposed by the U.S. Department of Labor would make changes
to each of the three tests.
! The proposed regulations would replace the separate long and short
duties test terminology with a “standard” duties test and a test for
“highly compensated” employees.
! The current minimum weekly salary levels for executive and
administrative employees (i.e., $155) and for professional employees
(i.e., $170) would be replaced with a single salary test of $425.35
! “Highly compensated employees” would be exempt from overtime
if they meet at least one of the standard duties tests. A highly
compensated employee would be an employee who is paid at least
$65,000 annually ($1,250 weekly) in total cash compensation.
! Under current regulations, executive, administrative, and
professional employees, as well as outside sales workers, are not
exempt from overtime if they spend more than 20% of their work
hours on nonexempt activities. The proposed regulations would
eliminate this requirement.
! The discretion and independent judgement tests found in the current
job duties tests would be eliminated.36 For administrative
employees, the test would be replaced with a requirement that
employees hold a “position of responsibility.”
! A new provision would be added that may exempt supervisors in
retail establishments who spend a majority of their time on
nonexempt work.
! An exemption would be allowed for “learned professionals” who
acquire advanced knowledge through a combination of work
experience and education. The learned professions include doctors,
lawyers, teachers, engineers, accountants, chemists, registered
nurses, and others.
! The proposed regulations would modify the “pay docking” rules
under the current salary basis test. Employers would be allowed to
suspend exempt employees without pay for disciplinary reasons for
periods of a full day or more. The circumstances under which an
improper pay deduction may cause an entire group of employees to
become nonexempt would be changed: The exemption would be
lost only if there is a pattern of improper deductions and only for
35 A person working full-time, year-round at a weekly salary of $425 earns $22,100 annually.
If the salary level tests were adjusted to inflation (using the Consumer Price Index for Urban
Consumers, or CPI-U), in 2002, the $155 and $170 salary levels under the long test and the
$250 amount under the short test would have been $518, $568, and $836, respectively.
36 Under current regulations, an executive employee is an employee who “customarily and
regularly exercises discretionary powers” (under the long test), an administrative employee
is an employee who “customarily and regularly exercises discretion and independent
judgement” (under the long test) or whose work requires the “exercise of discretion and
independent judgement” (under the short test), and a professional employee is an employee
whose work requires the “consistent exercise of discretion and judgement” (under both the
long and short tests).

CRS-10
employees in the same job classification and working for the same
manager responsible for the improper deductions.
Empirical Analysis
This section uses the economic framework described above to examine whether
certain changes in the proposed regulations are consistent with the policy objectives
of overtime pay and the white-collar exemptions. The section begins with a
discussion of the difficulties in estimating the effects of the proposed regulations.
Next, estimates are provided of the number of employees who may be affected by
two of the changes included in the proposed regulations: the increase in the
minimum salary level test and the change in the job duties tests that would allow an
exemption for learned professionals who acquire advanced knowledge through a
combination of work experience and education. The analysis categorizes employees
as exempt or nonexempt based on their occupation, industry, and other information.
Therefore, employees are described as potentially exempt or nonexempt. The section
then compares recent cyclical changes in the levels of employment among exempt
and nonexempt workers under both current and proposed regulations. The purpose
of these comparisons is to examine whether changes in the levels of employment of
employees who may change status under the proposed regulations are similar to the
changes in the levels of employment of nonexempt and exempt employees under
current regulations. Finally, using selected demographic, social, and labor market
characteristics, employees who are exempt or nonexempt under current regulations
are compared to employees who may have become exempt or nonexempt if the
proposed regulations had been in effect in 2002. It is not possible here to identify
and measure the competitiveness of the labor markets of exempt and nonexempt
workers. Thus, the purpose of these comparisons is to examine whether employees
who may become eligible or ineligible for overtime under the proposed regulations
are similar to nonexempt or exempt employees under current regulations.
The analysis examines employed full-time wage and salary workers, using data
from the monthly Current Population Survey (CPS). Appendix B provides a
description of the methodology and assumptions used in this section of the report.
Estimating the Number of Exempt and Nonexempt
Employees
Estimating the potential effects of the proposed regulations is complicated by
several factors. First, it is difficult to make estimates from available survey data.
Second, many of the proposed changes are open to differences in interpretation. If
the proposed regulations are issued as final regulations, the impact would depend, in
part, on how the regulations are enforced by the Wage and Hour Division of DOL
and how they are interpreted by the courts.37 Third, the immediate impact of the
regulations may differ from the long-term impact. This report considers estimates
37 For a discussion of issues of interpretation of the proposed regulations, see CRS Report
RL31995, The Fair Labor Standards Act: Exemption of the “Executive, Administrative and
Professional Employees” Under Section 13 (a)(1), by William G. Whittaker, pp. 9-24.

CRS-11
prepared by DOL, the Economic Policy Institute (EPI), and the Congressional
Research Service (CRS).
Data Limitations. Data limitations make it difficult to estimate the number
of exempt and nonexempt workers. DOL, EPI, and CRS estimates of the potential
effects of the proposed regulations rely, largely or in part, on data from the monthly
Current Population Survey (CPS). The CPS is a monthly household survey
conducted by the U.S. Bureau of the Census for BLS. The survey collects a wide
range of labor market information and is the source of data for the monthly
unemployment rate. But the CPS does not ask individuals if they are covered by the
overtime provisions of the FLSA. Therefore, researchers use information on
occupation, industry, earnings, education, or other variables to infer who may be
exempt or nonexempt from overtime. These inferences can involve significant, often
subjective, assumptions.
Interpretation. Some of the changes that would be made if the proposed
regulations are issued as final regulations are open to different interpretations. This
section examines three such changes.
First, under the proposed regulations, two job duties tests would be eliminated:
the discretion and independent judgement tests (see footnote 36) and the 20% limits
on nonexempt work. In a 1999 report, the General Accounting Office (GAO) stated
that, for both employers and DOL compliance investigators, the discretion and
independent judgement tests are difficult to administer. On the other hand, GAO
stated that the compliance cases they reviewed “included a number of instances
where the standard of independent judgement and discretion was key to determining
the employee’s [exempt or nonexempt] status.”38 In addition, in the case of
administrative employees, the discretion and independent judgement test would be
replaced by a requirement that an employee hold a “position of responsibility.” It is
not clear whether an administrative employee who holds a position of responsibility
would be more or less likely to be exempt than an employee who exercises discretion
and independent judgement.
A second example of how it may it be difficult to interpret the proposed
regulations involves the concept of “primary duty,” which appears in the job duties
tests under both current and proposed regulations. Current regulations state that:
The amount of time spent in the performance of the managerial duties is a useful
guide in determining whether management is the primary duty of an employee.
In the ordinary case it may be taken as a good rule of thumb that primary duty
means the major part, or over 50%, of the employee’s time.... Time alone,
however, is not the sole test, and in situations where the employee does not spend
38 The GAO discussion refers to the discretion and independent judgement tests for
administrative and professional employees. GAO, Fair Labor Standards Act: White-Collar
Exemptions in the Modern Work Place, pp. 23-24.

CRS-12
over 50% of his time in managerial duties, he might nevertheless have
management as his primary duty....39
The proposed regulations state that:
The term ‘primary duty’ means the principal, main, major or most important duty
that the employee performs.... The term ‘primary duty’ does not require that
employees spend over fifty percent of their time performing exempt work....
However, the amount of time spent performing exempt work can be a useful
guide, and employees who spend over fifty percent of the time performing
exempt work will be considered to have a primary duty of performing exempt
work.40
Whether, in practice, the revised definition would differ from the current definition
is not certain.41
Finally, the proposed regulations make changes in the definition of learned
professionals.42 Current regulations state that:
The learned professions are ... those requiring knowledge of an advanced type in
a field of science or learning customarily acquired by a prolonged course of
specialized intellectual instruction and study as distinguished from a general
academic education.... [G]enerally speaking, it must be knowledge which cannot
be attained at the high school level.... The typical symbol of professional
training ... is, of course, the appropriate academic degree....43
The proposed regulations state that the learned professions require:
... [K]nowledge of an advanced type in a field of science or learning customarily
acquired by a prolonged course of specialized intellectual instruction, but which
also may be acquired by alternative means such as an equivalent combination of
intellectual instruction and work experience.... The phrase ‘knowledge of an
advanced type’ means knowledge that cannot be attained at the high school level.
39 29 CFR 541.103.
40 U.S. Department of Labor, Defining and Delimiting Exemptions for Executive,
Administrative, and Professional Employees, p. 15595.
41 The 1999 GAO report cites two 1982 court decisions, involving the Burger King
Corporation, that underscore how the 50% rule of thumb in current regulations is not a hard
and fast rule. According to GAO, the court decisions found that the 50% rule “was only one
factor to consider when determining employees’ primary duty, and that their managerial
duties could be carried out at the same time they were performing manual work. Thus,
assistant managers could be exempt executives even if they spent most of the day cooking
hamburgers — as long as they were in charge of the restaurants during their shifts.” GAO,
Fair Labor Standards Act: White-Collar Exemptions in the Modern Work Place, p. 29.
42 For a discussion of the definition of professional employees, see CRS Report RL32323,
The Fair Labor Standards Act: Defining “Professional” for Overtime Pay Purposes Under
Section 13(a)(1), by William G. Whittaker.
43 29 CFR 541.301.

CRS-13
The proposed regulations go on to say that:
The phrase ‘customarily acquired by a prolonged course of specialized
intellectual instruction’ generally restricts the exemption to professions where
specialized academic training is a standard prerequisite for entrance into the
profession.... However, the word ‘customarily’ means that the exemption is also
available to employees in such professions who have substantially the same
knowledge level as the degreed employees, but who attained such knowledge
through a combination of work experience, training in the armed forces,
attending a technical school, attending a community college or other intellectual
instruction.44
In the preamble to the proposed regulations, DOL states that “Although some
flexibility to focus on the workers’ knowledge exists in the current regulation, it is
very limited and rarely used.”45 Thus, it appears that the intent of the combined
education and work experience test for learned professions is to clarify that training
and work experience can be substituted for formal education.
Immediate Versus Long-Term Effects. Finally, the long-term impact of
the proposed regulations may be different from the short-term effects. For example,
because of increases in wages (due to inflation and higher labor productivity), the
relative number of white-collar employees who are nonexempt because they earn less
than the current salary level tests has declined over time. Because the salary level
tests in the proposed regulations are not indexed to inflation, the relative number of
white-collar workers who may be nonexempt because they earn less than $425 a
week can also be expected to decline over time. On the other hand, the occupational
and industrial composition of the economy may change, resulting in an increase in
the relative number of white-collar employees.46 Finally, the proposed regulations
may affect employer or employee behavior. Some hourly workers may be converted
to salaried workers, or vice versa. Similarly, the job duties of some employees may
be changed, in order to more clearly distinguish between exempt and nonexempt
employees.
DOL, EPI, and CRS Estimates of the Short-Term Effects
of the Proposed Regulations
Despite the difficulties in estimating the number of employees who may be
directly affected by the proposed regulations, data from the CPS have been used to
44 U.S. Department of Labor, Defining and Delimiting Exemptions for Executive,
Administrative, and Professional Employees, p. 15589.
45 Ibid., p. 15567.
46 For an analysis of industrial (1939-1999) and occupational (1940-1999) changes in the
U.S. economy, see Malcolm S. Cohen and Donald R. Grimes, The “New Economy” and Its
Impact on Executive, Administrative and Professional Employees. A report prepared for the
University of Tennessee under a contract with the Wage and Hour Division of DOL, Jan.
2001, Tables 2, 7, and 9. Available on the Internet at [http://www.dol.gov/asp/programs/
flsa/report-neweconomy/main.htm].

CRS-14
estimate whether more or fewer employees may be exempt or nonexempt under parts
of the proposed regulations.
Using 2001 CPS and other data, a study prepared for DOL estimated that, if the
proposed higher salary level test of $425 had been in effect in 2001, an additional 1.2
to 1.3 million employees who were exempt may have been nonexempt.47 In addition,
DOL estimated that 644,000 administrative and professional employees who are paid
by the hour and work overtime may be converted to salaried workers.48
EPI has estimated that, under the proposed regulations, 2.5 million nonexempt
salaried workers would become exempt. In addition, EPI has estimated that 5.5
million hourly workers earning $425 or more a week (excluding doctors, lawyers,
and most teachers) could be converted to exempt salaried workers. EPI’s estimates
are based on an analysis of 78 (of 257) occupations, including managerial,
professional, and supervisory occupations and technical, sales, and administrative
support occupations.49
According to CPS data, a large number of executive, administrative, and
professional employees are paid by the hour. Presumably, if there are significant
incentives under current regulations to do so, these hourly workers would be
converted to salaried workers. If the proposed regulations create incentives that do
not exist under current regulations, employers may convert some, or perhaps many,
nonexempt hourly white-collar workers to exempt salaried workers. EPI cites several
changes in the proposed regulations that it believes could create incentives for
employers to convert hourly white-collar workers into salaried workers: the
combined education and work experience test for learned professionals, the
elimination of the discretion and independent judgement tests, the elimination of the
20% limits on nonexempt work, and changes in the definition of primary duty.50
CRS has attempted to estimate some of the potential effects of the proposed
regulations. Given the difficulty in interpreting and quantifying the changes,
however, only three estimates have been made: the number of white-collar
employees earning between the current salary level tests and the proposed salary level
of $425, the number of learned professionals with at least a high school degree but
less than a bachelor’s degree, and the number of white-collar workers who report that
they are paid by the hour.
47 CONSAD Research Corporation, Economic Analysis of the Proposed and Alternative
Rules for the Fair Labor Standards Act (FLSA) Regulations at 29 CFR 541. A report
prepared for DOL, CONSAD Research Corporation, Pittsburgh, PA., Feb. 10, 2003, p. 45.
(This report is available from CRS or from the Wage and Hour Division of DOL.)
48 U.S. Department of Labor, Defining and Delimiting Exemptions for Executive,
Administrative, and Professional Employees, p. 15580.
49 Ross Eisenbrey and Jared Bernstein, Eliminating the Right to Overtime Pay, Washington,
Economic Policy Institute, pp. 5-11. Available on the Internet at [http://www.epinet.org].
EPI is a nonprofit economic research and education organization funded by foundation
grants, labor unions, corporations, individuals, and others.
50 Ibid., p. 4.

CRS-15
CRS estimates indicate that, in 2002, an estimated 1.0 to 1.1 million employed
full-time wage and salary executive, administrative, and professional employees
earned more than the current weekly salary test levels (i.e., $155, $170, or $250) but
less than $425. If they are exempt under current regulations they would be
nonexempt and eligible for overtime pay under the proposed regulations. Some or
many of these employees may not meet the job duties tests under current regulations
and may, therefore, be nonexempt under both current and proposed regulations. The
effect of the change in status would depend, in part, on the nature (i.e.,
competitiveness) of the labor markets involved. For employees newly entitled to
overtime pay, weekly earnings may increase. But, because of the increased cost,
some employers may offer or require less overtime (see footnote 18). Because of the
premium for overtime, more employees may want to work overtime. Some salaried
workers who work overtime may be converted to hourly workers. The hourly wage
of some of these employees may leave their weekly earnings relatively unchanged
(see footnote 25).
In its cost-benefit analysis, DOL assumed that six years of work experience is
equivalent to a bachelor’s degree. In 2002, an estimated 1.0 million full-time learned
professionals with six or more years of work experience had at least a high school
degree but had not earned a bachelor’s or advanced degree.51 Some or many of these
employees may be exempt under current regulations. If not, they may become
exempt and, therefore, ineligible for overtime pay under the proposed regulations.52
Again, the effect of the change in status would depend on the nature of the labor
markets involved. For some workers, the loss of time-and-a-half for overtime may
result in lower weekly earnings. Because of the lower cost, some employers may
offer or require more overtime, but because of the loss of time-and-a-half fewer
workers may want to work overtime. Some learned professionals who work overtime
and are paid by the hour may be converted to salaried workers. The weekly earnings
of some of these employees may remain unchanged.
Finally, in 2002 an estimated 8.4 million full-time executive, administrative, and
professional employees were paid by the hour.53 If the proposed regulations create
incentives that do not exist under current regulations, some or many of these hourly
workers may be converted to salaried workers.
Cyclical Changes in Employment
One of the objectives of requiring employers to pay time-and-a-half for overtime
is to reduce involuntary unemployment. A CRS analysis of CPS data for 2001 and
2002 suggests that cyclical changes in the levels of employment among lower wage
51 Lower- and upper-bound estimates, based on six or more and eight or more years of work
experience, were made of the number of learned professionals who may have been exempt
in 2002 as a result of the combined education and work experience test. When rounded off,
both methods resulted in an estimate of 1.0 million employees. (See Appendix B)
52 Employees exempt from the FLSA requirement of time-and-a-half for overtime may
receive premium pay for overtime under a collective bargaining agreement.
53 Of the estimated 8.4 million white-collar workers who were paid by the hour in 2002, an
estimated 1.2 million received overtime pay, commissions, or tips.

CRS-16
workers who may have been nonexempt instead of exempt and learned professionals
who may have been exempt instead of nonexempt under the proposed regulations
were consistent with the policy objective of reducing involuntary unemployment
during an economic downturn.
During 2001 and 2002, the employment of full-time wage and salary workers
reached a peak during the three-month period beginning June 2001 and fell to a low
during the three-month period beginning December 2001.54,55 From the three-month
period beginning June 2001 to the three-month period beginning December 2001,
employment among potentially nonexempt workers under current regulations fell by
an estimated 3.4 million persons. On the other hand, employment among potentially
exempt executive, administrative, and professional employees under current
regulations increased by an estimated 94,000 persons. Under the proposed
regulations, the changes in employment were similar for employees who may have
become eligible or ineligible for overtime. Among employees who may have become
nonexempt under the proposed regulations because of the proposed $425 salary level
test, employment fell by an estimated 65,000 persons. But employment among
workers who may have become exempt because of the combined education and work
experience test for learned professionals increased by an estimated 365,000 persons.56
Thus, from peak to trough, changes in the levels of employment among employees
who may have changed status under the proposed regulations — i.e., become
nonexempt instead of exempt or exempt instead of nonexempt — were similar to the
changes in employment among nonexempt and exempt employees under current
regulations. An examination of a different time period or of other changes in the
proposed regulations may yield different results.
An analysis of the number and kinds of jobs lost during an economic downturn
may not be a good indicator of which workers should be eligible for time-and-a-half
54 The calculations are based on a three-month moving average. That is, average
employment for Jan., Feb., and Mar. 2001 was compared to average employment for Feb.,
Mar., and Apr. 2001, and so on.
55 According to the National Bureau of Economic Research (NBER), which dates the peaks
and troughs of the business cycle, the last completed recession began in Mar. 2001 and
ended in Nov. 2001. NBER considers real gross domestic product (GDP) as the best
measure of aggregate economic activity. The trend in employment may differ from the trend
in output. According to NBER, seasonally adjusted payroll employment reached a peak in
Feb. 2001 and fell through July 2002. (NBER, Business Cycle Dating Committee, National
Bureau of Economic Research, NBER, July 17, 2003. Available on the Internet at
[http://www.nber.org].) Payroll employment consists of both part-time and full-time
nonfarm wage and salary employment. The data exclude self-employed persons and military
personnel. Persons who hold more than one job may be counted more than once. U.S.
Department of Labor, Bureau of Labor Statistics, Employment and Earnings, vol. 50, Jan.
2003, pp. 218, 238.
56 The 94,000 increase in employment among potentially exempt employees under current
regulations and the 65,000 decrease in employment among persons who may have been
nonexempt under the proposed regulations were not statistically significant. Nevertheless,
under current regulations, employment among exempt workers did not fall. Under the
proposed regulations, employment among workers who may have been nonexempt did not
rise.

CRS-17
for overtime. Downturns differ in their depth and duration. Some may be relatively
mild and short-lived. Others may be more severe and longer-lasting. The industries
and occupations affected may also differ. For example, using a broader definition of
white-collar workers than the one used in this report, some research has concluded
that during the 1990-1991 recession white-collar workers experienced greater job
losses relative to blue-collar workers than in previous recessions.57 Finally, cyclical
changes in employment may coincide with structural changes in employment.
During an economic downturn, some workers may lose their jobs because of
temporary layoffs; others may lose their jobs because of shifts in employment from
one sector to another (e.g., a shift in employment from manufacturing to service
industries).
Characteristics of Potentially Exempt and
Nonexempt Employees
The second objective of requiring time-and-a-half for overtime is to lessen
overwork. As discussed above, in imperfect labor markets, requiring time-and-a-half
for overtime may discourage employers from requesting overtime or provide
employees with a higher rate of pay when they work more than 40 hours a week.
Voluntary overtime may be discouraged for social reasons (e.g., to allow workers
more time for family, education, and other matters) or to improve individual or
public safety (i.e., tired workers may be a danger to themselves and others). This
section does not attempt to identify or measure the competitiveness of labor markets
for different workers. Rather, Table 1 uses selected demographic, social, and labor
market characteristics to compare potentially exempt and nonexempt employees
under current regulations with workers who may have become exempt or nonexempt
under the proposed regulations. The purpose of these comparisons is to examine
whether employees who may gain or lose overtime eligibility under the proposed
regulations are similar to, or different from, nonexempt or exempt employees under
current regulations.58
The percentages in Table 1 are based on estimates of the number of employees
potentially exempt or nonexempt under current and proposed regulations. In 2002,
there were an estimated 98 million full-time wage and salary workers (including, for
the purposes of this analysis, employees of the U.S. Postal Service but not other
federal employees). Under current regulations, an estimated 67 million employees
57 Jennifer M. Gardner, “The 1990-1991 Recession: How Bad Was the Labor Market?”
Monthly Labor Review, vol. 117, June 1994, p. 9. Erica L. Groshen and Donald R.
Williams, “White- and Blue-Collar Jobs in the Recent Recession and Recovery: Who’s
Singing the Blues?” Economic Review, Federal Reserve Bank of Cleveland, vol. 28, Quarter
4, 1992, pp. 3-4, 6. In both studies, white-collar workers were defined as the sum of
“managerial and professional speciality workers” and “technical, sales, and administrative
workers.”
58 Thus, no attempt is made to analyze whether the labor markets of workers who may gain
overtime coverage are less competitive than the labor markets of exempt workers under
current regulations. Similarly, no attempt is made to analyze whether the labor markets of
workers who may lose overtime coverage are more competitive than the labor markets of
nonexempt workers under current regulations.

CRS-18
were potentially nonexempt and an estimated 31 million were potentially exempt.
The tables use the lower-bound estimates of the number of white-collar workers who
may have been nonexempt instead of exempt or exempt instead of nonexempt if the
proposed regulations had been in effect in 2002. The lower-bound estimate (i.e., 1.0
million) of the number of employees who may have been nonexempt because of the
higher salary test is an estimate of the number of employees with weekly earnings of
$250 or more, but less than $425. The lower-bound estimate (i.e., 1.0 million) of the
number of learned professionals who may have been exempt because of the
combined education and work experience test is an estimate of the number of learned
professionals with at least a high school degree but less than a bachelor’s and with
eight or more years of potential work experience (see footnote 51).
Nonexempt Employees Under Current and Proposed Regulations.
Column 1 of Table 1 shows characteristics of potentially nonexempt employees
under current regulations; column 2 shows characteristics of employees who may
have gained eligibility for overtime in 2002 if the proposed $425 salary level test had
been in effect. Some of these employees may be eligible for overtime under current
regulations.
Table 1 shows that, in some ways, workers who may have been eligible for
overtime in 2002 because of the higher salary level test were different from other
nonexempt workers but, in other ways, they were much the same. In terms of age,
race, and marital status, workers who may have gained eligibility for overtime were
similar to other nonexempt workers.59 However, by nature of the proposed change
in the salary level test, employees who may have been nonexempt instead of exempt
had lower weekly earnings than nonexempt workers under current regulations (i.e.,
they earned less than $425 a week).60 On the other hand, workers who may have
become eligible for overtime had more formal education than nonexempt workers
under current regulations: 32.3% had a bachelor’s or advanced degree, compared to
15.1% of nonexempt workers under current regulations. Workers who may have
gained overtime eligibility were more likely to be female, non-Hispanic, and
nonunion. They were also more likely to be employed in retail trade; finance, real
estate, and insurance; and professional services industries. (Professional services
industries include hospitals, doctors offices, nursing homes, law offices, schools, and
colleges and universities.)
Exempt Employees Under Current and Proposed Regulations.
Column 3 of Table 1 shows characteristics of potentially exempt employees under
current regulations; column 4 shows characteristics of employees who may have lost
overtime eligibility in 2002 if the combined education and work experience test for
learned professionals had been in effect. Some of these employees may be ineligible
for overtime under current regulations.
59 The median age was 39 for nonexempt workers under current regulations and for workers
who may have been nonexempt in 2002 if the higher salary level test had been in effect.
60 Unless stated otherwise, the differences discussed in the text between the percentages in
columns 1 and 2 and columns 3 and 4 are significant at the 95% confidence level. See
Appendix B for a discussion of confidence levels.

CRS-19
Table 1 shows that, compared to exempt employees under current regulations,
employees who may have lost overtime eligibility if the combined education and
work experience test had been in effect in 2002 had less formal education than
exempt workers under current regulations: although three-fourths (75.8%) had some
college none had a bachelor’s or advanced degree. By nature of the change in
regulations, the employees who may have lost overtime eligibility were learned
professionals. They had somewhat lower earnings than workers exempt under
current regulations: 32.7% of workers who may have lost eligibility for overtime
earned over $1,015 a week, compared to 39.9% of other exempt workers.61 Workers
who may have lost overtime eligibility were more likely to be older, female, black,
and non-Hispanic.62 Compared to exempt workers under current regulations, they
were more likely to be married, but they were also more likely to be widowed,
divorced, or separated. They were more likely than currently exempt workers to be
employed in professional services industries.
Summary. If the proposed regulations are issued as final regulations, some
lower wage workers may gain eligibility for overtime as a result of the higher, $425,
salary level test. A change in status from exempt to nonexempt may raise the weekly
earnings of some workers, reduce the amount of overtime, or both. Some salaried
workers who work overtime may be converted to hourly workers. Some of these
workers may experience little change in their weekly earnings. Because less skilled
workers are more likely than skilled workers to be laid off during a recession,
requiring time-and-a-half for more lower paid workers may, during an economic
downturn, reduce the amount of involuntary unemployment. The effect on the
overall unemployment rate may be small, however.
Some higher wage workers may lose eligibility for overtime as a result of the
exemption for learned professionals who acquire advanced knowledge through a
combination of education and work experience. A change in status from nonexempt
to exempt may lower the weekly earnings of some workers, increase the amount of
overtime, or both. Some learned professionals who work overtime and are paid by
the hour may be converted to salaried workers. For some of these workers, becoming
a salaried worker may have little effect on their weekly earnings. Because skilled
workers are less likely to be laid off during a recession, the loss of time-and-a-half
by learned professional may have a limited effect on the amount of involuntary
unemployment during an economic downturn.
61 Median weekly earnings for exempt workers under current regulations were $900,
compared to $830 for workers who may have been exempt in 2002 if the combined
education and work experience test had been in effect. Median weekly earnings for
nonexempt workers under current regulations were $500.
62 The median age was 41 for exempt workers under current regulations and 45 for workers
who may have been exempt in 2002 if the combined education and work experience test had
been in effect.

CRS-20
Table 1. Characteristics of Potentially Exempt and Nonexempt Employees
Under Current and Proposed Regulations, 2002
Eligible for overtime
Not eligible for overtime
(i.e., nonexempt)
(i.e., exempt)
May have lost
May have gained
eligibility in 2002 if
Eligible
eligibility in 2002
Not eligible
the combined
under
if the higher
under
education and work
current
salary level test
current
experience test had
regulations had been in effect
regulations
been in effect
(1)
(2)
(3)
(4)
Gender
Men
54.0%
43.9%
60.3%
53.8%
Women
46.0%
56.1%
39.7%
46.2%
Total
100.0%
100.0%
100.0%
100.0%
Age
16-25
16.8%
15.2%
6.9%
(a)
26-35
24.1%
25.9%
25.5%
18.4%
36-45
27.5%
25.4%
30.3%
33.0%
46-55
21.5%
21.9%
26.5%
33.8%
56-65
8.8%
8.8%
9.6%
13.2%
Over 65
1.3%
2.8%
1.2%
1.7%
Total
100.0%
100.0%
100.0%
100.0%
Race
White
81.1%
82.2%
86.1%
82.6%
Black
14.2%
12.6%
8.4%
13.8%
Other
4.7%
5.1%
5.6%
3.6%
Total
100.0%
100.0%
100.0%
100.0%
Education
8 years or less
4.3%
1.4%
1.6%
9-12 years
8.9%
6.6%
2.5%
High school graduate
38.8%
28.1%
15.4%
24.2%
1-3 years college
32.9%
31.6%
18.3%
75.8%
Bachelor’s degree
12.4%
22.8%
37.2%
Advanced degree
2.7%
9.5%
25.0%
Total
100.0%
100.0%
100.0%
100.0%
Weekly earnings
Up to $366
26.3%
52.3%
6.5%
5.7%(b)
Over $366 and up to $519
25.2%
47.7%
9.2%
10.8%(b)
Over $519 and up to $712
21.0%
17.8%
22.9%
Over $712 and up to $1,015
17.1%
26.6%
27.9%
Over $1,015
10.5%
39.9%
32.7%
Total
100.0%
100.0%
100.0%
100.0%
Occupation
Managerial and professional
14.3%
66.2%(c)
72.9%
100.0%
Technical, sales, & administrative support
34.9%
24.4%
11.9%
Services
16.3%
4.1%
1.3%
Precision production, craft, and repair
15.2%
4.5%
4.1%
Operators, fabricators, and laborers
18.5%
0.6%
6.0%
Farming, forestry, and fishing
0.7%
(d)
3.8%
Total
100.0%
100.0%
100.0%
100.0%

CRS-21
Eligible for overtime
Not eligible for overtime
(i.e., nonexempt)
(i.e., exempt)
May have lost
May have gained
eligibility in 2002 if
Eligible
eligibility in 2002
Not eligible
the combined
under
if the higher
under
education and work
current
salary level test
current
experience test had
regulations had been in effect
regulations
been in effect
(1)
(2)
(3)
(4)
Industry
Agriculture
0.4%
(d)
3.9%
(d)
Mining
0.5%
(d)
0.4%
0.6%
Construction
8.6%
3.2%
2.9%
1.1%
Manufacturing
18.8%
7.7%
11.7%
17.0%
Transportation and public utilities
6.4%
4.1%
12.8%
6.8%
Wholesale trade
4.6%
3.6%
3.2%
0.9%
Retail trade
15.9%
25.9%
10.1%
2.8%
Finance, insurance, and real estate
6.8%
12.2%
8.2%
3.2%
Private household services
0.5%
(d)
0.1%
(d)
Other services
11.1%
13.1%
8.9%
6.6%
Professional services
21.6%
24.8%
34.3%
54.2%
Forestry
0.1%
(d)
0.1%
(d)
Public administration
4.7%
4.6%
3.6%
6.1%
Total
100.0%
100.0%
100.0%
100.0%
Hispanic origin
Hispanic
14.2%
9.0%
7.1%
5.3%
Non-Hispanic
85.8%
91.0%
92.9%
94.7%
Total
100.0%
100.0%
100.0%
100.0%
Marital status
Married
55.0%
57.0%
67.0%
71.9%
Widowed, divorced, or separated
16.7%
15.1%
12.8%
17.2%
Never married
28.3%
27.9%
20.2%
10.8%
Total
100.0%
100.0%
100.0%
100.0%
Union membership
Union member
15.0%
3.9%
13.8%
12.6%
Not union member
85.0%
96.1%
86.2%
87.4%
Total
100.0%
100.0%
100.0%
100.0%
Source: Estimates calculated by CRS from the monthly Current Population Survey (CPS). See Appendix B for a
description of the methodology and assumptions used in this table.
Notes: Details may not add to totals because of rounding.
a. The calculations in this column are for workers with at least eight years of work experience. Therefore, no employees
ages 16-25 were affected.
b. Some professional employees (i.e., teachers, doctors, and lawyers) are not subject to a salary requirement. If the
combined education and work experience test had been in effect in 2002, these employees may have been exempt
although they earned less than $425 a week.
c. Employees not in managerial or professional occupations are supervisors.
d. Percentages were not calculated for cells with fewer than 5,000 estimated employees.

CRS-22
Appendix A: Salary Level and Job Duties Tests Under Current and Proposed Regulations
Table A1. Summary of Current and Proposed Salary Level and Job Duties Tests for Executive Employees
Current regulations
Proposed regulations
A. Salary level test
Executives with weekly salaries of at least $155 ($8,060 annually for a year-round A “standard” job duties test would apply to executives with weekly salaries of $425 ($22,100
employee) but less than $250 ($13,000 annually for a year-round employee) are annually for a year-round employee) or more. Executives guaranteed total cash compensation
subject to the long test, which consists of all the items in the job duties test below. of at least $65,000 annually ($1,250 a week) — that is, “highly compensated” executives — and
Executives with weekly salaries of $250 or more are subject to the short test, which who meet at least one of the standard duties tests would be exempt. Total cash compensation
consists of items a and b in the job duties test.
would include base salary, commissions, and nondiscretionary compensation.
B. Job duties test
An executive is an employee:
An executive would be an employee:
(a) whose primary duty consists of management of an enterprise or of a recognized (a) whose primary duty consists of management of an enterprise or a recognized department of
department of such an enterprise;
such an enterprise,
(b) who customarily and regularly directs the work of two or more employees;
(b) who customarily and regularly (i.e., normally every work week) directs the work of two or
more employees, and
(c) who has the authority to hire or fire employees or to make recommendations
(c) who has the authority to hire or fire employees or to make recommendations regarding who
regarding who is hired, fired, or promoted;
is hired, fired, or promoted.
(d) who “customarily and regularly exercises discretionary powers”; and
(The “customarily and regularly exercises discretionary powers” test would be eliminated.)
(e) who does not devote more than 20% of work hours to nonexempt executive
(The limits on nonexempt work would be eliminated.)
activities (40% for employees of retail or service establishments — for example,
retail stores, hotels, restaurants, gas stations, and hospitals).
The percentage limit on nonexempt work does not apply to an employee who
An executive would include an employee who is in sole charge of an independent establishment
holds at least a 20% interest in the enterprise in which he is employed or an
and an employee who owns at least a 20% equity interest in the enterprise in which the employee
employee who is in “sole charge” of an independent establishment.
is employed. Employees who are 20% owners would not be subject to a salary level test.
Working supervisors are not exempt if a substantial amount of their time is
Working supervisors would not be exempt unless management is their primary duty.
devoted to production work or other work that is not related to their supervisory
activities.
Supervisors in retail establishments who spend a majority of their time on nonexempt work may
be exempt.
Sources: 29 CFR 541; U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,
Federal Register, vol. 68, no. 61, Mar. 31, 2003, pp. 15560-15597.

CRS-23
Table A2. Summary of Current and Proposed Salary Level and Job Duties Tests for Administrative Employees
Current regulations
Proposed regulations
A. Salary level test
Administrative employees with weekly salaries of at least $155 ($8,060 annually for a year- A “standard” job duties test would apply to administrative employees with weekly salaries of $425
round employee) but less than $250 ($13,000 annually for a year-round employee) are ($22,100 annually for a year-round employee) or more. Administrative employees guaranteed total
subject to the long test, which consists of all items in the job duties tests below. cash compensation of at least $65,000 annually ($1,250 a week) — that is, “highly compensated”
Administrative employees with weekly salaries of $250 or more are subject to the short employees — and who meet at least one of the standard duties tests would be exempt. Total cash
test, which consists of item a in the job duties test and work requiring the “exercise of compensation would include base salary, commissions, and nondiscretionary compensation. A salary
discretion and independent judgement.” A salary level test does not apply to academic level test would not apply to academic administrative personnel who are paid at least the starting salary
administrative personnel who are paid at least the starting salary for teachers in the school for teachers in the school system or educational establishment where they work.
system or educational establishment where they work.
B. Job duties test
An administrative employee is an employee:
An administrative employee would be an employee:
(a) whose primary duty consists of office or nonmanual work directly related to the (a) whose primary duty consists of office or nonmanual work related to the management or general
management policies or general business operations of the employer or employer’s business operations of the employer or employer’s customers or
customers or the performance of administrative work directly related to academic the performance of administrative work directly related to academic instruction in a school system or
instruction in a school system or educational institution or of a department of a school educational establishment or department of a school system or educational establishment and
system or educational institution;
(b) who “customarily and regularly exercises discretion and independent judgement.” (The “customarily and regularly exercises discretion and independent judgement” test would be
Exercising discretion and independent judgement is distinguished from the use of skill in eliminated.)
applying prescribed procedures or specific standards. An employee who applies his
knowledge in determining which procedures to follow (e.g., as may be described in a work
manual) is not exercising discretion and independent judgement;
(c) who regularly assists a proprietor or an individual employed in an executive or
administrative capacity, or under general supervision performs specialized or technical
work requiring special training, experience, or knowledge, or under general supervision
conducts special assignments; and
(d) who does not devote more than 20% of work hours to nonexempt administrative (The limits on nonexempt work would be eliminated.)
activities (40% for employees of retail or service establishments — for example, retail
stores, hotels, restaurants, gas stations, and hospitals).
(b) holds a “position of responsibility” with the employer. An employee in a “position of
responsibility” would be an employee who customarily and regularly (i.e., normally every work week)
performs work of substantial importance or work requiring a high level of skill or training. Work of
substantial importance (a concept that exists in current regulations) would be work that has a
significant impact on an employer’s general business operations or finances. Work requiring a high
level of skill or training would be work requiring specialized knowledge or advanced training. The
high level of training could involve advanced academic instruction, advanced on-the-job-training, or
both. Work requiring a high level of skill or training could include use of a reference manual that
contains highly technical, scientific, legal, financial, or other complex information. Work requiring
a high level of skill or training would include advisory work and special assignments but would not
include work requiring an employee to look up information (e.g., from a handbook) to determine the
correct response to an inquiry or set of circumstances.
Sources: 29 CFR 541; U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,
Federal Register, vol. 68, no. 61, Mar. 31, 2003, pp. 15560-15597.

CRS-24
Table A3. Summary of Current and Proposed Salary Level and Job Duties Tests for Professional Employees
Current regulations
Proposed regulations
A. Salary level test
Professional employees with weekly salaries of at least $170 ($8,840 annually for a year- A “standard” job duties test would apply to professional employees with weekly salaries of $425
round employee) but less than $250 ($13,000 annually for a year-round employee) are ($22,100 annually for a year-round employee) or more. Professional employees guaranteed total cash
subject to the long test, which consists of all items in the job duties test below. compensation of at least $65,000 annually ($1,250 a week) — that is, “highly compensated”
Professional employees with weekly salaries of $250 or more are subject to the short employees — and who meet at least one of the standard duties tests would be exempt. Total cash
duties test, which consists of items a and b in the job duties test. Teachers, lawyers, compensation would include base salary, commissions, and nondiscretionary compensation.
doctors, and certain computer occupations paid on an hourly basis at a rate of $27.63 or Teachers, lawyers, doctors, and certain computer occupations paid on an hourly basis at a rate of
more an hour ($57,470 annually for an employee working 40 hours a week year-round) $27.63 or more an hour ($57,470 annually for a person working 40 hours a week year-round) would
are not subject to a salary level test.
not be subject to a salary level test.
B. Job duties test
A professional employee is an employee:
(a) whose primary duty consists of work in a field of science or learning requiring A learned professional would be an employee whose primary duty consists of office or nonmanual
advanced knowledge customarily acquired by a prolonged course of specialized work in a field of science or learning requiring advanced knowledge customarily acquired by a
instruction and study (i.e., learned professions),
prolonged course of intellectual instruction. The learned professions include occupations that have
a recognized professional status based on the performance of work that is predominantly intellectual
in character as opposed to routine, mental, manual, mechanical, or physical work. The advanced
knowledge could be acquired through a combination of work experience and intellectual instruction.
The latter could include training in the armed forces, instruction at a technical school or community
college, or some other kind of intellectual instruction.
or work that is original and creative in character in a recognized artistic field, the result A creative professional would be an employee whose primary duty consists of office or nonmanual
of which depends on the invention, imagination, or talent of the employee (i.e., creative work requiring invention, imagination, originality, or talent in a recognized artistic field.
professions),
or work consisting of teaching, tutoring, instructing, or lecturing;
A teacher would be an employee whose primary duty consists of work consisting of teaching,
tutoring, instructing, or lecturing.
or work that requires theoretical and practical knowledge in computer systems analysis, A computer professional would be an employee whose primary duty consists of the application of
programming, and software engineering and who is employed as a computer systems systems analysis techniques and procedures, the design and development of computer systems or
analyst, computer programmer, software engineer, or in a similar computer software field; programs, or the design and creation of computer programs related to machine operating systems.
(b) whose work requires the “consistent exercise of discretion and judgement” (except for (The “consistent exercise of discretion and judgement” test would be eliminated.)
creative professionals under the short test);
(c) whose work is predominantly intellectual and varied in character, as opposed to routine
mental, manual, mechanical, or physical work; and
(d) who does not devote more than 20% of work hours to nonexempt professional (The limits on nonexempt work would be eliminated.)
activities.
Sources: 29 CFR 541; U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,
Federal Register, vol. 68, no. 61, Mar. 31, 2003, pp. 15560-15597.

CRS-25
Appendix B: Methodology
The analysis in this report uses data from the monthly Current Population
Survey (CPS). The CPS is a household survey conducted by the U.S. Bureau of the
Census for the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor.
The monthly CPS is the main source of labor force data for the nation, including
estimates of the monthly unemployment rate. The CPS collects a wide range of
demographic, social, and labor market information. Each month, approximately
50,000 households are contacted to be interviewed, either in person or by phone. The
CPS collects labor force data for civilians 15 and over. The official definition of the
civilian labor force is ages 16 and over. The monthly CPS sample is representative
of the civilian noninstitutional population; it does not include persons on active
military duty.63,64
Each month, one-fourth of the CPS sample — called the Outgoing Rotation
Group, or ORG — is asked questions about current hourly or weekly earnings. For
Table 1, the ORG samples for each month from 2002 were combined to calculate a
monthly average for the year.65 Weekly earnings consist of usual earnings before
taxes and other deductions, and include tips, overtime pay, and commissions usually
received at a person’s main job. Hourly earnings are reported for persons who are
paid by the hour or who report their earnings on an hourly basis. Earnings reported
for a period other than a week are converted by BLS to a weekly amount.66
The CPS does not ask workers if they are exempt or nonexempt from the
overtime provisions of the FLSA. Therefore, the survey does not allow direct
estimates of the number of exempt or nonexempt workers. Nevertheless, using
information on an employee’s occupation, industry, and, in some cases, weekly
earnings and education, it is possible to use CPS data to estimate the number of
employees who are potentially exempt or nonexempt.
The FLSA includes various exceptions and exemptions to the overtime
provisions of the act. Some exemptions apply to certain employers (e.g., some
seasonal amusement or recreational establishments). Other exemptions are allowed
for workers in certain occupations (e.g., outside sales workers) or industries (e.g.,
63 U.S. Bureau of the Census, Measuring 50 Years of Economic Change, Current Population
Reports, P60-203, Washington, Sept. 1998, p. D-1.
64 U.S. Department of Labor, Bureau of Labor Statistics, Basic Monthly Survey. Available
at [http://www.bls.census.gov/cps/bglosary.htm].
65 Households are in the CPS survey for four consecutive months, out of the survey for eight
months, and back in the survey for four more months. The questions about earnings (and
union status and hours worked) are asked of households leaving the survey (either
permanently or for eight months). During a 12-month period, the observations on earnings
are for unique individuals.
66 U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, vol. 48,
Jan. 2001, pp. 232, 236, 241. U.S. Department of Labor, Bureau of Labor Statistics, Current
Population Survey: Design and Methodology, Technical Paper 63, Mar. 2000, pp. 1-1, 3-7
— 3-9, 5-4, 6-5.

CRS-26
forestry and lumber operators employing fewer than nine workers). In addition, the
Wage and Hour Division of DOL administers the FLSA with respect to private
employers, state and local governments, and certain federal employees (e.g., U.S.
Postal Service, Library of Congress, and Tennessee Valley Authority), but the U.S.
Office of Personnel Management (OPM) administers the FLSA for employees of the
executive branch of the federal government.
The analysis in this report examines employed hourly and nonhourly wage and
salary employees ages 16 and over who usually work full-time. Self-employed
persons are not included. Using data from the CPS, the following employees were
categorized as potentially exempt from the overtime provisions of the FLSA:
agricultural and fishing workers; employees in the railroad and airline industries;
outside sales workers; seamen; taxi drivers; newspaper deliverers; casual babysitters;
computer professionals who are paid by the hour and earn more than $27.63 an hour;
drivers and mechanics in the bus and trucking service industries; salesmen employed
by automobile, truck, aircraft, boat, and mobile home dealers; and mechanics
employed by automobile or truck dealers. In addition, executive, administrative, and
professional (with at least a bachelor’s degree67) employees who meet the current
weekly salary level tests for exemption are categorized as exempt. According to
current regulations, executive employees generally perform “managerial and
supervisory functions.”68 Therefore, persons categorized in the CPS as managerial
and supervisory employees and who meet the weekly salary level test for executives
are treated as exempt. Dental hygienists and health and medical technologists with
at least a bachelor’s degree are treated as exempt under current regulations. Dental
hygienists with less than a bachelor’s degree are treated as exempt under the
proposed regulations if they meet the proposed work experience test.69 Except for
employees of the U.S. Postal Service, federal employees are excluded from the
analysis.70
For analytical purposes, using the CPS to categorize employees who are
potentially exempt and nonexempt may result in employees being misclassified. For
example, a respondent who is classified as a “manager” in the CPS may not meet the
requirements under current regulations to be classified as exempt. Likewise, an
67 Computer professionals were categorized as exempt, whether or not they held a bachelor’s
or advanced degree. With respect to computer professionals, current regulations state that
“The level of expertise and skill required to qualify for this exemption is generally attained
through combinations of education and experience.... [N]o particular academic degree is
required for this exemption....” 29 CFR 541.303(c).
68 29 CFR 541.102.
69 “Medical technologists” who meet certain educational requirements are generally exempt
from the overtime provisions of the FLSA. (29 CFR 541.301.) In the CPS, medical
technologists are grouped with medical technicians. Since it is not possible to separate
technologists from technicians, it was assumed that workers in these categories with a
bachelor’s degree or better were exempt.
70 Section 4(f) of the FLSA authorizes the U.S. Office of Personnel Management (OPM) to
administer the FLSA with respect to federal agencies (except for the U.S. House of
Representatives, U.S. Senate, Library of Congress, Congressional Budget Office, U.S. Postal
Service, and certain other agencies).

CRS-27
employee who performs both exempt and nonexempt work may be categorized in the
CPS as a worker who performs manual work. But, if the worker also supervises
other employees, the employee may be exempt for overtime purposes. Similarly,
white-collar employees earning $250 or more may not be exempt from the overtime
provisions of the FLSA if they do not meet the appropriate job duties test.
The estimates of the number of employees who may have been nonexempt if the
proposed salary level test had been in effect in 2002 are based on the salary level tests
in the current and proposed regulations. The lower-bound is an estimate of the
number of employees earning $250 or more per week, but less than $425. The upper-
bound is an estimate of the number of employees earning $155 or more per week
($170 for professional employees), but less than $425.
The estimates of the number of learned professionals who may have been
exempt in 2002 because they may have met the job duties test through a combination
of work experience and education is for employees with at least a high school degree
but less than a bachelor’s degree. The estimates do not include creative
professionals, but include learned professionals for whom there is no federal salary
test (i.e., doctors, lawyers, and teachers). For other professionals, the estimates are
for employees with usual weekly earnings of $425 or more. Work experience was
calculated as potential work experience: age, minus years of education, minus six.
The estimates include persons who began work no earlier than age 18. An upper-
bound estimate follows the approach described by the U.S. Department of Labor in
its analysis of the impact of the proposed regulations: it was assumed that six years
of work experience was equivalent to a bachelor’s degree.71 Because individuals may
not work continuously or may not work continuously in the same job, a lower-bound
estimate was calculated for persons with eight years of potential work experience.
In both cases, when rounded off, the calculations resulted in an estimate of 1.0
million learned professionals with less than a bachelor’s degree. The proposed
regulations do not, however, provide a specific equivalence between years of work
experience and a bachelor’s or advanced degree. Therefore, the upper-bound
estimate would be higher if it were assumed that fewer than six years of work
experience is equivalent to a bachelor’s degree. Similarly, the lower-bound estimate
would be smaller if it were assumed that more than eight years of work experience
is equivalent to a bachelor’s degree.
The estimate of the number of full-time executive, administrative, and
professional employees who are paid by the hour consists of white-collar employees
who are paid an hourly wage or who report their earnings on an hourly basis. For
workers subject to a salary level test, the estimate includes employees who earn $425
or more a week. For computer professionals, the estimate includes employees who
are paid by the hour, have weekly earnings of at least $425, and are paid less than
$27.63 an hour. For learned professionals with less than an bachelor’s degree but at
least a high school degree, the estimate includes employees with six or more years
of potential work experience.

71 U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive,
Administrative, and Professional Employees, p. 15577.

CRS-28
The earnings intervals used for weekly earnings in Table 1 are based on equal
quintiles of the earnings distribution. That is, among all full-time wage and salary
workers in 2002, one-fifth earned $366 a week or less, one-fifth earned more than
$366 but less than $519, and so on.
Confidence Levels
The comparisons discussed in the text of this report are statistically significant
at the 95% confidence level. Estimates based on survey responses from a sample of
households have two kinds of error: nonsampling error and sampling error.
Examples of nonsampling error include information that is misreported and errors
made in processing collected information. Sampling error occurs because a sample,
and not the entire population, of households is surveyed. The difference between an
estimate based on a sample of households and the actual population value is known
as sampling error.72 When using sample data, researchers typically construct
confidence intervals around population estimates. Confidence intervals provide
information about the accuracy of estimated values. With a 95% confidence interval
and repeated samples from a population, 95% of intervals will generally include the
actual value of a population characteristic.
72 U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, vol. 49,
Nov. 2002, pp. 147-148.