[Senate Hearing 108-394]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-394

          DEPARTMENT OF LABOR'S PROPOSED RULE ON OVERTIME PAY

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                    JANUARY 20, 2004--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate


                               __________

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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                    James W. Morhard, Staff Director
                 Lisa Sutherland, Deputy Staff Director
              Terrence E. Sauvain, Minority Staff Director
                                 ------                                

 Subcommittee on Departments of Labor, Health and Human Services, and 
                    Education, and Related Agencies

                 ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi            TOM HARKIN, Iowa
JUDD GREGG, New Hampshire            ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho                   DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          HARRY REID, Nevada
TED STEVENS, Alaska                  HERB KOHL, Wisconsin
MIKE DeWINE, Ohio                    PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama           MARY L. LANDRIEU, Louisiana
                                     ROBERT C. BYRD, West Virginia (Ex 
                                         officio)
                           Professional Staff
                            Bettilou Taylor
                              Jim Sourwine
                              Mark Laisch
                         Sudip Shrikant Parikh
                             Candice Rogers
                        Ellen Murray (Minority)
                         Erik Fatemi (Minority)
                      Adrienne Hallett (Minority)

                         Administrative Support
                             Carole Geagley


                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening statement of Senator Arlen Specter.......................     1
Statement of Hon. Elaine L. Chao, Secretary, Department of Labor.     2
    Prepared statement...........................................     4
Prepared statement of Senator Tom Harkin.........................     7
Opening statement of Senator Patty Murray........................     8
Opening statement of Senator Thad Cochran,.......................    17
Responses of Secretary Chao to committee questions...............    21
Statement of Richard L. Trumka, Secretary-Treasurer, AFL-CIO.....    23
    Prepared statement...........................................    25
Statement of David S. Fortney, co-founder, Fortney & Scott.......    29
    Prepared statement...........................................    31
Statement of Dr. Jared Bernstein, Ph.D., chief economist, 
  Economic Policy Institute......................................    35
    Prepared statement...........................................    37
Statement of Dr. Ronald Bird, Ph.D., chief economist, Employment 
  Policy Foundation..............................................    40
    Prepared statement...........................................    42
Statement of Andrew J. McDevitt, manager, Governmenetal 
  Relations, American Payroll Association........................    50
    Prepared statement...........................................    52
Statement of Patty Hefner, on behalf of the American Nurses 
  Association....................................................    53
    Prepared statement...........................................    55
Responses of Richard Trumka to committee questions...............    58
Responses of Ronald Bird to committee questions..................    62
Responses of David S. Fortney to committee questions.............    65

 
          DEPARTMENT OF LABOR'S PROPOSED RULE ON OVERTIME PAY

                              ----------                              


                       TUESDAY, JANUARY 20, 2004

                           U.S. Senate,    
    Subcommittee on Labor, Health and Human
     Services, and Education, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 11 a.m., in room SD-106, Dirksen 
Senate Office Building, Hon. Arlen Specter (chairman) 
presiding.
    Present: Senators Specter, Cochran, Craig, and Murray.


               opening statement of senator arlen specter


    Senator Specter. Good morning, ladies and gentlemen. It is 
11 a.m. We will now proceed with the hearing of the 
Appropriations Subcommittee on Labor, Health and Human 
Services, and Education, to examine the proposed regulations by 
the administration modifying overtime pay. This issue is a 
highly controversial one. In the U.S. Senate by vote of 54 to 
46, there was a prohibition against any funding for 
implementing the regulation. In the House of Representatives, 
there was a vote to bar use of Federal funds to implement the 
regulation, which failed by three votes. And later there was a 
vote to send instructions to the committee, which passed.
    So both the House and the Senate are on the record as 
denying--as recommending the denial of funds to the 
administration for the implementation of this regulation.
    The administration contends that there needs to be a 
revision in the regulations on overtime pay, which have been in 
existence for a long time and are confusing. There is concern 
that the new regulation will cause a loss of compensation to 
many individuals at a time when the economy, while recovering, 
has not yet fully recovered, and the economy is fragile. There 
is a real concern about denying compensation to individuals on 
the current status of the economy.
    In reviewing the proposed regulations, it is hard to see 
how there will be any significant improvement from the existing 
law, admittedly vague. The proposed regulation provides as to 
administrative employees someone who holds a position of 
responsibility with the employer defined as either performing 
work of substantial importance or performing work requiring a 
high level of skill or training.
    How you define substantial importance with any precision, 
what is very difficult to me, how you define performing work 
requiring a high level of skill or training, again, looks very 
difficult. The current regulations provide ``customarily and 
regularly exercises discretion and independent judgment.'' Hard 
to see much of an improvement on precision in telling employers 
exactly what the law should be.
    With respect to the definition of professional employees, 
the proposed regulations provide ``primary duty of performing 
work requiring knowledge of an advanced type of 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.''
    Contrast that with the current regulation, which provides 
as to professional employees consistently exercises discretion 
and judgment primary duty of performing work 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.
    Here again, during the course of this hearing, we will 
examine these definitions. But again, speaking as someone who 
has had extensive experience both as a legislator and a lawyer, 
it is hard for me to see how the new regulation is going to 
avoid litigation, which is the principle of the new regulation.
    As the record shows, I have introduced a bill which would 
call for a commission to come up with better definitions to 
delineate these issues with representatives appointed by the 
Secretary of Labor, from business management, and the private 
sector, to try to come to grips with these issues.
    We have a long witness list. I held my opening statement to 
5 minutes. And we are going to ask the witnesses to limit their 
statements to 5 minutes, as well.
STATEMENT OF HON. ELAINE L. CHAO, SECRETARY, DEPARTMENT 
            OF LABOR
ACCOMPANIED BY TAMMY D. McCUTCHEN, ADMINISTRATOR, WAGE AND HOUR 
            DIVISION, EMPLOYMENT STANDARDS ADMINISTRATION, DEPARTMENT 
            OF LABOR

    Senator Specter. We are joined by the distinguished 
Secretary of Labor, the Honorable Elaine Chao, 24th Secretary 
of Labor, an initial employee of the appointee of the 
President, started on January 31, 2001, a very distinguished 
record, had been president and CEO of the United Way Foundation 
from 1992 to 1996, served as director of the Peace Corps and 
Deputy Secretary of the Department of Transportation under 
President George H.W. Bush, most recently a distinguished 
fellow at the Heritage Foundation, an MBA from Harvard Business 
School, and an undergraduate degree from Mount Holyoke.
    Welcome, Secretary Chao. And the floor is yours.
    Secretary Chao. Mr. Chairman and members of the 
subcommittee, thank you for the opportunity to be here this 
morning to discuss a very important issue, and that is the 
Department's efforts to protect the overtime pay of working 
Americans. Our job at the Department of Labor is to make worker 
protections work. And this administration has achieved record 
results in protecting workers' pay, benefits, and safety.
    Last year, all across the Department, enforcement was at 
record levels. The Wage and Hour Division, for example, 
collected over $200 million in back wages, including overtime. 
And that is an 11-year high and an increase of 60 percent in 
just 2 years. We care about protecting workers. And we are 
doing our job aggressively at the workplace.
    One worker protection that does not seem to be working very 
well, or as well as it should, is an overtime provision in the 
Fair Labor Standard Act pertaining to the regulations of white 
collar workers. Overtime is one of the most important rights 
that American workers have. But this particular legal 
protection has been severely weakened, because the Department 
has not updated and strengthened its regulations defining 
overtime for white collar workers.
    Today, employees earning about $8,000 can be labeled as an 
executive and denied both minimum wage and overtime pay. And 
because the white collar duties tests have not been updated in 
over 50 years, neither workers nor employers or even many 
experts in the field can tell for certain who is entitled to 
overtime for white collar workers. As a result, workers are 
increasingly forced to resort to the courts and wait 3 or 4 
years to recover the overtime pay that they are entitled.
    Federal class action lawsuits on white collar regulations 
now outnumber all employment discrimination lawsuits combined. 
Low wage workers are being denied overtime. Middle-class 
workers must wade through years of exhaustive and expensive 
litigation to receive their rightful pay. And if this 
Department is blocked from giving workers updated, stronger 
overtime protections, these workers will pay the price.
    They will pay the price by not receiving $897 million a 
year in overtime that they deserve. They will pay the price 
because needless litigation will divert nearly $2 billion away 
each year from job creation and better pay and benefits.
    If these rules were clearer, the Department of Labor would 
be able to recover back pay for workers within about 3 months, 
on average.
    I think everyone recognizes the need to modernize these 
rules. Reform of the Part 541 regulations actually began in the 
Carter administration. The wage and hour administrator in the 
Clinton administration once said that reforming the white 
collar regulations was one of the two key things on her agenda.
    In a recent report to Congress, the GAO recommended that 
the Secretary of Labor review the regulations and make 
necessary changes to better meet the needs of both employers 
and employees in the modern workplace. In 1989, recognizing how 
outdated these regulations have become, Senator Kennedy 
cosponsored legislation to extend the overtime exemption for 
the first time to computer system analysts and software 
engineers. And the legislation was adopted by unanimous consent 
in the Senate.
    There is broad agreement that reform is necessary. And 
using the regulatory process mandated by Congress, the 
Department is seeking to restore and renew the overtime 
protections intended by the Fair Labor Standards Act. It has 
been almost a year since we first published our proposal. We 
have since reviewed thousands of comments. We have listened to 
Members of Congress. And we intend to put forward a revised 
final rule that is responsible and responsive to the public 
record.
    So let me be clear. The Department's overtime proposal for 
white collar workers will not eliminate overtime protection for 
8 million workers, as is alleged. It will not eliminate 
overtime protections for police workers, police officers, 
firefighters, first responders, paramedics. It will not 
eliminate overtime for nurses. It will not eliminate overtime 
protections for blue collar employees and work such as 
carpenters, electricians, mechanics, plumbers, laborers, 
teamsters, construction workers, production line workers, and 
other blue collar employees. It will not affect union workers, 
because they are protected by the collective bargaining 
agreements.
    Claims to the contrary serve only to confuse the public 
debate, frighten workers, and make them potentially more 
vulnerable to unscrupulous employers. The Department's overtime 
proposal for white collars is pro-worker. And it is pro-job 
creation. It will strengthen overtime protection for millions 
of low wage and middle-class workers. It will clarify 
regulations so that workers--it will clarify these outdated 
regulations so that workers can know what their rights are and 
employers can know what their responsibilities are.

                           PREPARED STATEMENT

    It will also enable the Department of Labor to vigorously 
enforce these laws and rules and regulations. It would also put 
an end to needless litigation.
    America's workers do deserve action, not more studies or 
delays, but a fair and balanced rule that responds to the tens 
of thousands of Americans who have already told us what they 
hope to see in a strengthened overtime standard for white 
collar workers for the 21st century workforce.
    Thank you, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Hon. Elaine L. Chao

    Mr. Chairman and Members of the Subcommittee: I am pleased to 
appear before you today to discuss the Department of Labor's proposed 
revision of the Fair Labor Standards Act's ``white-collar'' 
regulations. These regulations set forth the criteria for determining 
who is excluded from the Act's minimum wage and overtime requirements 
as an executive, administrative, or professional employee. The 
regulations that the Department is revising appear in Title 29 of the 
Code of Federal Regulations, at Part 541.
    When Congress passed the Fair Labor Standards Act (FLSA) in 1938, 
it chose not to provide definitions for many of the terms used, 
including who is an ``executive, administrative or professional'' 
employee. Rather, in Section 13(a) of the Act, Congress expressly 
granted to the Secretary of Labor the authority and responsibility to 
``define and delimit'' these terms ``from time to time by 
regulations.''
    As you are aware, there has been an enormous amount of press 
coverage since the proposed rule was published in March 2003. Given the 
importance of this issue, the amount of press coverage has been 
deserved. However, much of the reported information has been misleading 
and inaccurate. I welcome the opportunity today to set the record 
straight regarding the intentions of the Department in issuing an 
update to the Part 541 regulations. I also welcome the opportunity to 
re-emphasize the Department's goals in undertaking this important task.
    Let me also state to the members of this subcommittee that the 
comments from both Congress and the public have been a tremendous help 
to the Department. I believe the final rule will successfully address 
the concerns that have been raised, and will be stronger as a result of 
the comment process
    There are many reasons for updating this half-century old rule. The 
primary goal is to have better rules in place that will benefit more 
workers. Because the rules have not been updated in decades, changes 
are necessary now to provide hardworking Americans who currently do not 
automatically have that right, the opportunity to receive overtime pay. 
Had these changes been made 10 years ago, lower-wage workers would have 
had an additional $8 billion in their paychecks. The proposed rule 
would lead to guaranteed overtime for an additional 1.3 million low-
wage workers. The main purpose of this effort is to restore the intent 
of the FLSA--to restore overtime protections, especially to low-wage, 
vulnerable workers who have little bargaining power with employers. Of 
the 1.3 million workers who would be guaranteed overtime pay under the 
Department's proposal, all earn less than $22,100 per year; nearly 55 
percent are women; more than 40 percent are minorities; nearly 25 
percent are Hispanic; and nearly 70 percent have only a high school 
education or less.
    The job ``duties'' tests have not been updated since 1949 and are 
plainly written for an economy that has long passed us by. As I have 
pointed out many times, the existing regulations identify occupations 
such as leg men, straw bosses and key-punch operators--all occupations 
which no longer exist in the 21st century workplace. The salary basis 
test was set in 1954. The minimum salary levels were last updated in 
1975, some 29 years ago. Under the salary rates that are still in 
effect today, an employee earning only $8,060 a year may qualify as an 
exempt ``executive.'' Another important goal is to create rules that 
can be more easily read and understood. Greater certainty and clarity 
will allow workers to be paid properly. Under the current rules, 
burdensome and costly class actions lawsuits are often necessary to 
sort out the rights of employees and the obligations of employers. This 
is harmful to workers who often must wait years to realize their 
rights, and burdensome to employers who otherwise could use litigation 
costs to grow and expand their businesses and create new jobs. Indeed, 
overtime is the fastest growing area of employment litigation in 
America. Overtime litigation costs are currently draining an estimated 
$2 billion a year out of resources that could be better used to grow 
the economy and create jobs.
    Clear, concise and updated rules will better protect workers and 
strengthen the Department's ability to enforce the law. With more 
clearly defined rules in place, the Department will be able to more 
quickly and efficiently settle overtime pay disputes, and build upon 
its strong enforcement record on behalf of workers.
    The existing regulations require three basic tests for each 
exemption: (1) a minimum salary level, now set at $155 per week for 
executive and administrative employees and $170 per week for 
professionals under the basic ``long'' duties tests for exemption, 
whereas a higher salary level of $250 per week triggers a shorter 
duties test in each category; (2) a salary basis test, requiring 
payment of a fixed, predetermined salary amount that is not subject to 
reduction because of variations in the quality or quantity of work 
performed; and (3) a duties test, specifying the particular types of 
job duties that qualify for each exemption.
    Our proposal would increase the minimum salary level required for 
exemption as a ``white-collar'' employee to $425 per week, or $22,100 
per year. This is a $270 per week increase, and the largest increase 
since the Congress passed the Fair Labor Standards Act in 1938. Under 
this change, all employees earning less than $22,100 a year 
automatically would be entitled to the overtime protections of the 
FLSA. Under the existing rules, even a worker earning minimum wage 
would not be automatically entitled to overtime protections. We believe 
that this change would result in an estimated 1.3 million additional 
workers becoming eligible for overtime pay for the first time, sharing 
up to $895 million in additional wages every year.
    As in the current regulations, the Department's proposal also 
includes a streamlined test for higher-compensated ``white-collar'' 
employees. To qualify for exemption under this section of the proposed 
rule, an employee must: (1) be guaranteed total annual compensation of 
at least $65,000, regardless of the quality or quantity of work 
performed; (2) perform office or non-manual work, and (3) meet at least 
one or more of the exempt duties or responsibilities specified for an 
executive, administrative, or professional employee. This is the same 
concept found in the current rule's ``Special Proviso for High Salaried 
Executive,'' commonly referred to as the ``short test.'' The test for 
these ``highly compensated'' workers has been the subject of many of 
the comments we have received.
    The Department's proposal would simplify, clarify and update the 
duties tests to ensure that the regulations are easy for employees and 
employers to understand and for the Department to enforce. The current 
rule provides two sets of duties tests for each of the three exemption 
categories. There is both a ``short'' duties test and a ``long'' duties 
test for each of the executive, administrative and professional 
exemptions. The current long duties tests only apply to employees 
earning between $8,000 and $13,000 a year. Given these low levels, 
these tests essentially have been inoperative for a decade. 
Accordingly, to simplify this complex process the Department's proposal 
would eliminate the long duties test and instead rely on the existing 
``primary duty'' approach found in the current short tests. To be 
exempt, an employee must receive the required minimum salary amount and 
have a primary duty of performing the duties specified for an 
executive, administrative or professional employee.
    Under the Department's proposal, the executive exemption adds a 
third requirement to the current short test that makes it more 
difficult to qualify as an exempt executive. In other words, fewer 
workers would qualify as exempt executives under the proposal than 
qualify for the exemption under the current regulations. Under the 
proposal, an exempt executive must (1) have a primary duty of managing 
the entire enterprise or a customarily recognized department or 
subdivision thereof, (2) direct the work of two or more other workers, 
and (3) have authority to hire or fire other employees or have 
recommendations as to the hiring and firing be given particular weight. 
This third requirement is from the long duties test, and its addition 
makes the exemption more difficult to achieve.
    The Department did not propose substantial changes to the 
professional exemption. To the extent debate in Congress and comments 
submitted expressed concern that the Department was upsetting the law 
in this area, let me say that the Department intends to clarify that 
this is not the case.
    In any rule-making process, certain areas receive more public 
comment than others. The Department's proposed revision to the 
administrative exemption is one such area. The major proposed change to 
the duties test for the administrative exemption is replacing the 
``discretion and independent judgment'' requirement, which has been a 
source of much confusion and litigation, with a new standard that 
exempt administrative employees must hold a ``position of 
responsibility with the employer.'' To meet this requirement, an 
employee must either customarily and regularly perform work of 
substantial importance or perform work requiring a high level of skill 
or training. In our proposal, the Department specifically sought 
comment about replacing the ``discretion and independent judgment'' 
element of the test. Both proponents and opponents of this proposed 
change submitted lengthy and helpful comments that the Department very 
carefully and deliberately is considering.
    Despite what has appeared in the press, let me emphasize that it 
has never been the intent of the Department to upset the overtime 
rights of hardworking American workers. The recent debates in the 
Senate and House have helped the Department identify areas in which the 
intent of these revisions needs to be made clearer. For example, it is 
not, nor has it been, the intent of the Department to change the 
overtime status of police, firefighters, paramedics, EMTs and other 
first responders. Similarly, it is not, nor has it been, the intent of 
the Department to change the overtime rights of registered nurses, 
licensed practical nurses and other similar health care employees. The 
Department also did not intend to substantially change the educational 
requirements for the professional exemption.
    Furthermore, the overtime status of ``blue collar'' workers will 
not change. ``Blue collar'' employees in production, maintenance, 
construction and similar occupations such as carpenters, electricians, 
mechanics, plumbers, iron workers, craftsmen, operating engineers, 
longshoremen, and construction workers will not see their right to 
overtime change. This regulation will not affect workers subject to a 
collective bargaining agreement. These and other critical issues will 
be addressed in the final rule, and the Department extends its 
gratitude to Congress for raising issues that need more explicit 
clarification.
    As the Department pointed out to the Subcommittee in July of last 
year, updating the Part 541 regulations is a bi-partisan issue. This is 
not a Republican or Democratic issue, and it is not a new idea. The 
Carter administration recognized in 1979 that the rules were antiquated 
and placed Part 541 reform on the Department's regulatory agenda. This 
issue has been on the Department's regulatory agenda for more than two 
decades. The last Administration before this one to suggest that these 
regulations be modernized was the Clinton administration.
    Significantly, the U.S. General Accounting Office (GAO) in 1999 
issued a report \1\ on the ``white-collar'' exemption regulations and 
recommended the path we find ourselves on today. The GAO chronicled the 
background and history to the exemptions, estimated the number of 
workers who might be included within the scope of the exemptions, and 
identified the major concerns of employers and employees. The GAO 
concluded that ``given the economic changes in the 60 years since the 
passage of the FLSA, it is increasingly important to readjust these 
tests to meet the needs of the modern work place,'' and recommended 
that ``the Secretary of Labor comprehensively review the regulations 
for the white-collar exemptions and make necessary changes to better 
meet the needs of both employers and employees in the modern work 
place. Some key areas of review are (1) the salary levels used to 
trigger the regulatory tests, and (2) the categories of employees 
covered by the exemptions.''
---------------------------------------------------------------------------
    \1\ Fair Labor Standards Act: White-Collar Exemptions in the Modern 
Work Place (GAO/HEHS-99-164, September 30, 1999).
---------------------------------------------------------------------------
    Finally, I would like to address recent media stories suggesting 
that the Department of Labor is giving employers ``tips'' on how to 
evade overtime requirements. These news reports are completely false 
and potentially harmful to workers' rights as they may give some 
employers the impression that they can ignore the FLSA overtime 
requirements. The news reports refer to a single paragraph in the 
economic analysis section of the preamble to the Notice of Proposed 
Rulemaking published last March. This paragraph discusses the estimated 
range of potential impacts of this rulemaking and does not contain 
``tips'' or ``instructions'' on how to cut pay or avoid paying 
overtime. The Department is legally-required to discuss the range of 
likely effects in an economic impact analysis. This must be performed 
for every significant rule that DOL issues.
    The Department of Labor has ``zero tolerance'' for employers who 
try to play games with the overtime laws. I am proud to say that the 
Department's Wage and Hour Division has increased enforcement by 60 
percent in the past two years, and collected in fiscal year 2003 a 
record $212 million in back wages for employees.
    In conclusion, the Department continues to work on developing a 
final rule that is based on the comments we have received and the 
debate we have heard. We are working diligently to achieve a rule that 
takes into consideration the concerns that have been expressed and that 
makes sense for the 21st Century Workplace. It will also protect the 
overtime rights of American workers far better than the half-century 
old regulation now on the books. Today's workers are not protected at 
all--they are severely disadvantaged by rules that few can understand 
in the context of the modern workplace. They are disadvantaged if they 
have to go to court to get overtime wages they have rightfully earned. 
And, they are disadvantaged if they have to wait years for that money 
to find its way into their pockets. Mr. Chairman, it is time to update 
this rule. I would be happy to answer any questions Members of the 
Subcommittee may have.

    Senator Specter. Thank you very much, Secretary Chao.
    Senator Craig, would you care to make an opening statement 
before we proceed with questions?
    Senator Craig. No, thank you. I do appreciate you holding a 
hearing on this most important issue, Mr. Chairman. I have a 
variety of questions I want to ask the Secretary. So I would be 
happy to move into the questioning phase.
    Senator Specter. Senator Harkin, the ranking member, is 
unavoidably detained. He is in Iowa. I do not know why, 
exactly, except for the caucuses. But he will be here a little 
later today. And without objection, a statement from Senator 
Harkin would be made a part of the record.
    [The statement follows:]

                Prepared Statement of Senator Tom Harkin

    Thank you, Mr. Chairman for holding this important hearing. I also 
want to thank all of the witnesses who are here today.
    Both houses of Congress, on a bipartisan basis, voted for my 
amendment to block the Administration's proposed new rule on overtime. 
Both houses voted to block the Administration's radical rewrite fo the 
nation's overtime laws. That amendment passed 54 to 45 here in the 
Senate and 221 to 203 over in the House. The Congress of the United 
States spoke up clear as a bell and said, ``No, the Administration must 
not strip overtime rights from 8 million American workers.''
    But as we all know, the Administration refused to accept the will 
of Congress even when you, Mr. Chairman, repeatedly offered to work out 
a compromise.
    And so here we are today, faced with an Omnibus bill that was 
stripped of my amendment to protect overtime pay for millions of 
American workers.
    The Administration's new rule, which they will issue in March, is a 
stealth attack on the 40-hour workweek, pushed by the White House 
without a single public hearing. I also am very troubled that this 
proposed rule contains specific advice to employers on how they can get 
around paying overtime to low-income workers. It is a gut-punch to 
American workers.
    This sweeping proposal is in direct contrast to the intent of the 
Fair Labor Standards Act of 1938 that established the 40-hour work week 
for American's workers. And it's a slap in the face to the millions of 
American workers who depend on overtime pay to support their families 
and make ends meet. We're talking about taking away some 25 percent of 
the income of many American workers.
    Furthermore, taking overtime eligibility away hurts job creation. 
When employers can require current employees to work more hours for no 
additional cost, there is a disincentive to hire new workers.
    Congress did the right thing in voting to block this new rule. And 
its shameful that House leaders stripped the provision the 
appropriations bill we will vote on this afternoon.
    But I am here to serve notice that I will not give up, nor will 
others who have fought this.
    The American people will not allow us to drop this issue. They have 
been watching this issue closely, because it hits so close to home. I 
pledge to them that I will offer the overtime amendment to every piece 
of legislation until we succeed.

    Senator Specter. Senator Murray, would you care to make an 
opening comment?
    Senator Murray. I would, Mr. Chairman.

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    I really appreciate the opportunity. And I thank you for 
calling this second hearing on the proposed regulatory changes 
that the Department of Labor has put forth regarding overtime 
pay. And I really am here today to express my outrage at the 
Republican leadership in Congress for really disregarding the 
will of a bipartisan majority of Members in both houses when 
they removed the Harkin amendment from the final omnibus 
appropriations bill for fiscal year 2004.
    It really is inconceivable to me that as families struggle 
in today's economy that the Bush administration and some in 
this majority are cutting off the pay of really millions of 
workers who depend on their overtime pay to make ends meet 
today. Without any hearings, the Secretary of Labor, with just 
a few strokes of her pen, is about to adversely affect the 
quality of life for millions of hardworking families.
    Here we are with so many Americans out of work, many people 
struggling to keep their jobs, millions have lost their pension 
benefits and their healthcare benefits, and now this 
administration is going to force a pay cut on those who work 
overtime for their employers. And we know that overtime pay 
often makes up 25 percent of an eligible worker's wages. I 
don't think we should forget, too, that many of these workers 
are now the only breadwinners in their families.
    Mr. Chairman, this change is going to really hurt some 8 
million hardworking Americans who have worked hard, played by 
the rules, and are now going to have to endure as much as a 25-
percent pay cut. Right now, our firefighters, our police, our 
EMTs, we all know are working hard on the front lines of 
homeland security. And they are going above and beyond the call 
of duty, often with inadequate equipment and training. But they 
are doing it to protect us in this very dangerous time. Many of 
them are working on overtime.
    Now this administration is telling our firefighters, our 
police, and our EMTs that they do not deserve overtime pay for 
the extra work that they are doing to keep us safe. And to top 
it off, I, like a lot of people, was very concerned and upset 
that the Department of Labor provided employers with tips on 
how to avoid paying employees overtime. I want to hear about 
that today.
    So Mr. Chairman, I really appreciate your calling this 
hearing. I look forward to working with you and others to 
develop a truly bipartisan solution to some of the some of the 
critical policies that are affecting Americans and their 
families today who are struggling to pay their mortgage and put 
food on the table.
    Thank you, Mr. Chairman.
    Senator Specter. Thank you, Senator Murray.
    We will now proceed, as is our custom, with 5-minute 
rounds.
    Madame Secretary, we are loading on a cloture motion on the 
omnibus appropriation bill today, which means that we have a 
large appropriations bill, and we have to get 60 votes to 
proceed to vote on the matter. And that is why this hearing was 
scheduled in advance of that vote. And there are three issues 
in contention which might resolve the differences of opinion 
between the two parties. And the key issue is this overtime 
regulation.
    The proposal to delay implementation until September 30 is 
what would really, I think, break the knot and enable us to go 
forward on this omnibus bill. Very important for the 
Subcommittee on Labor, Health, Human Services, and Education, 
important funding for your Department, important funding for 
the National Institutes of Health, important funding for 
HeadStart and for many, many other programs.
    We are now at January 20, almost half the way to September 
30. The Department has received some 80,000 comments. And you 
are projecting to have the regulation in final form by March 
31. After that, it has to go through the Office of Management 
and Budget, which takes considerable time. And a key question 
on my mind is: How much would be lost to your interest in 
putting a regulation forward between whatever date it can be 
completed and September 30? How much time are we really talking 
about?
    Secretary Chao. I think enough time has been spent on 
delays, as well as studies and studies of all sorts on this 
issue. As I mentioned, this issue has been on the regulatory 
agenda since the Carter administration. There is a great deal 
of concern and also agreement that something has to be done to 
clarify these regulations.
    The duties test has not been clarified in well over 50 
years. The salaries test has not be clarified in over 25 years. 
There are 1.3 million workers not getting their guaranteed 
overtime right now. And any further delay will only in fact 
harm workers.
    Senator Specter. Madame Secretary, I understand the lengthy 
period of time. But that does not answer my question. And I 
would like you to take a look at my question, if you would. I 
have many questions, and I have 2 minutes and 16 seconds left. 
And I intend to observe the time limitations, as I will ask 
every other member to. But focus on the question which I have 
asked you.
    I know how long it has been since the Carter administration 
when this issue has been considered. But this is January 20. 
And you are projecting to March 31. So you have October, 
November, December. By March 31, half the fiscal year will have 
passed. Then you have OMB.
    How much time are you looking at from the time there will 
be a regulation until September 30, which is all that is asked 
for in the prohibition of funding, until the end of this fiscal 
year.
    Now let me move to the really core question on the 
substance. And you have the definition of the proposed 
regulation of an administrative employee to perform work of 
substantial importance or perform work requiring a high skill 
level or training. Now how much difference is there in that? 
And how do you define substantial importance to avoid 
litigation contrasted with the current regulation, which is 
customarily and regularly exercises discretion and independent 
judgment?
    With respect to professional employees, the proposed 
regulation calls for advanced type in a field of science or 
learning customarily acquired by a prolonged course of 
specialized intellectual instruction at an alternative to have 
the equivalent combination of intellectual instruction or work 
experience, with the very similar language in the current law, 
which says, ``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.''
    My time has now expired, and you have the floor.
    Secretary Chao. The specific instances that you mention are 
indeed very complicated. This is a very complicated and a very 
detail-oriented rule. The outdated portions of this rule are 
creating a great deal of confusion. It is creating confusion 
among employers, employees, and also even experts.
    So on your specific question, I will ask Tammy McCutchen, 
who is the Administrator for the Wage and Hour Division, to 
address that. Thank you.
    Ms. McCutchen. We have received the most comments on the 
administrative exemption test. And so it is something that we 
are going to be taking a close look at as we are developing a 
final rule, so that we can try to improve on the administrative 
test.
    On the professional exemption question you asked, the 
language that you mentioned is about defining what it means to 
customarily acquire the knowledge by an advanced degree. And it 
reflects the current case law and the current language in the 
regulations that says the occasional chemist without a 
chemistry degree or the occasional lawyer without a law degree 
is still entitled to the exemption, because it is a profession 
that, as a standard prerequisite for entry into the field, 
requires that advanced 4-year degree.
    The case that we cited in the preamble was an example of an 
engineer, who had 3 years of engineering courses in college and 
30 years of on-the-job experience. And the court found that he 
was indeed an exempt engineer, although he did not finish that 
1 year of college and get his engineering degree.
    That was the intent of our proposal. We did get some 
significant comments on that. And we will make sure we clarify 
that in the final rule.
    Senator Specter. As I had noted, my time had expired prior 
to the start of the answers. We are going to follow, as we 
customarily do, the early bird rule.
    Senator Craig, you were the first to arrive.
    Senator Craig. Thank you very much, Mr. Chairman.
    I spent a good deal of time trying to understand the issue 
and also trying to deal with your proposed regs against the 
rhetoric that has often spewed out against them, the proposed 
regs. And I have tried to take the politics that is in that 
language and pull it out to see if there is a substantive 
difference of the allegations made.
    So Madame Secretary, when the Economic Policy Institute's 
paper came out last summer and it varied widely from the 
projections the Department of Labor issued as it related to 
white collar exemptions, I think the EPI paper projected or 
asserted that some 8 million workers would lose the right to 
overtime pay. And DOL's figures are less than 750,000. Now that 
is a huge discrepancy.
    So I tried to ring the politics out of that one, because 
most of the substance is fairly well salted with politics, and 
look at it from that standpoint. Could you go into that 
briefing, as prepared by EPI, and speak of the differences 
between an 8 million figure and a 750,000 workforce figure?
    Secretary Chao. The EPI study shows gross misunderstanding 
of the current regulations and the proposal that the Department 
is putting forward. It includes, for example, people who are 
already exempt under current law. The EPI report greatly 
overestimates the number of workers who may be reclassified. It 
included in the 8 million estimate part-time workers, other 
employees who never work more than 40 hours per week.
    It also claims that the Department is expanding the 
executive exemption, when actually the Department's proposal 
would actually make it more difficult to qualify as an exempt 
executive than it is today. EPI contends that most nurses and 
medical technicians, for example, will also lose overtime pay, 
although the Department has proposed no changes at all. EPI 
also alleges that most cooks will lose overtime, and that is 
not true either.
    The Department has studied this report. Our report is based 
on independent--our economic analysis is based on independent, 
well-regarded economists. And we found at least 15 very basic 
errors in this EPI report. And every error leads to additional 
unjustified inflation of the number of employees that may 
potentially be impacted. We believe that 1.3 million workers 
will gain overtime--they will be guaranteed overtime--and that 
less than about 644,000 may potentially face the prospect.
    But as I mentioned, the rules and regulations are so 
unclear at this point, what we want to do is to clarify them.
    Senator Craig. Well, I think at least that was partly my 
observation, the confusion of what is and what is not and what 
you are actually doing versus what is already being applied in 
current law.
    Concern of the unions has been loudly spoken. And yet the 
analysis that you have just given would suggest that a good 
many union folks will be untouched by this. And you went on to 
say in your opening statement that the collective bargaining 
agreements cover and protect. Well, then, what group is the 
most dis-served group by the proposal that you are offering?
    Secretary Chao. Our intent is not to take away overtime, 
not at all. Our intent is to strengthen overtime. And what we 
have seen occurring is tremendous confusion over an outdated 
regulation. Our purpose is to protect workers. And we have a 
responsibility, as the Government, to ensure that the rules and 
regulations that emanate from our Department are clear and easy 
to comply with. And right now, the rules and regulations are 
not easy to comply with. There is a great deal of confusion.
    So we hope that the adverse impact will be minimal. And we 
will work very hard in our final proposal to make that the 
case. But this is a white collar exemption, regulation. So it 
will not impact, for example, union members covered by 
collective bargaining agreements. It will not cover 
firefighters, policemen, paramedics, other first responders. It 
will not cover those who engage in manual work. This is white 
collar exemption, white collar regulation. So it is primarily 
office work and people who do non-manual work.
    Senator Craig. Thank you. My time is up.
    Senator Specter. Thank you very much, Senator Craig.
    Senator Murray.
    Senator Murray. Well, thank you, Mr. Chairman.
    I am listening carefully to you, Madame Secretary. And I 
think what you are saying is that under current collective 
bargaining agreements, it will not apply. But as we all know, 
collective bargaining agreements end. And it will be up to the 
employer to make a determination under the new regulations. So 
I think that we all need to understand that.
    But my question really goes, as a former preschool teacher 
and a former school board member, I really am concerned about 
the proposed regulations, attempts to lower the education 
requirement for professional employers. Under the current law, 
dental hygienists fall within the professional exemption to the 
40-hour workweek only if they have completed 4 years of pre-
professional and professional study. Under your new proposed 
rule, dental hygienists with only 2 years of academic training 
and work experience can now fall into the exemption.
    If employers decide that their employees' work experience 
in a field that customarily requires a degree--and there is a 
lot of them--biology, nursing, engineering, culinary, 
accounting--there is a lot of them--have the same knowledge as 
workers with degrees, will not the employers now really be free 
to deny those workers overtime?
    Secretary Chao. Let us not forget that the proposal is 
indeed a proposal. Before the proposal went out in its initial 
form, the Department held numerous meetings with various 
stakeholders. After the proposal went out, we were in the 
process of soliciting comments. As mentioned, there have been 
tens of thousands of comments. The Department will evaluate 
these comments.
    Senator Murray. So do we expect to see some changes in the 
education requirements?
    Secretary Chao. I cannot say that right now, because the 
rule is not final. But I have said on many other occasions, as 
have others in the Department, that we take these comments very 
seriously. And we will evaluate them.
    Tammy, do you have anything else to say?
    Ms. McCutchen. Just to repeat what I said before, that it 
was not our intent to lower the educational requirements for 
the professional exemption. And we did get comments on that and 
that we will be addressing those in the final regulations.
    Senator Murray. And that final regulation comes out in 
March. We will have not any opportunity to comment or speak to 
it once the final rule comes out. Correct?
    Secretary Chao. There has been comments again in the public 
record, as we have mentioned, in tens of thousands. According 
to the APA procedures, that is what the--the comments in the 
public record are what we consider. And we do consider them 
very seriously. We have been evaluating them. We have also been 
listening to the Members of Congress who have expressed their 
concerns.
    Senator Murray. Well, okay. I am hopeful that we will see 
some changes in that, because I think that is a very important 
issue that many of us are extremely concerned about.
    Let me mention another one. I think that all of us know 
that the men and women in our armed forces are currently 
performing heroically on a number of fronts around the world. 
And I am very concerned with your proposal that the veterans 
who now get overtime could lose it because the draft rule 
allows the military to equate training received in the military 
as equivalent to a 4-year degree.
    Unfortunately in your proposal, there is no guidance on how 
to make the determination on whether or not a veteran's 
training in the military is equivalent to a 4-year degree. And 
under your new proposed rules, veterans that are now receiving 
overtime could well lose it. Can you please comment on that and 
what you see you are going to change in the final rule to 
assure that that does not happen?
    Secretary Chao. I think first of all the military is not 
covered by these regulations.
    Senator Murray. But we are speaking about veterans who are 
working----
    Secretary Chao. And second----
    Senator Murray [continuing]. Who it will apply to.
    Secretary Chao [continuing]. In terms of training as a 
general observation, overtime will not be taken away. But 
again, the comments that we have received during this review 
process will be very important.
    Senator Murray. Well, again, that will depend on how you 
write how the equivalency of training is in the final rule on, 
something I think we, as Members of Congress, need to be very 
well aware, because it could have a real adverse impact on a 
number of people who you are saying right now it does not. Many 
others are saying it will. It depends on how you write that 
rule.
    So I am deeply concerned about this moving forward without 
congressional action.
    Mr. Chairman, I see that my time is just about up. I just 
want to make one comment.
    I keep hearing that you need to do this to avoid 
litigation, reduce litigation, because the rules are confusing. 
But I think the proposed regulations contain a lot of new and 
very vague terms that can spawn a whole new wave of litigation. 
I think these criticisms were made recently by Hewitt, who is 
one of the leading management consulting firms in the Nation, 
who said these proposed changes likely will open the door for 
employers to reclassify a large number of previously nonexempt 
employees as exempt.
    It goes on to say that the resulting effect on compensation 
and morale could be detrimental as employees previously 
accustomed to earning in some cases significant amounts of 
overtime will suddenly lose that opportunity.
    I just, very quickly, Madame Secretary, do you--are you 
aware that the employer community fully expects to reclassify a 
large number of previously nonexempt workers once these go into 
place?
    Secretary Chao. Well, first of all, I have not heard that 
study. And that is a singular study that is very unusual. Most 
people just want clarity. The Government----
    Senator Murray. I will be happy to supply the--get that to 
you.
    Secretary Chao. I will be glad to see it.
    Senator Murray. Okay. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Specter. Madame Secretary, turning the clock back 
to last November 20, which was a Thursday, and the House of 
Representatives was going to vote either that night or the next 
morning. And we were looking at two alternatives. One was a 
continuing resolution in which event the regulation would go 
into effect, because there would certainly be no prohibition 
against it.
    Second, to delete the prohibition to defeat the regulation, 
in which event we would have the omnibus appropriations bill. 
So we were looking at having additional funding in my 
subcommittee alone of $3.7 billion. And either way we went, the 
regulation would go into effect.
    There was a meeting. There were meetings all day long. But 
we had one with the four key members, with Chairman Young and 
Chairman Regula of the House, Senator Stevens and myself of the 
Senate. And we sought to schedule a meeting with you at 7:15 to 
try to see if we could find some way out. Then I wrote to you 
on November 24. And you replied on December 2. Without 
objection, both letters will be made part of the record.
    [The letters follow:]
                                               U.S. Senate,
                                 Washington, DC, November 24, 2003.
Hon. Elaine Chao,
Secretary, Department of Labor, Washington, DC.
    Dear Secretary Chao: Last Thursday afternoon, November 20, 2003, 
Senate Appropriations Chairman Ted Stevens, House Appropriations 
Chairman Bill Young, House Appropriations Subcommittee Chairman Ralph 
Regula and I were involved in extensive discussions on how to handle 
the overtime issue which was the final impediment to the appropriations 
bill for the Departments of Labor, Health and Human Services and 
Education. At about 5:15 P.M., we instructed staff to ask you to meet 
with us at 7:15 P.M. that evening because time was of the essence. I 
was later advised that you were not available. Additional efforts to 
resolve the overtime issue continued on through Thursday evening and 
into Friday, November 21. I placed a call to you at about 12:30 P.M. I 
did not receive a call back until 5:30 P.M. when I had already returned 
to Pennsylvania.
    It is unacceptable for the Secretary of Labor to be unavailable to 
the Chairman of the Subcommittee for five hours at a critical time when 
discussions had to be made on an issue which was holding up an 
appropriations bill of more than $140 billion.
    On November 4, 2003, my staff called your office to request a 
meeting on the overtime issue with my offer to come to your office. You 
replied that you would prefer to come to my office and, as you know, we 
met privately one on one. It was my thought that such a private meeting 
would be the best way to break the impasse on the overtime issue. I was 
dismayed to read in CongressDaily on November 5:

``During a Tuesday meeting with Labor Secretary Chao, Specter offered 
to drop the amendment in exchange for the Administration `backing away' 
from unrelated rules that would require unions to file more detailed 
financial disclosures known as LM-2 forms, sources said. Unions 
vehemently oppose both sets of rules. Chao rejected the offer.''

    As you know, I made no such offer.
    My press secretary called CongressDaily repudiating that story and 
he called your press secretary saying that the CongressDaily story was 
false and noting that there were only two people in the meeting, you 
and I. Your office did not confirm my repudiation of the November 5th 
story.
    On November 18, 2003, CongressDaily contained the following:

``Specter's office released a statement saying he is still seeking a 
compromise with the White House on the issue. But the statement denied 
an earlier report in CongressDaily that in a meeting with Labor 
Secretary Chao he had offered to drop the overtime provision in 
exchange for the Administration delaying new rules on union financial 
disclosure reports, known as LM-2 forms. However, several sources 
familiar with the early November meeting said otherwise.''

    Again, I am at a total loss to note that ``several sources familiar 
with the early November meeting said otherwise,'' when only you and I 
were present. Again, your office did not confirm that I made no offer 
to drop the overtime amendment in exchange for the Administration 
backing away from LM-2.
    I call these matters to your personal attention because of the 
importance of cooperation between the Secretary of an executive branch 
department and the Chairman of the appropriations subcommittee funding 
that Department if the public's business is to be appropriately carried 
out.
            Sincerely,
                                                     Arlen Specter.
                                 ______
                                 
                                        Secretary of Labor,
                                      Washington, December 2, 2003.
Hon. Arlen Specter,
Chairman, Subcommittee on Labor-HHS Appropriations, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Thank you for your letter of November 24, as it 
affords an opportunity to clear up several issues of concern.
    First, with regard to the proposed meeting on Thursday evening, I 
was out of the office and, as I understand from staff, there was no 
specific mention of a 7:15 p.m. meeting. I was therefore puzzled to 
learn that there were reports circulating that I had ``cancelled'' a 
meeting with you, when no meeting was ever scheduled. Needless to say, 
I would never do such a thing without good reason and direct 
communication between our offices.
    Second, I can unequivocally assure you that no one from the 
Department of Labor gave any information to CongressDaily or other news 
sources concerning our November 4 meeting. In fact, our public affairs 
office strenuously denied the validity of the report in CongressDaily 
because, as we know, it was simply not true. You never made any offer 
to ``trade'' one regulatory item for another. I do not know why 
CongressDaily ran with the story, but I can assure you that the 
Department of Labor did nothing to encourage it or even suggest it. 
Moreover, as soon as the story appeared, our staff immediately 
contacted yours and offered to do everything possible to deflect any 
further stories in the same vein.
    I regret any misunderstandings that may have been formed as a 
result of these incidents. I appreciate your leadership of the Labor-
HHS-Education Appropriations Subcommittee and agree with you that it is 
essential that we work together to achieve the best possible policies 
that help our workforce.
            Sincerely,
                                                    Elaine L. Chao.

    Senator Specter. On the issue of that meeting, you 
responded that there were reports that you had ``canceled'' a 
meeting with me, which is not what my letter had said at all. 
The meeting was never set up. But we sought to have the 
meeting. Did you know that the four of us, the key 
appropriators controlling these seven appropriations bills in 
the omnibus, were seeking a meeting with you that Thursday 
evening?
    Secretary Chao. No, I did not. I did not receive that news. 
In fact, I think it would be quite foolish for any secretary to 
not go to a meeting with four of the appropriators there.
    Senator Specter. Well, I happen to agree with you, that a 
secretary ought to go to a meeting with the chairman of the 
House and the chairman of the Senate full committees and the 
two subcommittees. But there we were on the Thursday night. You 
must have been aware that this critical matter was percolating 
at a very high boiling point.
    Let me move on to Saturday, when I placed a call to you at 
12:30.
    Secretary Chao. Saturday?
    Senator Specter. Friday, November 21. And I got a response 
from you, which did not really deal with that at all. But a 
call came back at 5:30, when I was in Pittsburgh trying to find 
some way to talk to you to work through this issue, to see if 
we could find some compromise. Had you received a call from me 
at 12:30 on Friday, November 21?
    Secretary Chao. Well, Mr. Chairman, I pride myself on being 
very responsive. And I got back to you as quickly as I could. I 
did not know that you were in Pittsburgh at the time. But I 
did----
    Senator Specter. I am not asking you if you knew where I 
was. What I am asking you, if you knew that there was a call to 
you at 12:30.
    Secretary Chao. I got the call as--as soon as I got word 
that you had called, I tried to return the phone call, yes.
    Senator Specter. Well, let me try one more time. Did you 
know that there was a call at 12:30?
    Secretary Chao. No, I did not.
    Senator Specter. You and I had met, Madame Secretary, one 
on one about this issue. And there was a report in the Congress 
Daily, which said that during a meeting between Secretary Chao 
and Senator Specter that I had offered to drop the amendment on 
regulations in exchange for the administration backing away 
from the LM2 rules. And you rejected the offer.
    After I had issued a statement of denial, Congress Daily 
then came back on November 18 and noted my denial but said: 
``However, several sources familiar with the early November 
meeting said otherwise.'' My office issued a formal written 
statement denying that I had made any offer to you, which, 
first of all, is it not true that I did not make any offer to 
you to make an----
    Secretary Chao. I will attest to that.
    Senator Specter. No deals, no stipulation, drop the 
regulation on LM.
    Secretary Chao. No, not at all.
    Senator Specter. Did your office issue a written statement 
to Congress Daily straightening out the record and confirming 
my written statement that no such proposal had ever been made 
by me?
    Secretary Chao. I do not know, but I will check on that. 
But as for--I do not know. But I also think that----
    Senator Specter. Well, wait a minute, Madame Secretary.
    Secretary Chao. Yes.
    Senator Specter. I wrote this to you back on November 24, 
outlining that in detail. How can it be that you do not know?
    Secretary Chao. I just asked my staff. And the answer I 
received was that a statement was not issued, but that phone 
calls were made. I think it is also worthwhile to point out 
that we had nothing to do with that story. If I had been a 
valuable source of any type, the coverage on this issue would 
certainly have been much better.
    Senator Specter. Well, my time is up. So I will come back 
to this when my time resumes.
    Senator Cochran has joined us.
    Senator Cochran.

               OPENING STATEMENT OF SENATOR THAD COCHRAN

    Senator Cochran. Mr. Chairman, thank you very much. I am 
hopeful that this hearing can help identify the importance of 
the effort to modernize our pay and overtime rules. And I 
congratulate you, Madame Chairman, on undertaking that 
responsibility. I know it is a difficult challenge, because 
some come into consideration of that issue with preconceived 
notions that whatever proposal you make is going to be unfair 
to some people.
    But as I understand the effort here, it is to give lower 
wage earners an opportunity to be in a position to earn 
overtime pay that they are not now getting. Is that part of the 
proposal that the Department has made?
    Secretary Chao. Yes. Right now, if you are a worker earning 
about $8,060 a year, which is below minimum wage, you are not 
guaranteed overtime. If you are receiving overtime, it is only 
because your employer has agreed to give it.
    So what we want to do is to help low wage vulnerable 
workers be guaranteed overtime and help about 1.3 million 
workers get the overtime that they deserve.
    Senator Cochran. I was just with a couple of constituents 
of mine from Mississippi, who came up for a visit. And I told 
them that I was not able to meet with them as long as I had 
hoped to because of the hearing that was scheduled. And I 
wanted to come over and ask you about this.
    I asked them if they had any views about the proposed 
change in the Department of Labor regulations on overtime pay. 
And they said, ``Well, it is past due. It has been needed for a 
long time.'' They have a lot of professional engineers, who are 
employed, who are owners of the business. And they keep being--
they are worried. They are concerned that unwittingly they are 
going to be in a situation where they are found to violate some 
rules, as currently interpreted and applied by some courts.
    Is not another reason for the modernization of these rules 
to have businesses like those that were just visiting with me 
achieve a greater degree of certainty as to what the law is and 
what the regulations are, so they can comply with them? They do 
not want to violate the rules.
    But the way the law and the regulations have been 
interpreted, there is some confusion about what the obligations 
of some businesses are, treating professionals as wage earners. 
Is this another reason why the modernization effort has been 
undertaken by your Department?
    Secretary Chao. Absolutely. Class action lawsuits 
concerning white collar regulations now is the largest area of 
class action lawsuits in employment law, far surpassing 
discrimination lawsuits. Over $2 billion a year are spent in 
needless litigation. And workers should be receiving their 
overtime sooner, but they are not, because there is no other 
mechanism sometimes except for the courts. And even the courts 
rule differently on issues, some of these issues.
    So the best way to protect workers is to clarify the rules 
and regulations. If we, the Government, want to have--if the 
Government wants to really protect workers, we need to give 
certainty to the employers, so they know what their 
responsibilities are. And we also need to empower workers, so 
that they know what their rights are.
    Senator Cochran. Well, I think this is a helpful hearing, 
so we can all understand better what the motivation is behind 
the proposed changes. The fact that Congress is trying 
intervene, I know that there was an effort made in the 
appropriations process to change the regulations or to modify 
them or to make them have no effect, null and void in some 
respects.
    Well, I hope we will refrain from doing that and let the 
regular process work its way, as you have proposed. I think we 
will all be better off if we exercise that restraints and not 
overreact just on the basis of a few articles that have been 
written that might misrepresent in some respects what the 
intentions are and what the effects of the regulations will 
actually be.
    Thank you for appearing before the committee today.
    Secretary Chao. Thank you.
    Senator Specter. Senator Craig.
    Senator Craig. Mr. Chairman, thank you. A couple more 
questions of the secretary.
    I think one of the great frustrations that the private 
sector has is trying to deal with ambiguous or very lengthy, 
detailed regulation of the Federal Government. Bigger 
businesses hire fleets of attorneys that spend all of their 
time doing it and to do just exactly what Senator Cochran has 
suggested, be in compliance with the law, because they do not 
want to be obviously out of compliance.
    It is my understanding that these regulations are not only 
sometimes very ambiguous, but there is a density to them that 
is in itself a physical fitness test. When an employee feels 
that he or she has been unfairly treated, what is their current 
recourse today? And what kind of time and expense might be 
involved in attempting to prove their case?
    Secretary Chao. Well, a lot of times they resort to the 
courts. And it takes about 3 to 4 years before they will get 
justice or they get their overtime paid. At the Department of 
Labor, if the rules and regulations are clear, we can help to 
recover back pay in about 108 days. That is about 3 months. So 
there is quite a lot of difference.
    If the rules and regulations are clear, our own 
investigators can be better equipped to recover back wages. If 
the regulations are unclear and the courts cannot decide 
themselves, our investigators, the Department's investigators, 
are also not equipped fully to carry out the rules and 
regulations. Employers do not know what to do. Employees do not 
know what their rights are. It is very confusing.
    Senator Craig. Who pays the legal bill?
    Secretary Chao. I think we all do, as a society. Because 
this $2 billion in litigation fees can be better used to pay 
higher wages. And also, it can also be used, be better energy 
and effort used, to create new jobs.
    Senator Craig. And the current estimate of legal bills in 
relation to this area of the law is how much?
    Secretary Chao. It is about $2 billion.
    Senator Craig. Annualized.
    Secretary Chao. Yes, annualized. And in addition, workers 
every year miss out about--workers every year miss out on about 
$897 million in back wages.
    Senator Craig. Thank you.
    Thank you, Mr. Chairman.
    Senator Specter. Thank you very much, Senator Craig.
    Thank you, Madame Secretary, for moving ahead on this 
important issue. And let me associate myself with the remarks 
of Senator Craig and Senator Cochran on the desirability of 
having regulations which can be understood. And the issue of 
avoiding litigation is absolutely a matter of the highest 
priority.
    I would like you to submit in writing to the subcommittee 
just how that is going to be accomplished. I would like to 
spend more time in going into detail on the discussion, but we 
have a very long list of witnesses. But if you take a look at 
the proposed regulation, which defines an administrative 
employee as someone who holds a position of responsibility 
defined either as, one, performing work of substantial 
performance or, two, performing work requiring a high level 
skill or training, how do we come to grips with the words 
substantial importance to avoid litigation? And how do we come 
to grips with the language of performing work requiring a high 
level skill or training? And how does that contrast with the 
current law, which has led to the litigation, stating 
``customarily and regularly exercises discretion and 
independent judgment''?
    Then when we deal with professional employees, it is hard 
to distinguish the current regulation which calls for a 
knowledge of an advanced type in the field of science or 
learning customarily acquired by a prolonged course of 
specialized intellectual instruction study contrasted with the 
proposed regulation reciting language advanced type in a field 
of science or learning, prolonged course of specialized 
intellectual instruction, and also the alternative is the 
existing regulation, an equivalent combination of intellectual 
instruction and work experience.
    I would like you to submit to the subcommittee how there is 
an improvement and whether there might be a better course to 
tackle this with a commission such as the proposed legislation 
would call for. And then we would like answers in writing on 
the total number of comments you have had, 80,000 reputedly, 
according to the media, how many have been analyzed, and when 
you expect to have the final regulation. Will you meet the 
March 31 date? And how long do you anticipate the Office of 
Management will take to propose the final regs? So we have some 
idea.
    I had asked you about this, but I did not get a specific 
answer as to what date we are looking at when this regulation 
is going to be final contrasted with September 30, which is 
what is asked for under the congressional move to delay this 
until the end of the fiscal year.
    I want to be sure you had a full opportunity to answer the 
questions that I had asked you about issuing a statement. When 
my time is up, Madame Secretary, your time is not up. We do not 
want to limit you on the time of responding, if you had wanted 
to supplement your answer.
    Secretary Chao. We will be more than glad to submit the 
answers in writing. Let me just say a couple of things. One, 
this is a proposal. And we are in the process of evaluating the 
tens of thousands of comments. This rule is very complicated. 
It has not been updated. It needs to be updated so that workers 
can be protected.
    Our intent is to strengthen overtime protection. We have a 
responsibility to clarify what the Government requires and what 
the Government is asking of employers. And employees need to 
know what their rights are, as well.
    As for the timing, we think that this has been ongoing for 
quite a long time. There was a great deal of work done before 
the issuance of the proposal. There were stakeholder meetings. 
There were all sorts of discussions. We are now through the 
issuance of the rule, the proposal of the rule. And we have 
received tens of thousands of comments. We are going through 
that very carefully. And our goal is to move on this again, so 
that we can protect workers who are now losing out on overtime 
protection.
    Senator Specter. Well, we certainly do respect your 
responsibility, Madame Secretary. No doubt about it. As you 
have articulated, advances made by the Bush administration in 
the employment field at the opening part of your statement. And 
we would appreciate your addressing in writing the issue about 
whether there will be a loss in compensation as contended. I 
know you will have people here to monitor the testimony which 
will follow. If you had the time, it might be desirable for you 
to stay. There might be something you would care to add at a 
later point.
    While we respect your responsibility, the congressional 
responsibility is one of oversight of administrative 
regulations.
    Secretary Chao. Thank you.
    Senator Specter. We thank you for joining us today. And we 
concur. I think there is a unanimity of agreement that we need 
to have regulations which are understood to avoid litigation.
    Secretary Chao. Thank you very much, Mr. Chairman.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Specter. There will be some additional questions 
which will be submitted for your response in the record.
    [The following questions were submitted to the Department 
for written responses:]
           Responses of Secretary Chao to Committee Questions
    Question. Please explain how changes to the FLSA Part 541 
regulations will decrease litigation so that workers will not have to 
fight for years in federal court to receive their overtime pay.
    Answer. Because the duties tests for exemption in the regulations 
have not been updated in over 50 years, the regulations do not reflect 
a significant body of federal case law or long-standing Wage and Hour 
Division (WHD) enforcement policies as set forth in WHD opinion letters 
and the Field Operations Handbook. In the last 50 years, there have 
been significant legal developments on issues such as concurrent 
performance of exempt and nonexempt duties, the use of reference 
manuals, and the ``production versus staff dichotomy'' for the 
administrative exemption. Significant and sometimes conflicting court 
decisions have also been issued on particular occupations such as 
retail assistant managers, insurance claims adjusters, public sector 
employees and journalists. None of these developments are reflected in 
the current regulations, thereby generating confusion, uncertainty, 
inconsistent results, and excessive litigation.
    The final regulations will use clearer and more precise language to 
reflect the rulemaking record, current federal case law (resolving 
conflicts between cases when necessary) and WHD enforcement policies. 
By doing so, the public will have one set of transparent rules to 
follow, consistent with existing law, and thus will not have to rely as 
much on attorneys to understand their legal rights and responsibilities 
through the conduct of extensive legal research from a multitude of 
sources. Ensuring the regulations accurately reflect current law, and 
reconciling conflicting court decisions, should reduce litigation.
    For example, the current regulations contain no discussion of the 
exempt status of police officers, fire fighters, paramedics, emergency 
medical technicians or other first responders. There is, however, a 
significant body of federal court decisions providing that most such 
employees are not exempt administrative or professional employees, 
although courts have found that chiefs, captains and some lieutenants 
can qualify as exempt executives. The Department had no intent to 
change this interpretation of the law, but the public commentary 
indicates that more clarity is needed on this issue.
    Question.The proposed regulation defines an administrative employee 
as someone who holds a position of responsibility, which is further 
defined as (1) performing work of substantial importance or, (2) 
performing work requiring a high level skill or training. How will 
using these new phrases ``substantial importance'' and ``high level of 
skill or training'' avoid litigation? How does this contrast with the 
current regulations which require the exercise of ``discretion and 
independent judgment?''
    Answer. In meetings held by the Department of Labor prior to 
drafting the Notice of Proposed Rulemaking, employer stakeholders 
identified the administrative exemption, and particularly the 
``discretion and independent judgment'' standard, as one of the most 
confusing and difficult requirements in the regulations. A review of 
case law reveals that federal courts also have difficulty interpreting 
and applying this standard. Accordingly, the Department attempted to 
propose an alternative standard that would be easier to understand and 
apply.
    Comments received by the Department indicate that we were not fully 
successful in this effort. Both employer and employee commenters have 
expressed concerns about the proposed test. Most commenters request 
that the Department bring back the ``discretion and independent 
judgment'' test, although they disagree sharply on whether it should be 
a requirement, or one of several alternatives, for exemption as an 
administrative employee.
    In response to these valid concerns, when the Department issues the 
final rule, it will reflect significant changes from the proposal. As 
stated above, the Department will rely on existing federal case law, 
opinion letters, comments received during the comment period, and other 
WHD policy statements to provide regulatory language that will be 
easier for both employers and employees to understand and apply. It is 
not the Department's intent to depart significantly from current law.
    Question. When dealing with professional employees it's difficult 
to distinguish between the current regulation that calls for ``a 
knowledge of an advanced type in the field of science or learning 
customarily acquired by a prolonged course of specialized intellectual 
instruction and study,'' and the proposal's language, ``advanced type 
in the field of science or learning or a prolonged course of 
specialized intellectual instruction''. I would like you to submit to 
the subcommittee how there is an improvement and whether there might be 
a better course to tackle this with a commission such as the proposed 
legislation would call for.
    Answer. The professional exemption has been the focus of much 
misinterpretation during the course of this rulemaking. Section 
541.301(a) of the current regulations provides that a learned 
professional is an employee whose work requires ``knowledge of an 
advanced type in a field of science or learning customarily acquired by 
a prolonged course of specialized intellectual instruction and study.'' 
(Emphasis added.) However, current section 541.301(d) states that, 
while the word `` `customarily' implies that in the vast majority of 
cases the specific academic training is a prerequisite for entrance 
into the profession,'' it also ``makes the exemption available to the 
occasional lawyer who has not gone to law school or the occasional 
chemist who is not the possessor of a degree in chemistry.''
    The proposed changes to section 541.301 were intended to clarify 
the point at which the ``occasional chemist'' who does not have a 
degree can qualify as a professional. The proposal states that such an 
employee (to qualify as a professional) must have the same knowledge as 
the degreed employee even if that knowledge was acquired by an 
alternative, nontraditional means. The Department intended to clarify 
that an employee who has the same knowledge, same skills, and performs 
the same work as the degreed employees working in a professional field 
should be classified and paid in a similar manner.
    Department officials have stated repeatedly that we do not intend 
to make any changes to the educational requirements for the 
professional exemption. Many of the specific concerns--about nurses, 
engineering technicians and veterans, for example--arise from the 
presumption that we are making major changes to the educational 
requirements. The Department intends to clarify the final regulation to 
ensure no misinterpretation of our intent.
    The Department does not believe a commission would provide any 
information or ideas not already included in the 75,280 comments 
received during this rulemaking. This rulemaking has been on the 
Department's regulatory agenda for 20 years, and already has been 
studied by GAO. Further delay will mean that millions of workers will 
continue to be denied overtime pay.
    Question. We would like answers on the total number of comments 
received, media reports say 80,000. How many have been analyzed? When 
do you expect to have the final regulation? Will the March 31, 2004, 
deadline be met? How long do you anticipate the Office of Management 
and Budget will take to review the final regulations? Contrast that 
date with the September 30, 2004, deadline that has been requested in 
congressional moves to delay this to the end of this fiscal year.
    Answer. The Department received a total of 75,280 comments during 
the official comment period. We have analyzed all of them. The 
Department will publish a final rule as expeditiously as possible, 
consistent with the requirements of a process governing a significant, 
complex rule such as this one. The Department intends to submit a final 
rule to OMB in March; we are not in a position to comment on OMB's 
review process. We believe that the final rule will meet Congress' 
expectations for both thoroughness and thoughtfulness. As stated above, 
we believe that a delay to September 2004 would be harmful to workers, 
especially low-wage workers who today can be denied overtime if they 
earn only $8,100 per year.
    Question. In your statement, you articulated advances made by the 
Bush Administration in the employment field. What are those? Could you 
also discuss whether there will be a loss in compensation as contended?
    Answer. The Department intends to make every effort in the final 
regulations to ensure that no low-wage or middle-income employees lose 
overtime pay or experience a decline in compensation.
    The Bush Administration is committed to protecting America's 
workers, and the Department of Labor has backed up this commitment with 
action. Almost every law enforcement agency in the Department posted 
record performance results in fiscal year 2003:
  --The Wage and Hour Division collected over $212 million in back 
        wages for over 340,000 employees, an 11-year high and a 60 
        percent increase over fiscal year 2001.
  --OSHA cited employers for 83,760 violations, a nearly 8 percent 
        increase over fiscal year 2002. Almost 60,000 of those 
        violations were considered serious, an 11 percent increase.
  --Workplace injuries and fatalities fell to the lowest point ever in 
        2002.
  --Fatalities in all mines decreased by 10 percent in fiscal year 
        2003, and total mining injuries fell by 12 percent.
  --The Employee Benefits Security Administration had record monetary 
        results of more than $1.4 billion in fiscal year 2003, a nearly 
        60 percent increase over the previous year.
STATEMENT OF RICHARD L. TRUMKA, SECRETARY-TREASURER, 
            AFL-CIO
    Senator Specter. We will now turn to the second panel, 
which will be the Secretary-Treasurer of the AFL-CIO, Richard 
L. Trumka, esquire. Mr. Trumka was first elected in 1995, the 
youngest secretary-treasurer in AFL-CIO history, a third 
generation coal miner from Nemacolin, Pennsylvania, a graduate 
of Penn State with a law degree from University Law School.
    We are now going to call the other witnesses. I called the 
second panel of just Mr. Trumka. So if you others would step 
back, we will call you.
    Mr. Trumka, would you move to the center, please?
    Mr. Trumka has a very unusual background as a coal miner 
after he became a lawyer, which perhaps put an appropriate 
perspective on the skill levels and social utility of the 
respective professions.
    I am going to withhold further comment or the 
characteristic stories about lawyers' compensations. But we 
welcome you, Mr. Secretary-Treasurer of the AFL-CIO. And the 
floor is yours.
    Mr. Trumka. Thank you, Mr. Chairman and members of the 
committee. Thank you for inviting me to testify on behalf of 
the AFL-CIO regarding the Bush administration's proposed 
regulations on overtime eligibility.
    The overtime regulations proposed by the Bush 
administration in March 2003 would redefine 8 million workers 
as ineligible for Federal overtime protection. In addition, 
under this proposal thousands more workers every year would be 
stripped of their overtime rights. The Bush proposal would 
effectively gut the 40-hour workweek through administrative 
regulation, dishonoring the sacrifice of thousands of working 
women and men, who struggled for over a century to enact the 
Fair Labor Standards Act of 1938.
    It would also dishonor the sacrifice of millions of working 
parents today, who work longer hours to provide for their 
families. And it would be a slap in the face to working parents 
in desperate need of more family time away from work.
    Mr. Chairman, this hearing could not be more timely for 
today the 40-hour workweek is in jeopardy. A vote scheduled for 
this afternoon in the Senate could determine the future of 
overtime protection and the 40-hour workweek in this country.
    There are seven points that I would like to make about the 
Bush overtime proposal and today's vote in the Senate. First, 
it bears repeating that the one and only overtime issue before 
Congress is a very simple one, whether the Bush administration 
should be allowed to strip workers of their overtime rights.
    Contrary to assertions by the Department of Labor, nobody 
has proposed stopping the Department from issuing a regulation. 
No one has proposed stopping DOL from updating, clarifying or 
improving the overtime regulations. And no one has proposed 
stopping DOL from making an inflation adjustment that would 
expand overtime coverage to a small number of lower income 
workers.
    The only thing anyone in Congress has proposed is an 
amendment to stop the Labor Department from stripping workers 
of their overtime rights. That is all the Harkin amendment 
does. The Harkin amendment would allow the DOL to issue a 
regulation accomplishing all the things the Department says it 
wants to do, so long as it refrains from stripping workers of 
their overtime rights. So DOL should stop hiding behind 
excuses.
    Second, the administration's detailed descriptions of ways 
employers can avoid paying anything for overtime work, as 
reported recently by several news organizations, I think are 
revealing of its true priorities, providing a primer of how to 
lower employees' wages in order to save money on overtime. 
Whether these strategies are actually legal or not is hardly 
consistent with the administration's pressed concern for the 
overtime earnings of low income workers.
    In fact, these proposed rules were designed for the benefit 
of employers, not workers. And that is not just my opinion. But 
it is also the opinion of the business community. As one 
prominent management law firm informed its clients when the 
proposed regulations first came out, and I quote, ``Thankfully, 
virtually all of these changes should ultimately be beneficial 
to employers.''
    Third, we believe the Bush administration has grossly 
miscalculated the effects of its proposal in ways that make its 
overtime cuts look smaller. The administration's estimates low-
ball the number of workers who would lose their overtime 
eligibility and inflate the number of workers who would gain.
    In one sense, of course, the administration's misleading 
estimates are beside the point. Whether the actual number of 
workers losing overtime is 700,000, 7 million, 8 million, or 20 
million, there is no excuse for taking overtime protection away 
from any worker. And if DOL's estimates are right, if they are 
correct, it is all the more reason for them to support the 
Harkin amendment because it would affect, in their opinion, so 
few people. So to stop the logjam, they should support the 
amendment.
    Also, the number of low income workers who would benefit 
from the proposed inflation adjustment is irrelevant to the 
debate in Congress. Again, the Harkin amendment would allow the 
administration to extend overtime coverage to any number of 
workers, whether it be 300,000, 1.3 million, or whatever number 
of workers would benefit from a more complete adjustment for 
inflation.
    Fourth, while no worker deserves to lose overtime 
eligibility, it is particularly reprehensible for the 
administration to propose stripping overtime rights from 
veterans who have received technical training in the military. 
Under the Bush proposal, if an employer determines that the 
training veterans have received in the military is equivalent 
to a 4-year professional degree, that employer will now be 
allowed to deny those veterans overtime eligibility and refuse 
to pay them anything for overtime pay. This proposal is not 
only offensive, it actually insults the men and women who risk 
their lives and serve their country.
    It also threatens to undermine a key recruiting tool of the 
armed services. That is the opportunity for career advancement 
through military training. In a regulatory proposal brimming 
with bad ideas, this is certainly one of the worst. And this is 
surely not the way to show support for our troops.
    Fifth, the Senate vote this afternoon may be the last 
chance for Congress to protect the overtime rights of 8 million 
workers and more broadly to protect the future of the 40-hour 
workweek.
    Mr. Chairman, has my time expired?
    Senator Specter. It has. You are about a minute over time, 
if you----

                           PREPARED STATEMENT

    Mr. Trumka. I apologize. I can only say that I would like 
to thank the chairman, give my personal gratitude to the 
chairman, for his vote in favor of the Harkin amendment and 
hope that we can count on his continued support for 
guaranteeing American workers the loss of their overtime 
rights. And I thank you very much for the opportunity to be 
here.
    [The statement follows:]

                Prepared Statement of Richard L. Trumka

    Mr. Chairman, members of the Committee, thank you for inviting me 
to testify on behalf of the AFL-CIO regarding the Bush Administration's 
proposed regulations on overtime eligibility.
    The overtime regulations proposed by the Bush Administration in 
March 2003 would redefine 8 million workers as ineligible for federal 
overtime protection. In addition, under this proposal, thousands more 
workers every year would be stripped of their overtime rights. The Bush 
proposal would effectively gut the 40-hour workweek through 
administrative regulation, dishonoring the sacrifice of thousands of 
working men and women who struggled for over a century to enact the 
Fair Labor Standards Act (FLSA) of 1938. The Bush proposal would also 
dishonor the sacrifice of millions of working parents today who work 
longer hours to provide for their families, and would be a slap in the 
face to working parents in desperate need of more family time away from 
work.
    Mr. Chairman, this hearing could not be more timely, for today the 
40-hour workweek is in jeopardy. A vote scheduled for this afternoon in 
the Senate could determine the future of overtime protection and the 
40-hour workweek in this country.
    There are seven points I would like to make about the Bush overtime 
proposal and today's vote in the Senate:
    First, it bears repeating that the one and only overtime issue 
before Congress is a very simple one: whether the Bush Administration 
should be allowed to strip workers of their overtime rights. Contrary 
to assertions by the Department of Labor (DOL), nobody has proposed 
stopping the Department from issuing a regulation. No one has proposed 
stopping DOL from updating, clarifying, or improving the overtime 
regulations. No one has proposed stopping DOL from making an inflation 
adjustment that would expand overtime coverage to a small number of 
lower-income workers. The only thing anyone in Congress has proposed is 
an amendment to stop the Labor Department from stripping workers of 
their overtime rights. That is all the Harkin amendment does. The 
Harkin amendment would allow DOL to issue a regulation accomplishing 
all the things the Department says it wants to do, so long as it 
refrains from stripping workers of their overtime rights. DOL should 
stop hiding behind phony excuses. The indisputable fact is that this 
Administration is pulling out all the stops to insist on its right to 
take away workers' overtime.
    Second, the Administration's detailed descriptions of ways 
employers can avoid paying anything for overtime work, as reported 
recently by several news organizations, are very revealing of its true 
priorities. Providing a primer on how to lower employees' wages in 
order to save money on overtime--whether these strategies are actually 
legal or not--is hardly consistent with the Administration's professed 
concern for the overtime earnings of low-income workers.
    In fact, these proposed rules were designed for the benefit of 
employers, not workers. This is not just my opinion, but is also the 
opinion of the business community. As one prominent management law firm 
(Proskauer Rose) informed its clients when the proposed regulations 
first came out, ``Thankfully, virtually all of these changes should 
ultimately be beneficial to employers.''
    Third, we believe the Bush Administration has grossly miscalculated 
the effects of its proposal in ways that make its overtime cuts look 
smaller. The Administration's estimates lowball the number of workers 
who would lose their overtime eligibility and inflate the number of 
workers who would gain eligibility. In one sense, of course, the 
Administration's misleading estimates are beside the point. Whether the 
actual number of workers losing overtime is 7 million or 8 million or 
20 million, there is no excuse for taking overtime protection away from 
any worker. And the number of low-income workers who would benefit from 
the proposed inflation adjustment is irrelevant to the debate in 
Congress. Again, the Harkin amendment would allow the Administration to 
extend overtime coverage to any number of workers, whether it be 
300,000, 1.3 million, or whatever number of workers would benefit from 
a more complete adjustment for inflation.
    Fourth, while no worker deserves to lose overtime eligibility, it 
is particularly reprehensible for this Administration to propose 
stripping overtime rights from veterans who have received technical 
training in the military. Under the Bush proposal, if an employer 
determines that the training veterans have received in the military is 
equivalent to a four-year professional degree, that employer will now 
be allowed to deny those veterans overtime eligibility and refuse to 
pay them anything for overtime work. This proposal is offensive. It is 
an insult to the men and women who risk their lives to serve their 
country. It also threatens to undermine a key recruiting tool of the 
armed services--the opportunity for career advancement through military 
training. In a regulatory proposal brimming with bad ideas, this is 
certainly one of the worst.
    Fifth, the Senate vote this afternoon may be the last chance for 
Congress to protect the overtime rights of 8 million workers, and more 
broadly to protect the future of the 40-hour workweek. The Labor 
Department has announced its plan to issue a final regulation by March 
2004. Time is running out. If an overtime guarantee is not included in 
the omnibus appropriations bill now before the Senate, there may be no 
way to stop the Administration from stripping overtime rights from more 
than 8 million workers. It is urgent and imperative that Congress 
defeat cloture this afternoon to force the Administration to abandon 
its campaign to restrict overtime eligibility.
    Sixth, responsibility for jeopardizing the omnibus spending 
legislation now before the Senate lies squarely with the Bush 
Administration. It was the Bush Administration that threatened to veto 
this legislation if it included the Harkin overtime guarantee. It was 
the Bush Administration that forced the conference committee to strip 
out the Harkin overtime guarantee. It was the Bush Administration that 
refused even to sit down and discuss a compromise with the 
distinguished chairman of this committee. It was the Bush 
Administration that flouted strong bipartisan votes in both the House 
and Senate in favor of protecting workers' overtime rights. And it was 
the Bush Administration that recklessly disregarded repeated public 
warnings that stripping the Harkin overtime guarantee from this bill 
could jeopardize its final passage.
    Seventh, it is within the Administration's power to resolve this 
standoff. If the Administration agreed to respect the will of 
bipartisan pro-overtime majorities in both houses of Congress, the 
Harkin overtime guarantee could be reattached to an omnibus package. 
Alternatively, if the Administration withdrew its opposition to 
protecting overtime, the Harkin overtime guarantee could be enacted 
separately. Or the Bush Administration could simply withdraw its 
controversial overtime cuts, make a public commitment not to restrict 
overtime eligibility in the future, and immediately implement the non-
controversial part of its proposal that adjusts overtime salary tests 
for inflation.
    Finally, I would like to express my personal gratitude to the 
chairman for his vote in favor of the Harkin amendment. I hope we can 
count on the chairman's continued support for guaranteeing America's 
workers against the loss of their overtime rights.
    Thank you, and I would be glad to answer any questions.

    Senator Specter. Thank you, Mr. Trumka.
    You have specified in the opening part of your statement 
that there will be a redefinition of 8 million workers as 
ineligible for Federal overtime protection. You go on to say 
that thousands more workers every year would be stripped of 
their overtime rights.
    In the context that we do not yet have a final regulation, 
what is the evidentiary base for your first conclusion as to 
the 8 million workers who would be stripped of their overtime 
rights?
    Mr. Trumka. It was based on the proposal that was issued 
and an analysis by the Economic Policy Institute.
    Senator Specter. Well, can you amplify that, as to how they 
come to that conclusion and how much money would be involved in 
the losses?
    Mr. Trumka. Well, Mr. Bernstein will be here in a little 
while on the second panel. He conducted the study. And he can 
give you the detail of it. If you would like, I can give to you 
a detailed written analysis of that study.
    In addition, the second part of the study about thousands 
more in the future being affected works two ways. The new regs 
will index the top level and the bottom level. They put a top 
level for overtime. It is $65,100, I believe. If you go over 
that, you are presumed to lose overtime. They do not index that 
figure for inflation. So each year, as raises take people over 
the $65,000, they will lose overtime.
    Also, they do not index the bottom level of $22,000. So as 
people's raises take them over the $22,000 level, they profess 
that more people will lose overtime as their wages go beyond 
$22,000.
    Senator Specter. Mr. Trumka, you were present during the 
course of my questioning Secretary Chao, where I commented on 
the proposed regulation and the current law as to 
administrative employees, as to the difficulty of the 
definition. And the current proposal is for an administrative 
employee performing work of substantial importance or 
performing work requiring a high level of skill or training. Do 
you have a specific proposal as to how you can structure a 
regulation which would provide clarity to avoid litigation?
    Mr. Trumka. Well, the first thing we do with any proposal, 
Mr. Chairman, is to specify, as clearly and as concisely and as 
bindingly as possible, the goal. If the goal is to help 
workers, then the Harkin amendment will help them do that, 
because what it will not allow them to do is change definitions 
so they can be interpreted to eliminate or deny people 
overtime. Then you could start with specificity.
    You know, over the years we have had litigations. So the 
current regs are fairly well understood. And one of the 
previous witnesses that was with the Secretary of Labor said 
the new or proposed regulations would result in a deluge of 
litigation because of the words that you just talked about, 
substantial, high level. Those are a lawyer's dream. Those are 
the fudge words that everybody uses and will result in another 
15 years of litigation to define those out into the future.
    Senator Specter. Well, Mr. Trumka, beyond the issue of 
whether it is going to help one group or another, do you agree 
that we ought to have definitions which avoid litigation? And I 
know the answer to the question, but just to put that on the 
record, there is no doubt that it is a common objective. When 
there is litigation, there are expenses on all sides. Do you 
concur that we really need regulations which would advance the 
interest of avoiding litigation?
    Mr. Trumka. Yes, sir. I do agree, Mr. Chairman, that we 
should avoid litigation. However, if we are going to have 
definitively, I would have them definitely provide overtime, as 
opposed to definitely not provide overtime. I would fight any 
regulation that took overtime away from a substantial number of 
workers.
    But I agree with the goal of eliminating costly litigation, 
so long as, when we are being definitive, it definitively 
provides overtime and not definitively takes overtime away.
    Senator Specter. Well, Mr. Trumka, how is overtime taken 
away on the proposed regulation contrasted with the current 
regulation, where the current regulation defines a professional 
employee as someone performing work requiring knowledge of an 
advanced type in the field of science or learning customarily 
acquired by a prolonged course of specialized intellectual 
instruction and study, and contrast that language with the 
proposed regulation, advanced type in the field of science or 
learning using language specialized intellectual course, and 
then as an alternative, the equivalent combination of 
intellectual instruction and work experience?
    It looks very difficult to me to draw a distinction between 
those two definitions. Am I missing something here?
    Mr. Trumka. Well, those two definitions, the second one is 
far more nebulous and gives far more discretion to employers to 
define what equivalent means, things of that sort.
    The other thing is, you and I both know, Mr. Chairman, that 
as lawyers, when words are litigated, they take on a meaning. 
And the courts give meaning to all those terms in the first 
definition that you gave. They have been defined. Now you 
change one word, eliminate a word, add a word, there will be 
another series of litigation that will redefine what all of 
those things meant. And so long as we are going to do that, if 
you can assure or we can assure the American worker that the 
redefinition is not going to take away overtime, but is going 
to add overtime, we will be helpful. We will do what we can to 
help that happen.
    What we will not tolerate is seeing a bad economic policy 
with an economy that is two-thirds driven by consumer spending. 
Taking upwards of $3 billion to $4 billion out of the pockets 
of average Americans and putting it somewhere else is not a 
good economic policy.
    Senator Specter. Well, the question is whether we could 
redefine the regulations so that we leave people in their 
current status, so it does not have an impact one way or 
another, not giving an advantage to either side, but 
maintaining the current level of compensation with language 
which would avoid litigation. And that is the objective that I 
would like to come to, so that you do not create an imbalance 
in where you stand now as to what people are earning but seek 
to avoid ambiguous language, which leads the courts to make 
constructions on it.
    Well, I do not know that we are going to advance that cause 
very much here. But when I looked at the proposed reg and I 
looked at the old reg, it seemed to me that the ball was not 
advanced on limiting litigation. I would like to limit 
litigation. And let the record show the witness is nodding in 
the affirmative. I do not think it does that.
    Mr. Trumka. I agree with you. It does not.
    Senator Specter. I am going to be interested to hear the 
next witnesses as to how you make the computation that labor 
loses. On this language, I do not know that you can pick 
winners or losers, because I do not know that you can pick what 
a court is going to say on this language.
    Mr. Trumka. Well, some of the things you definitely cannot. 
But $65,100 is real easy to interpret. Taking away the long 
test and having only the short test is really easy to 
interpret. Maybe on one specific thing you cannot pick winners 
and losers. But when you look at the whole thing, you can 
definitely pick winners and losers. Employers win and workers 
lose. And there is not a doubt in my mind about that.
    Senator Specter. Well, that is a valid consideration. That 
is the first time I have heard the figure articulated in this 
hearing. I know of a figure, but that is the first I have heard 
of it.
    Well, thank you very much, Mr. Trumka.
    Mr. Trumka. Thank you, Mr. Chairman.
    Senator Specter. Thank you for coming and joining us here 
today.
    Mr. Trumka. Thank you for the hearing.
    Senator Specter. We will now go to panel three: Mr. David 
Fortney, Mr. Jared Bernstein, Mr. Ronald Bird, Mr. Andrew J. 
McDevitt, and Ms. Patty Hefner.

STATEMENT OF DAVID S. FORTNEY, CO-FOUNDER, FORTNEY & 
            SCOTT

    Senator Specter. Our first witness on this panel is Mr. 
Fortney, David S. Fortney, who is co-founder of Fortney & 
Scott, a Washington, D.C.-based firm specializing in labor and 
employment issues. Before co-founding the firm, Mr. Fortney 
held several positions with the U.S. Department of Labor, 
including acting solicitor of labor and chief legal officer. He 
has a bachelor's degree from Penn State and a JD from Duquesne 
University School of Law.
    Are you a Pennsylvanian, as well as----
    Mr. Fortney. I am indeed, Mr. Chairman.
    Senator Specter [continuing]. A background in your 
schooling in Pennsylvania?
    Mr. Fortney. I am indeed. And I just spent the weekend 
there with my parents.
    Senator Specter. Thank you for joining us, Mr. Fortney. And 
the floor is yours.
    Mr. Fortney. Thank you and good morning. It is a privilege 
to appear before you this morning, Mr. Chairman, regarding the 
proposed overtime regulations. I am appearing on behalf of a 
broad-based employer coalition known as the OT Overtime 
Coalition. This coalition is comprised of more than 
approximately 100 trade associations, companies, and 
professional human resource organizations. And together the 
coalition represents 2.4 million employers and over 42 million 
employees.
    At the outset, let me state that we really would like to 
thank you, Mr. Chairman and members of this subcommittee, for 
convening this important hearing today. We believe that it is 
very important that we have an honest and informed dialogue 
about these proposed regulations and what would happen and what 
would not happen if the regulations, at least as proposed, 
would become final.
    I think that although there may be some disagreement on 
this point, but I think there is at least a consensus that the 
proposed regulations would make many changes that are 
desperately needed. The current regulations are outdated. They 
cause confusion and uncertainty among all stakeholders, 
including employers, employees not knowing what their rights 
are, and including the Labor Department, who is charged with 
enforcement. I think the other witnesses have covered that.
    So what we have today is the existing regulations designed 
for a 1950s workforce making 1970s salaries. The rules are out 
of date. And they produce nothing but confusion and litigation. 
I think there is agreement on that.
    Initially, I would like to share, if I could, please, why 
the overtime regulations need to be updated. There is, again, 
the GAO report. The secretary has cataloged many of the prior 
looks at the regulations, all reaching the same conclusion. But 
what specifically, why are there problems with these 
regulations? Let me see if I can provide some examples to 
illustrate in the real world what is going on with these 
regulations.
    The current regulations, which again were promulgated about 
half a century ago, list a number of occupations that were put 
in there so that people could read the regulations and 
understand, should an employee get overtime or not get 
overtime. The examples that are listed in the regulations are 
largely wholly out of date and unhelpful today.
    For example, straw bosses, gang leaders, keypunch 
operators. These occupations no longer exist. No member of this 
subcommittee, I would suggest, will find those occupations in 
their home states. We do not have them with our clients. And so 
in contrast, how do we take these antiquated occupations in the 
current regulations and align them when clients come and ask 
us: Who is the software engineer? Is that person exempt or 
nonexempt? Network administrator, a web master.
    Now these are the jobs where--job creation that is making 
our economy grow. And the lack of clarity that we are suffering 
from today with these regulations result in unfairness to 
everyone involved. This needs to be addressed.
    But it is not just the job titles. The regulations go 
further and say: You do not look at titles, but you have to 
look at what people actually do.
    Let me see if I can give one example that supposedly is 
there to help us understand the distinction between who is 
exempt and nonexempt. Our current regulations tell us that 
employees who watch machines and keep an eye out for trouble, 
those can be exempt employees from overtime. However, if an 
employee watches a machine, if they operate--to see if they 
``operate properly,'' that person is not supposed to be exempt. 
I, frankly, have never been able to divine what the distinction 
is. And in the real world, people cannot. This is a huge 
problem in the practical world.
    Now, what has happened? There has been some reference to 
the litigation. I think the Secretary of Labor cataloged what 
has happened with that record. Let us talk about what some of 
these cases have done, the results that just do not seem 
sensical. I think the average human resource professional, the 
small business administrator would not accurately read these 
regulations and does not often.
    A court found that a project superintendent earning $90,000 
a year as a salary was nonexempt because he performed staff 
functions. In the court's reasoning, they found that he was a 
production employee. He was producing construction management. 
That is not helpful.
    Another court found that network communications 
specialists, all of whom had advanced degrees in physics, 
mathematics, engineering, many of whom on their surface, many 
of us would look at say those are certainly professionals, were 
ruled not to be because they followed manuals and made group 
decisions.
    I see my time is up, Mr. Chair. I just want to close by 
noting that the lack of----
    Senator Specter. If you need a little more time to 
summarize, go ahead and take it, Mr. Fortney.
    Mr. Fortney. I appreciate that. Thank you.
    The lack of clarity in these regulations operates unfairly. 
Realistically, a typical human resource representative, a small 
business owner--there was reference before, Senator Cochran 
talked about the density of the regulations. They are dense. 
They are not fair. They do not work well.
    What we need are regulations that help with that. Are the 
proposed regulations perfect? No. And that--you have asked a 
number of questions probing what their effect would be. But 
what we know for certain is that the current regulations are 
broken. They need to be fixed.

                           PREPARED STATEMENT

    I do not know nor, with due respect, does anyone know what 
the final regulations will look like. We await those results. 
We know that if there are problems, that there are a number of 
remedies that are available: Judicial review, congressional 
review, as this Congress did with the economic regulations. So 
we are not, if you will, stuck with them either. But it is a 
start. A concern, respectfully, is that the delay in addressing 
these issues, although not perfect, would be a step forward.
    With that, I thank you.
    [The statement follows:]

                 Prepared Statement of David S. Fortney

    Mr. Chairman, Members of the Committee. My name is David Fortney 
and I am a co-founder of the law firm Fortney & Scott, LLC in 
Washington, DC. I am testifying today on behalf of a broad group of 
employer associations, employers and other organizations that are 
united by their mission of working for fairness and clarity in overtime 
laws. The coalition represents employers of every size and in every 
state and covers many sectors of the U.S. economy, including small 
business, retail, manufacturing, financial services and insurance, 
education, and other areas. While I am here today on behalf of the 
employer coalition, my testimony also reflects my experience as a 
practicing labor and employment attorney for twenty four years, as well 
as my previous experience at the U.S. Department of Labor, where I 
served as the Deputy Solicitor and Acting Solicitor during the first 
Bush Administration, under Secretaries of Labor Elizabeth Dole and Lynn 
Martin. In my positions at the Labor Department, my responsibilities 
included the interpretation and enforcement of the Fair Labor Standards 
Act of 1938, as amended (``FLSA''), and the regulations implementing 
the FLSA, including the regulations that are the focus of today's 
hearing that provide for exemptions from overtime and minimum wage for 
``white-collar'' jobs, including executive, administrative and 
professional positions. Moreover, I have extensive experience 
counseling employers who seek to comply with the FLSA white-collar 
regulations, and experience responding to the growing number of class 
action claims being filed against employers. I will discuss my 
experience and views on these matters in the context of the proposed 
revisions to the white-collar exemption regulations.

     INTRODUCTION AND OVERVIEW OF THE FLSA WHITE-COLLAR EXEMPTION 
                              REGULATIONS

    The white-collar exemption regulations are dramatically outdated 
and have imposed significant confusion and uncertainty in determining 
who is, and who is not, exempt from the FLSA's minimum wage and 
overtime requirements. The FLSA imposes minimum wage and overtime 
requirements on covered employers, but also, in 29 U.S.C.  213 (a), 
provides certain exemptions from these requirements. Section 213 (a) 
states that the minimum wage and overtime requirements shall not apply 
to any employee employed in a bona fide executive, administrative, or 
professional capacity or in the capacity of outside salesperson. As you 
know, the regulations for implementing these statutory exemptions--
commonly referred to as the ``white-collar'' exemptions--are codified 
at 29 CFR Part 541. The white-collar exemption regulations impose two 
requirements for a job to be classified as exempt. First, the employee 
must be paid on a salary basis and at the required salary level. And, 
second, the job duties must involve manage rial, administrative or 
professional skills.

    THE WHITE-COLLAR EXEMPTION REGULATIONS ARE OUTDATED AND REQUIRE 
                          COMPREHENSIVE REFORM

    The problem that all stakeholders face today, including employers, 
employees and the Labor Department, is in trying to apply the outdated 
regulations to today's workplace. The duties tests were last modified 
in 1949--over 50 years ago, and have remained essentially unchanged 
since that time. The salary basis was added to the regulations in 1954, 
and was last updated in 1975--over 25 years ago. As a result, the long-
outdated requirements create uncertainty and frustrate compliance 
efforts. For example, the ``long test'' for determining whether an 
employee is exempt from the overtime provisions of the statute is 
currently triggered by a weekly salary of only $155, a figure so out-
of-date that it renders the long test meaningless. Virtually every 
salaried employee earns more than $155 per week and is therefore 
potentially outside the overtime protections of the law. Indeed, if an 
employee is paid the minimum wage of $5.15 per hour, which equals $206 
for a 40-hour workweek, the long test is met. Moreover, the alternative 
salary test of $250 for highly compensated exempt employees (the 
``short test'') is nearly met with the minimum wage and, as a practical 
matter, is not a useful tool. The only remaining issue for salary 
typically is whether there have been improper deductions or 
impermissible partial day ``dockings'' of compensation.
    Therefore, as a practical matter, because of the general 
obsolescence of the salary test, typically the evaluation of whether 
jobs properly are classified as exempt primarily turns on the duties 
requirements. The duties tests, however, have proven to be a vast 
``gray'' area, because the current regulations are too vague. As a 
result, both employers and the Labor Department are faced with 
inconsistent results that often are no more certain than the next court 
decision. In particular, the administrative exemption's requirements, 
which require exempt employees to perform ``staff'' rather than 
production or sales work, and exercise ``discretion and independent 
judgment'' on important matters in managing the employer's general 
business operations, are particularly difficult to apply. For example, 
a court ruled that a project superintendent, who supervised three large 
construction projects for a construction management company, earning an 
annual salary of $90,000, was not an exempt administrative employee. 
The court reasoned that under the staff versus production dichotomy, 
the employee ``produced'' construction project management and thus was 
a nonexempt production employee. See Carpenter v. R.M. Shoemaker Co., 
2002 WL 987990, 7 Wage & Hour Cas. 2d (BNA) 1457 (E.D. Pa. May 6, 
2002). Similarly, the professional exemption was found not to apply to 
``network communications specialists'' who had advanced physics, 
mathematics and engineering degrees and who trained mission control 
personnel, because, the court held, the employees failed to exercise 
discretion, because they used technical manuals and made group 
decisions. Hashop v. Rockwell Space Operations, 867 F. Supp. 1287 (S.D. 
Texas 1994).
    The result is that the current vague regulations result in 
``gotcha'' liabilities and unintentional noncompliance. The significant 
increase in employment claims is a clear indication that the current 
rules are not working--why should we have escalating claims when the 
rules have not changed? Wage and hour class actions now are the most 
frequently filed class action claims employers face, and individual 
wage and hour lawsuits doubled in 2002.
    In my experience, the explanation for these unacceptable 
developments is simple--plaintiffs' lawyers have discovered that the 
outdated regulations provide an excellent basis for filing ``gotcha'' 
claims that primarily benefit the attorneys. Moreover, under the 
current outdated rules, employers often are required to secure 
expensive legal guidance on what is required to secure compliance, and 
even then the best that typically can be provided is somewhat guarded 
advice. As one of our clients once asked me, why should extensive good 
faith compliance efforts have the same feel as spinning a roulette 
wheel?
    Everyone, perhaps with the exception of a small cadre of 
plaintiffs' lawyers who are making huge fees in filing these wage and 
hour class action lawsuits, agrees that the outdated regulations 
require revision, because the rules are vague and ambiguous and 
difficult to apply to many positions in today's workplace. The U.S. 
General Accounting Office (``GAO'') review of regulations in 1999 
recommended that the Secretary of Labor comprehensively review and make 
the necessary changes to the white-collar regulations to better meet 
the needs of both employers and employees in the modern workplace and 
to anticipate future workplace trends. The GAO's recommendations 
recognized the problems in achieving compliance. My personal experience 
has been that it often is difficult to advise employers because the 
rules are not clear. Additionally, the judicial interpretations vary 
and compound the problems in securing compliance. Moreover, it is my 
belief, based on my personal experience, that these same factors pose 
challenges to the Labor Department in securing uniform and consistent 
enforcement.

 CONGRESS SHOULD ALLOW DOL TO COMPLETE THE PENDING REGULATORY PROCESS 
                         AND ISSUE A FINAL RULE

    Delaying or preventing the issuance of a final rule, based on 
concerns about how the final rule might turn out improperly preempts 
the regulatory process provided by the FLSA. In the FLSA, Congress 
quite consciously left undefined those broad terms describing which 
jobs were exempt (``any employee employed in a bona fide executive, 
administrative, or professional capacity'') and explicitly placed on 
the Secretary of Labor the duty to ``define and delimit'' the terms 
used in the exemptions. Congress also explicitly provided that the 
Secretary's actions in defining and delimiting the exemptions are 
subject to the provisions of the Administrative Procedure Act.
    The rulemaking process has been respected and followed by the U.S. 
Department of Labor in a lawful, prudent and orderly manner. The 
Department received nearly 80,000 comments during the three-month 
comment period, addressing all aspects of the proposed rule--pro and 
con. Included in the comments filed were comments by many employers, 
and although there were differences among employers' comments on many 
aspects, employers did generally support the Labor Department's efforts 
to update the exemption regulations. At this point, everyone awaits the 
issuance of the final regulations.
    Regardless of whether one agrees or disagrees with particular 
provisions of the Secretary's proposed regulations, and regardless of 
where one will stand with regard to specific features of the as yet 
unknown final regulations to be enacted, the Secretary has undertaken 
to do exactly that which Congress has prescribed and GAO has 
recommended, and she has followed the procedures dictated by the APA. 
Congress should permit the Secretary to complete that process.
    Faced with such clearly outdated regulations and with reports by 
the General Accounting Office and others urging an overhaul of the 
regulations, the current Secretary of Labor undertook the long 
neglected task of providing regulations that were meaningful for the 
modern workforce. This was a task that earlier Administrations, both 
Democratic and Republican, had considered but shied away from, 
undoubtedly over concern that revising these regulations would be 
controversial.
    During 2002, the Department initially met with over 40 interest 
groups, representing employers and employees, to learn of their 
suggestions and concerns. On March 31, 2003 the Department of Labor 
published proposed regulations in the Federal Register, and requested 
comments on the proposal. See 68 Fed Reg 15560-15597 (March 31, 2003). 
In the preamble to the proposed regulations, the Department explained 
the existing regulations and the changes proposed, and provided 
comparisons between the two. In accordance with Executive Order 12866, 
the proposal included a Preliminary Regulatory Impact Analysis, and a 
regulatory flexibility analysis assessing the impact of the proposed 
regulations on small businesses, as required by the Regulatory 
Flexibility Act. The public had an opportunity to comment on these 
economic analyses, as well as on the substantive provisions of the 
proposed regulations.
    The rulemaking record remained open for 90 days. When it closed on 
June 30, 2003, the Department of Labor had received almost 80,000 
comments. As the Department has testified, it is in the process of 
reviewing those comments and determining what changes it should make to 
the proposed regulations and the economic analyses, based on the 
comments received.
    This is the rulemaking process contemplated by the Fair Labor 
Standards Act and the APA, and it is a process that is fair and orderly 
and that should be respected by this Committee. The Secretary should be 
applauded for undertaking such a meaningful revision, and the 
Department should be allowed to conclude what it has started by issuing 
a final regulation. Of course, once the final regulations are issued, 
there will be ample opportunity for review. Under the Congressional 
Review Act, the Department of Labor will be required to submit the 
final regulations to Congress and the regulations will not take effect 
before Congress has had an opportunity for review, and if it chooses, 
Congress may, of course, pass a joint resolution of disapproval. This 
is the very same procedure Congress invoked in 2001 to overturn the 
Department of Labor's newly promulgated ergonomics standard.
    Even in the absence of Congressional review, the final regulations 
will undoubtedly be the subject of challenges in the courts. Congress 
should not deprive interested parties of the opportunity to seek 
judicial review.

THE PROPOSED RULE WILL FOSTER COMPLIANCE, AND SHOULD REDUCE LITIGATION 
                                 CLAIMS

    Although the purpose of my testimony is not to comment on all the 
details of the proposed changes--the volume of comments filed with the 
Labor Department have provided a full and comprehensive analysis of 
nearly every facet of the proposed rules--there are some general points 
that bear recognition. The proposed regulations--intended to simplify 
and clarify--are a significant step forward to ensure that the white 
collar exemption regulations can be understood and enforced in the 21st 
Century workplace, thereby avoiding the plethora of litigation that 
currently plagues employers.
    The proposed regulations include significant improvements. 
Generally, if included in the final regulations, the streamlined tests 
for executive, administrative and professional exemptions should make 
compliance easier and provide greater certainty. This result directly 
benefits all stakeholders--employers, employees and the Labor 
Department. Greater compliance should directly result in lower 
litigation claims and resulting exposures.
    Although the higher standard salary test of $425 per week ($22,100 
per year), which is a 170 percent increase, may impose a hardship on 
some sectors of the economy including small businesses and more rural 
locations, we recognize that these considerations are balanced to some 
degree by the benefit of gaining greater clarity under the new 
regulations. Under the proposed $425 salary test, there at least would 
be a return to the original criteria that required a salary of a 
sufficient amount in order for a position to be eligible for 
classification as exempt.
    Many have asked what will be the effects if the proposed 
regulations are enacted. The only employees who will be affected, if 
the proposed salary level becomes final, are those who will start to 
receive overtime. The estimates by the Labor Department are that 1.3 
million workers now exempt would gain overtime protection by the new 
$425 per week ($22,100 per year) requirement. These are employees who 
today are performing jobs with exempt duties but who are being paid 
below the $425 per week salary requirement.
    The proposed regulations also retain and clarify the two long-
standing requirements for classifying employees as exempt--the duties 
and salary tests. There are, however, new duties tests for white-collar 
exemptions. Some of the proposed changes result in more demanding 
requirements. For example, under the executive duties test of the 
proposed regulations, employees are required to (1) have a primary duty 
of managing the entire enterprise or a department or subdivision, (2) 
direct the work of two or more other workers and (3) to have hiring/
firing authority or substantial influence over these decisions. Under 
the proposed regulations, the administrative duties are also modified 
and require an employee to hold a ``position of responsibility'' 
instead of requiring the exercise of ``discretion and independent 
judgment.'' The professional duties test under the current regulations 
is retained, but the proposed regulation clarifies when education and 
experience qualify an employee as a professional. The current 
discretion test is eliminated from the professional exemption.
    The proposed regulations retain the salary basis requirement that 
employees be paid a fixed, predetermined salary for each week in which 
the employee performs work. The liability for improper deductions or 
``dockings'' is reasonably limited to the employees who are directly 
affected.
    The proposed regulations add new eligibility for exempting highly 
compensated workers with an annual salary of at least $65,000, if they 
perform office or non-manual work and meet one of the duties of either 
an exempt executive, administrative or professional employee. The 
payment of a salary of $65,000 or more does not meet the requirements 
for the highly compensated worker, unless the duties requirements also 
are satisfied.

  MISINFORMATION AND CONFUSION RELATING TO THE PROPOSED WHITE-COLLAR 
                         EXEMPTION REGULATIONS

    There also has been a significant amount of confusion resulting 
from inaccurate information and news stories relating to the proposed 
regulations, and I would like to briefly address some of those matters. 
The most recent example is the widely circulated Associated Press story 
alleging that the Labor Department has counseled employers to 
circumvent the proposed rules in the rulemaking. Nothing could be 
further from the truth.
    Let me set the record straight on this point. The Department of 
Labor's March 2003 notice of the proposed rule summarized the lawful 
alternatives for meeting the salary requirements. The proposed 
regulations do not change the current alternatives for meeting the 
salary requirements. See 68 Fed Reg 15576. As required by Executive 
Order 12866 (signed by President Clinton in 1993), the Labor Department 
prepared a Preliminary Regulatory Impact Analysis and published a 
summary of that analysis with the proposed regulations. As it was 
required to do, the Labor Department analyzed the costs of complying 
with the current regulations and the proposed regulations and prepared 
a cost comparison of the two. This necessarily required the Department 
to identify the means by which employers could comply with the current 
and proposed regulations, and the Labor Department quite appropriately 
identified employers' options for structuring and paying their 
workforces in order to comply with the regulations. By no stretch of 
the imagination did the Department advise employers on how to avoid 
paying legally required overtime.
    Another common misconception is that the proposed regulations will 
result in a ``take away'' of overtime on a widespread basis. Again, 
this is not the case. Although we can allow economists to project the 
impact of the proposed regulations, the only changes that are 
guaranteed are that 1.3 million workers gain overtime protection 
because of the new $425 per week requirement.
    Many employees' representatives have raised false alarms, claiming 
that their exempt/non-exempt status will be changed by the proposed 
regulations. Take nurses, for example. Registered nurses currently can 
be exempt, even though the overwhelming majority receives overtime, and 
that classification remains unchanged. Generally Licensed Practicing 
Nurses currently are not exempt, and their status would not change. 
Police Officers and Firefighters generally are not exempt today, and 
the same result would be reached under the proposed regulations. 
Unionized employees will continue to receive overtime as provided by 
their collective bargaining agreements. Again, there is no change from 
the current regulations.

                               CONCLUSION

    Where do we stand today? The Department of Labor is in the last 
stage of a drawn out and long overdue rulemaking process. With some 
liberties to a well-known expression, let me close by noting that 
rulemaking delayed clearly is justice denied. The current regulations 
are not serving anyone's interests except those of class action 
lawyers. Employers and all stakeholders will benefit from rules that 
can be understood and complied with. If the Labor Department improperly 
changes the regulations, then there are ample avenues of redress, 
including judicial review and the Congressional Review Act, which can 
prevent the regulations from taking effect. At this point, I 
respectfully submit that Congress should not prejudge the outcome. 
Instead, Congress should allow the rulemaking process to conclude and 
then, if necessary, debate whether the rules are proper.
    Thank you for your time. I will be happy to answer any questions 
you may have.

    Senator Specter. Thank you, Mr. Fortney.

STATEMENT OF DR. JARED BERNSTEIN, Ph.D., CHIEF 
            ECONOMIST, ECONOMIC POLICY INSTITUTE

    Senator Specter. We turn now to Mr. Jared Bernstein, Senior 
Economist at the Economic Policy Institute, served as Deputy 
Chief Economist at the U.S. Department of Labor from 1995 to 
1996, a Ph.D. in social welfare from Columbia University.
    Thank you for joining us, Mr. Bernstein, and the floor is 
yours.
    Dr. Bernstein. Mr. Chairman, it is a great privilege to 
testify before you today. And I thank you for the opportunity 
to be here.
    Surely one of the most critical issues before this 
committee is an accurate assessment of how many workers would 
stand to lose overtime protection if these new rules are 
enacted. And that question has already come up numerous times 
today. As is well known, the Department of Labor's own analysis 
finds that only 644,000 workers would lose that right. Our 
analysis, as has been cited here today, at the Economic Policy 
Institute, however, finds that 8 million employees stand to 
lose the right to overtime protection.
    Now both sides agree that some of those currently covered 
will be hurt by the new rule. Yet the difference between the 
two estimates is clearly large enough to totally change the way 
one views the proposal. The point of my testimony is 
straightforward. Once we adjust the Department's estimate for a 
fundamental omission, our estimates are far more similar than 
they appear. And the relevant numbers are also on this chart 
that we provide on the easel over there.
    Let me cut right to the central point. In order to 
determine who would lose overtime protection under the 
proposal, we must consider all those whose jobs are covered 
under current law. Whether or not these employees actually work 
overtime is irrelevant. What matters is that if they do so, 
they must be paid time and a half. By dint of their coverage, 
they are covered by the Fair Labor Standards Act in exactly the 
way the law intended. The employer faces a financial cost 
associated with overtime.
    The fact that workers could lose this protection, that 
covered workers could lose this protection, is what matters in 
any policy analysis of this proposal's impact. Yet when they 
looked at who would lose coverage, the DOL looked not at the 
full group of covered workers but at a small subset, the 10 
million currently working overtime. That ignores about 70 
million workers placed at risk by the proposed rule.
    Now the Department's apparent assumption is that employers 
would only reclassify those workers who are already costing 
them time and a half. This means they fail to consider a 
significant cost incentive created by their proposal. The cost 
to an employer of an hour of overtime by a reclassified worker 
falls from time and a half to zero. Thus, we have to adjust the 
Department's estimate for this omission and figure out how many 
covered workers would lose coverage regardless of whether they 
are currently working overtime.
    As was described in my written testimony, when we make such 
an adjustment, the number of hourly workers who lose overtime 
protection in the DOL's impact analysis, not ours, in that of 
the DOL, goes from 644,000 to just under 5 million. When it 
comes to salaried workers, the DOL and EPI's estimates were 
never that far apart. Quoting from the Department's own 
analysis, ``An additional 1.5 to 2.7 million employees will be 
more readily identified as exempt from the overtime 
requirements of the FLSA because the updated duty test will 
replace the current duties test in determining their 
exemption.''
    So this compares to our estimate that 2.5 million salary 
workers would likely to be reclassified. Okay. Put this 
altogether. Take the mid-range of the Department's own estimate 
for salaried workers, the one I just mentioned, that is 2.1 
million, add this number to the adjusted hourly worker count, 
4.8 million, and the DOL estimate of those at risk for losing 
coverage is not the widely publicized value of 644,000, it is 
6.9 million.
    Now the Department has frequently asserted that their sole 
motivation for the new rules is to clarify and update current 
standards. Well, how then could so many workers end up losing 
their protected status under current law? The answer is that 
the language changes in the new rules vastly broaden the 
criteria for exemptions.
    To stay within my allotted time, I will not give specific 
examples of occupations likely to be reclassified due to the 
broader language in the new proposal. But I have many such 
examples and would be happy to share them during a Q&A, if that 
would be helpful.
    Thus far, I have focused my critique on the Department's 
under-count of those who stand to lose overtime protection. But 
the DOL also argues that 1.3 million workers would gain 
coverage under the new rule. However, as detailed in my written 
testimony, close to half of those workers are blue collar and 
manual workers. And they are already covered. They gain nothing 
new under the proposal. The Department cannot claim credit for 
covering workers who are already protected under current law.

                           PREPARED STATEMENT

    In conclusion, we submit that an accurate answer to the 
question of how many workers stand to lose overtime protection 
from the new rule depends on examining the proposal's impact on 
all covered workers. Once so adjusted, the Department's 
estimate is that 4.8 million hourly workers could lose 
protection. Add that to their finding that about 2 million 
salary workers will be reclassified exempt. And they find that 
close to 7 million could lose coverage.
    Now our estimate is larger still. But under either 
analysis, the potential loss of compensation and income to 
America's working families is far more dramatic than the 
Department's published analysis has suggested throughout this 
debate.
    Thank you.
    [The statement follows:]

               Prepared Statement of Dr. Jared Bernstein

                              INTRODUCTION

    Mr. Chairman, it is a great privilege to testify before this 
committee, and I and my colleagues at the Economic Policy Institute 
(EPI) thank you and your staff for the opportunity to be here.
    As the committee is well aware, in March of 2003 the Department of 
Labor (DOL) proposed major changes to the rules governing the treatment 
of overtime in the Fair Labor Standards Act (FLSA). Since the proposal 
was introduced, a rousing debate has ensued regarding the number of 
workers predicted to lose their current coverage under the FLSA such 
that they would no longer be compensated at a rate of time-and-a-half 
for each hour of overtime worked. A correct answer to this question is 
obviously a critical piece of information, perhaps the most critical 
piece for those entrusted with the responsibility of evaluating the 
potential impact of the proposal.
    As is well known to those who have followed this debate, the 
Department of Labor's own analysis finds that only 644,000 workers 
would lose the right to overtime pay. EPI's analysis, however, finds 
that this fate would befall 8 million employees who benefit from 
overtime protection under current law.
    Clearly, these are very different estimates of the new rule's 
impact. And neither estimate is benign--all sides agree that some of 
those who are currently covered will be made exempt and lose current 
protections. But the difference between the two estimates is large 
enough to totally change the way one views the proposed changes.
    Much of what follows shows that these two estimates are far less 
different in some ways than they might initially appear. Once we adjust 
the Department's estimate for a fundamental flaw--that is, its sole 
focus on those working overtime in the single survey week examined 
instead of the full set of hourly workers who are covered by overtime 
protection--and add in its less-publicized estimate of 1.5 to 2.7 
million workers exempted by the new duties tests, then the vast 
difference between the two impact analyses disappears. As shown in the 
accompanying chart, when we correct for these omissions, the DOL 
results reveal that about 7 million employees would lose overtime 
coverage under the new rules, which is quite close to the 8 million we 
predict would lose such protection.

         EXPLAINING THE DIFFERENCE BETWEEN THE IMPACT ESTIMATES

    Thankfully, it is not hard to explain the main source of the 
different estimates. In trying to determine who would lose overtime 
protections, the Department of Labor only considered persons who are 
currently working overtime. While about 90 million hourly workers are 
currently covered by the FLSA's overtime regulations and thus are 
eligible for time-and-a-half pay when they work overtime, the DOL's 
widely published number--the number they have set forth in front of 
this committee--is based only on the 11 to 12 million who were actually 
paid for overtime at the time of the survey.
    A moment's reflection should reveal that this is a major oversight, 
one which results in misleading policy analysis. A fundamental rule of 
impact analysis is that you must look at the whole group that is 
potentially affected by a proposed policy, in this case, the covered 
workforce. The thrust of our analysis is that if this rule becomes law, 
the rules that determine overtime protection for each one of these 90 
million workers will change. Thus, a serious effort to determine the 
impact must consider all covered workers, not solely those actively 
working overtime at a given point in time.
    If the rule becomes law, every employer will be faced with a 
significantly altered set of incentives regarding the cost of overtime, 
and this fact also underscores the need to look beyond the 14 percent 
of hourly workers being paid for overtime at the time the survey was 
conducted. By paying them 1.5 times their base pay for overtime, these 
employers are sending a clear market signal that this is a worthwhile 
expenditure. But if we lower the price of overtime--and that, at its 
heart, is the impact of this proposed rule change--we gut a critical 
disincentive built into the FLSA, one that has worked for decades to 
ensure that employers pay a premium for having covered workers work 
beyond 40 weekly hours.
    Take away that premium--the extra 50 percent that non-exempt 
workers must receive for overtime--and some employers will have both 
opportunity and reason to reclassify covered workers as exempt and 
assigning them unpaid overtime hours. No credible policy analysis would 
ignore such a huge change in cost incentives facing employers, but that 
is precisely what the DOL's impact analysis does.
    Another way to view the difference between the estimates is to note 
that EPI examines changes in the number of workers covered by the FLSA 
while the DOL examines changes in the number of workers who received 
overtime pay during the week when the survey was conducted. The EPI 
approach, which examines the erosion of coverage, is more appropriate 
because the rule change can lead to significant earnings losses among 
workers who lose coverage even though they happened not to work any 
overtime in the survey week. For one, those who did not work overtime 
when the survey was taken may well do so in some other week. Second, 
because of the removal of a major disincentive for employer's to 
``purchase'' more overtime, there will be workers who currently aren't 
asked to work overtime but who, once they lose coverage, will be asked 
to do so without additional pay.
    To reiterate, by ignoring the impact of the proposed rule on 
millions of workers who are currently protected by FLSA overtime 
regulations (even when they are not currently working overtime), the 
DOL's estimate is not credible and provides a misleading view of the 
impact of the change.
    In fact, if we simply extrapolate from their estimate based on this 
critique, we find that the two estimates are not all that far apart. 
The ratio of hourly workers with overtime protection to those actively 
working overtime is about 7.5. This ratio is the factor by which the 
Department underestimated the affected group that ought to have been 
considered in their impact study. Multiply this factor by their 
644,000--the number of those working overtime who would become 
exempted--and the result is 4.8 million, close to our estimate of 5.5 
million hourly workers who would lose protection under the new rules. 
This result is shown in the third bar in the ``Hourly'' panel of the 
accompanying chart.
    Turning to the impact of the rule change on salaried workers, EPI's 
and DOL's approaches were similar (as were their findings). In this 
part of the DOL's impact analysis, it examines the impact of changes in 
the duties tests on how salaried employees are classified, which is 
very much akin to our own approach, and is historically the way this 
work has been undertaken. The following statement appears on page 15580 
of the preamble to the rule:

    ``The PRIA [the DOL's impact analysis] indicates an additional 1.5 
million to 2.7 million employees will be more readily identified as 
exempt from the overtime requirements of the FLSA because the updated 
duties tests will replace the current duties tests in determining their 
exemption.''

    The preamble states that, based on their current duties, these 
workers are unlikely to pass the existing exemption tests and are thus 
covered by current overtime rules. However, due to the very changes in 
the proposed rule that we examined in our analysis, the Department 
concludes that these workers would pass the new tests, and would be 
classified as exempt from overtime protection. Note that EPI found that 
2.5 million salaried workers would become exempt as a result of the 
change in the duties test, slightly below DOL's higher estimate (see 
the ``Salaried'' panel of the accompanying chart). It is unclear why an 
estimate of this magnitude--that approximately 2 million workers could 
lose overtime protection from the new rule--was given such little 
attention by the DOL in its presentation of its findings. Instead, the 
DOL chose to focus on the exemption of 644,000 hourly workers.

            WILL 1.3 MILLION EMPLOYEES REALLY GAIN COVERAGE?

    Thus far we have focused solely on those who will lose coverage 
under the proposed rule. The Department of Labor also claims that their 
rule would cover an additional 1.3 million who are not currently 
eligible for overtime pay. The agency argues that because the proposed 
rule raises the coverage threshold from $155 to $425 per week (or 
$22,100 per year), 1.3 million salaried workers will gain overtime 
protection that they currently lack. But here again the DOL's analysis 
is flawed, leading in this case to an overestimate of the number who 
would gain coverage under the new rules.
    The DOL made two critical mistakes in this estimate. First, its 1.3 
million estimate includes 600,000 workers who are already covered under 
current law. These workers are not in white-collar occupations and thus 
cannot be exempted on the basis of their duties (their occupations are 
farming, forestry and fishing, transportation and material moving, 
handlers, equipment cleaners, helpers, laborers, machine operators, 
assemblers and inspectors, none of which could be exempted as 
executive, administrative, or professional employees).
    The Department mistakenly assumed that, since these 600,000 workers 
have earnings above the current minimum salary test of $155/week, they 
would gain protection under the new rule that lifts that minimum. But, 
in fact, the DOL is counting them as becoming newly covered when they 
already are covered under current rules.
    This leaves 700,000 legitimate salaried, low-income, white-collar 
workers earning less than $22,100 per year (these include executive, 
administrative, managerial, and professional employees, as well as 
technicians and related support workers, sales, administrative support, 
and clerical employees). Here the Department made a second error. Some 
of these workers could, indeed, be helped by the new rule, but since 
DOL admittedly failed to examine their duties, we have no way of 
knowing their coverage status under current law. Surely, it is a 
mistake to assume that all of them, including clerical workers, are 
currently and legitimately classified as bona fide executive, 
administrative, managerial, and professional employees. But that is 
precisely the assumption that DOL makes.
    In fact, according to Acting Solicitor of Labor Howard Radzely, the 
Department of Labor ``concluded that information regarding duties is 
not relevant'' because these workers would all be guaranteed overtime 
under the proposed rule. But again, this represents a fundamental 
analytic flaw: by ignoring their current duties, the DOL fails to make 
a determination of how many of these low-income, white-collar workers 
are currently covered, and thus it cannot determine how many are 
gaining overtime protection under the new higher salary test.

             CONCLUSION: ALIGNING THE DOL AND EPI ESTIMATES

    A good deal of confusion has been generated by the difference 
between EPI's and DOL's claims as to how many workers stand to lose 
overtime protection from the new rule, with our estimate at 8 million 
and theirs at 644,000. In fact, once we appropriately adjust the 
Department of Labor's estimate of hourly workers to account for the 
fact that the Department only looked at a small subset of the affected 
group, and we include their own estimate of 1.5 to 2.7 million salaried 
workers who would be newly exempted due to their changes in the duties 
tests, both the DOL and EPI arrive at similar numbers of affected 
employees. As shown in the accompanying chart, when these factors are 
taken into account, the Administration's own results reveal that about 
7 million employees would lose overtime coverage under the new rules, 
an estimate that is quite similar to the EPI estimate of 8 million 
workers losing such protection.
    By examining only those employees working overtime at a given point 
in time, and ignoring the far larger group of hourly workers who are 
not now overtime workers but could easily be so in the future, the 
Department of Labor generated a misleading undercount of who would be 
hurt by the new rule. This is especially the case when we consider that 
the proposed rule change has the potential to eliminate the cost 
disincentive currently in place to discourage employers from using and 
abusing overtime. Such a change is likely to lead to the 
reclassification of millions of workers from their current nonexempt 
status to exempt from overtime protection. At that point, they will no 
longer be compensated for overtime, violating the word and spirit of 
the FLSA. 




    Senator Specter. Thank you very much, Dr. Bernstein.

STATEMENT OF DR. RONALD BIRD, Ph.D., CHIEF ECONOMIST, 
            EMPLOYMENT POLICY FOUNDATION

    Senator Specter. We now turn to Dr. Ronald Bird, chief 
economist of the Employment Policy Foundation. Prior to his 
current position, Dr. Bird was the chief economist for DynCorp, 
has a Ph.D. in economics from the University of North Carolina 
at Chapel Hill.
    Thank you for joining us, Dr. Bird. And we look forward to 
your testimony.
    Dr. Bird. Thank you, Mr. Chairman. Good afternoon.
    My name is Ron Bird. I am chief economist for the 
Employment Policy Foundation. I am honored to testify before 
the committee this morning, or this afternoon, actually, on the 
issue of the Department of Labor's proposed revision of the 
Fair Labor Standards Act's white collar regulations. You have a 
printed copy of my full statement, which I will briefly 
summarize under three main headings.
    First, the need for the FLSA rules revision, why this 
revision is long overdue. Second, the impact of the proposed 
revision, why the rule will clearly benefit millions of 
employees, and why claims of harm are unreliable and 
speculative. And third, I will address recent allegations 
regarding the intent of the Department of Labor's impact 
analysis, why claims that DOL is providing guidance to 
employers is just plain wrong.
    First with regard to need, it has been over 50 years since 
the core definitions were revised and 25 since these salary 
thresholds were revised. In that time, substantial shifts have 
occurred in the workplace and in the economy as a whole because 
of the changes in job structure, in duties, in technology. 
Applying regulations largely written before the creation of the 
first transistor requires a more intensive effort for every 
FLSA status determination. And employers may be having to make 
40 million of these a year, these determinations.
    Second, regarding impact, when we cut through the rhetoric 
about impact of rule changes, one fact is indisputable. Workers 
who today earn between $155 a week and $425 a week will go from 
today's uncertainty about their status to absolute certainty 
that they are covered. A minute ago, Mr. Trumka made a 
reference to the need for definitively saying that people are 
covered. This aspect of the proposal definitively says that 
people who make between $155 and $425 are covered and entitled 
to overtime, and it cannot be taken away.
    Today, the coverage of workers who make between $155 and 
$425 is dependent on their job duties, on what their job 
description is. Whatever status they have today, be it exempt 
or nonexempt, could change. Raising the salary test threshold 
to $425 will make their status as covered and entitled absolute 
and certain.
    DOL estimated that 1.3 million employees who work full time 
and are currently paid on a salary basis, who are presumed to 
have currently exempt duties, would be directly affected, would 
move from exempt to nonexempt status. But you also need to be 
aware that there are currently 36.4 million employees 
altogether who earn between $155 and $425 per week, including 
salaried and hourly, part time and full time. For all of these, 
the right to overtime pay will be made absolute, will be made, 
as Mr. Trumka said, definitive. For all of these, the right to 
overtime, if this proposal is adopted, cannot be taken away.
    Now, as to claims that 8 million currently nonexempt 
employees would pass the revised duties test and be 
reclassified who are not exempt today, there is an element here 
in this analysis that is inherently speculative. They are based 
on subjective guesses about duties that underlie the job titles 
that we do know in the available data. The available economic 
data does not provide the facts that we need as analysts to 
precisely and with certainty, with statistical certainty, 
determine whether an individual performs duties considered 
exempt. Available data only counts job duties, the job titles. 
The duties behind these titles are uncertain.
    Even if someone can be classified as exempt, however--and 
this is the big leap that is being made in a lot of the 
discussion--there is, in fact, no assurance that they will be 
changed from hourly or salaried status. Millions of people 
today are paid on an hourly basis and get overtime, not because 
the FLSA requires it, but because that arrangement works best 
for them and their employer.
    Third--and I see my time has expired, and I will wrap up 
very quickly here--regarding the claims about guidance, if DOL 
wanted to give advice to employers as to how to evade overtime, 
I think they could have done better than hide it 40 pages deep 
inside a technical document that only economists are apt to 
read.

                           PREPARED STATEMENT

    Fourth, no scenario of the ones that DOL presented, none of 
those scenarios actually result in lower payroll cost for the 
employers. Three of the four alternatives that DOL examined 
result in higher wages for employees and higher payroll costs. 
The fourth reflects zero change, but it is, in fact, the 
Roosevelt administration's original purpose in proposing an 
overtime premium, to spread work. The assumptions DOL made are 
not guidance. Rather they are the kind of thorough analysis 
that you expect in any good regulatory impact statement.
    Thank you. And I will be pleased to answer questions.
    [The statement follows:]

                 Prepared Statement of Dr. Ronald Bird

    I am Ronald Bird, Chief Economist for the Employment Policy 
Foundation (EPF). EPF is a research and educational foundation 
established in 1983 to provide policy makers and the public with the 
highest quality economic analysis and commentary on U.S. employment 
policies. On behalf of EPF, I appreciate this opportunity to provide 
information and analysis regarding the need for and impact of proposed 
revisions to the Department of Labor's white collar regulations under 
the Fair Labor Standards Act (FLSA). The proposal in question is the 
first comprehensive attempt in fifty years to update the terms and 
definitions of these regulations (29 CFR Part 541) that define the 
criteria to be considered an ``executive, administrative or 
professional'' employee exempt from overtime. For the earnings 
thresholds that affect coverage status, it has been over 25 years since 
the last revision.

                               BACKGROUND

    The Fair Labor Standards Act generally requires that employers pay 
workers at mutually agreed hourly rates above the statutory minimum, 
keep records of weekly hours, and, in the event that hours exceed 40 
during any week, pay a fifty percent overtime premium for the excess 
hours worked. The overtime provisions of the FLSA do not apply 
universally. The 1938 law recognized that the hourly pay approach did 
not fit the realities of work for certain executive, professional or 
administrative office jobs.
    The law directed the Secretary of Labor to issue regulations to 
define the types of jobs and circumstances that would qualify for 
exemption from the hourly pay, 40 hour week, and overtime premium 
requirements. By giving the duty of defining specific details of terms 
and conditions for exemption to the Department of Labor, Congress 
recognized that circumstances meriting exemption were apt to change 
over time as the economy evolved. Delegating the task of setting and 
revising the thresholds and definitions to DOL suggests that the 
Congressional authors may have anticipated that adjustments would need 
to be made more frequently than would be convenient if Congress kept 
the responsibility to itself.
    Since the 1930s, DOL's FLSA regulations have required that exempt 
managers, professionals, and administrative office workers must be paid 
on a fixed weekly or annual salary basis regardless of hours worked. 
Since 1975, the rules have required that the salary be at least $8,060 
per year ($155 per week) relative to the basic ``long-test'' duties 
list, and at least $13,000 per year ($250 per week) relative to the 
less stringent ``short-test'' list of duties.

           COMPARISON OF SALARY BASIS AND HOURLY BASIS OF PAY

    The salary basis test is an important element of the rule that has 
sometimes been overlooked in discussions of the current regulatory 
proposals. The proposed rule is not just about the simple question of 
whether or not someone is paid an overtime premium. The FLSA rules 
affect the basic principles by which wages are negotiated and 
calculated. The distinction between those covered by FLSA overtime 
premium rules and those exempt from those rules involves a fundamental 
difference in way in which compensation is negotiated and paid.
    Rules for Exempt Employees.--Because the FLSA rules require that 
exempt employees be paid a fixed salary that does not vary with weekly 
hours worked, any deviation from the fixed weekly wage standard by pay 
docking may void the exempt status of the employee. This means that the 
exempt employee has the assurance of a predictable paycheck regardless 
of fluctuations in the employer's labor needs. The employer and 
employee are relieved of responsibilities to keep records of hours 
worked.
    In addition, the sociological implications of the time-clock in the 
workplace are interesting. I recall how pleased my grandfather was the 
day his status changed to exempt: What seemed to matter most to him was 
not the small increase in pay or the altered title but the fact of not 
having to ``punch the clock.'' Exempt status carries with it a certain 
degree of autonomy in the workplace that many individuals value.
    Being exempt also means that the employee knows that working hours 
may fluctuate from week to week, and the employee's salary demand 
reflects the employee's expectations about both the expected average 
hours and the degree of fluctuation. In a well-functioning, competitive 
labor market, salaries will adjust to reflect the reality of expected 
average hours of work and weekly variance in hours. The disadvantage to 
the employee arises when the actual hours of work exceed the employee's 
expectation.
    Sometimes discussions about FLSA status imply this disadvantage 
when it is said that the exempt worker is not ``protected'' from 
demands for extra hours or is not paid for the full amount of time 
committed to the job. However, this risk is tempered by the mobility of 
the employee in the labor market. Having education and skills that are 
in demand and being in a labor market where employment is growing and 
unemployment relatively low are important considerations that also 
protect employees from such risks. The main disadvantage is that the 
salaried employee may have to bear the transactions costs of re-
negotiation with the current employer or of seeking other employment to 
redress the balance between his or her time preferences and wages.
    Rules for Nonexempt Employees.--For employees who are not exempt 
from the FLSA rules, the law establishes an entirely different scheme 
for wage negotiations and pay calculations. Wages must be based on a 
basic hourly wage rate (``straight-time'' rate) that applies to any 
hours worked through 40 per week. The hourly wage rate rather than the 
sum of total earnings becomes the focus of labor market negotiation and 
transaction. Records have to be kept and clocks punched. Weekly hours 
over 40 are paid at one-and a-half times the basic rate. This 
arrangement has both advantages and disadvantages. The advantage is 
that the employee has less need to worry about fluctuations in required 
hours beyond the 40 limit. Unexpected work demands are either reduced 
or well compensated. The fifty percent overtime premium is designed to 
be large enough to ensure that most employees are compensated more than 
sufficiently for any extra hours required. The disadvantage to the 
employee is the down-side fluctuation in earnings when work is slack, 
and the possibility that the overtime premium may discourage employers 
from offering over 40 hours of work to any one employee--spreading the 
total amount of work over more individual employees.
    It may be useful to remember that protecting employees from 
unexpected demands for extra work hours was not the main policy motive 
behind the FLSA in 1938. The main motive was to increase the total 
number of individuals employed by encouraging employers to constrain 
hours and share the total work hours among a wider number of labor 
market participants. That was an understandable policy goal in the 
context of the stagnant economy and high unemployment of the time.
    The distinction between exempt employees and non-exempt employees 
is not a distinction between being paid fairly and being paid unfairly. 
It is misleading for anyone to imply that exempt employees are working 
unpaid hours as a general rule. The banishment of exploitation and 
oppression from the workplace was one of the great achievements of our 
nation in the 20th century, and there is no basis to fear their return 
in the 21st century. Both exempt and non-exempt workers are paid 
fairly. Indeed, some researchers have found evidence that they are paid 
equivalently--that the earnings of both categories average out to the 
same result over time in terms of total annual earnings and total hours 
worked after controlling for different characteristics of occupations, 
education and experience.

                 THE WORKPLACE HAS CHANGED DRAMATICALLY

    The proposed revisions to the white collar regulations are long 
overdue. The FLSA was enacted in 1938, and the regulatory structure of 
definitions and categories of duties implementing its pay 
classifications have remained essentially unchanged since 1954. The 
minimum salary thresholds for possible exempt status were last changed 
in 1975. The law has changed little, while the workplace it governs has 
changed enormously.
    Today's American workplace is different in structure and more 
complex in its organization than the workplace of 1938. The workplace 
transformation of the past sixty five years reflects at least five 
dimensions of change that affect relevance and applicability of current 
FLSA regulations:
    Industrial Structure.--Before World War II, nearly one-in-three 
(33.6 percent) workers were employed in manufacturing. In contrast, 
today less than one-in-seven (13.6 percent) works in the manufacturing 
sector. The industries that have experienced relative job growth are 
characterized by workplace organizations in which job duties are not as 
narrowly defined as they were in manufacturing in the 1940s. The number 
of jobs where duties do not clearly fit the categories defined by the 
current FLSA rules has increased considerably. Even in manufacturing, 
technological and organizational advances that have raised productivity 
have also blurred the definitional lines of many job responsibilities, 
qualifications, and duties. The result of these changes in industrial 
structure and workplace organization has been to complicate 
significantly and increase the number of FLSA coverage/exemption status 
determination decisions that employers must make each year.
    Occupational Structure.--Managerial and professional jobs have 
increased more than any other category. In 1940, only about one-in-six 
workers (17.9 percent) were employed in managerial or professional 
occupations. Today, nearly one-in-three employees (30.1 percent) work 
in such a position. Under the FLSA, job title alone is not sufficient 
to determine coverage or exemption status. The outdated regulations 
make the process of determining FLSA status for workers in management 
and professional jobs the most complex and time consuming.
    In 1940, nearly one-half (48.2 percent) of all employees worked in 
occupations related directly to manufacturing and production, 
including: laborers, craftspeople, construction workers, assembly-line 
workers and machine operators. Jobs related to manufacturing and manual 
production are now less than one-in-three of all occupations (28.5 
percent). In 1938, determination of coverage status for workers in 
these types of occupations was fairly straight-forward--the job title 
and the job duties were closely aligned and readily associated with 
decision criteria of the FLSA rules. Today, the number of ``easy 
classification'' jobs are fewer, and even among production occupations, 
technological and organizational changes have often blurred the lines 
of distinction on which the current duties tests rely.
    These changes in occupational structure mean that many more jobs 
today than in the past may quality for exemptions defined in the Fair 
Labor Standards Act. The increase in the number of potentially exempt 
jobs makes it much more important today that the regulations 
implementing the exemption concepts be clearer, and easier to apply. 
The larger number of decisions about exemption status that must be made 
in today's workplace magnifies the cost burden of rules that are 
complex and cumbersome.
    Education.--Just as occupational and industrial structure have 
changed, educational attainment of the workforce has also changed 
dramatically. In 1940, it was not uncommon for the typical worker to be 
a high school dropout--over three-quarters (75.1 percent) of all adult 
workers had never finished high school.
    Today, over 58 percent of the population age 16 and older has at 
least some post-secondary (college-level) education. Over 38 percent of 
workers now have a college-level degree. Only 11.9 percent have less 
than a high school diploma. Between 1998 and 2001, the number of jobs 
held by college graduates has increased 5.8 million while employment of 
persons with no more than a high school diploma has declined by 1.7 
million
    The increase in employment of college graduates reflects the 
changing structure of the workplace and increasing need for workers who 
can think critically and analytically, and who can manage and 
coordinate their work activities through complex automated information, 
process control and communication systems. Increased educational 
attainment is also associated with increased diversity of job duties 
and the breakdown of traditional organizational hierarchies in the 
workplace. These education-related changes have blurred the definition 
of professional work as currently defined in the FLSA regulations and 
made the process of determining status of employees under the 
regulations more complex.
    Earnings.--Changing occupational structure and rising educational 
attainment have resulted in a workforce that is significantly better 
paid than 65 years ago. Today, the average full-time, year-round worker 
earns $44,579 and 15.7 percent of full-time, year-round workers earn 
over $65,000. The trend is towards greater numbers of high earning 
workers. Since 1992, the number of full-time, year-round workers 
earning over $65,000 in real 2002 dollar equivalent doubled from 7.4 
million to 14.9 million. The number of full-time, year-round workers 
making less than $65,000 increased 18.7 percent. Growth of jobs paying 
$65,000 or more accounted for 37.5 percent of total employment growth 
for full-time, year-round workers over the past decade.
    Higher earnings have made it more important that status 
determinations under Part 541 be accurate. The confusion and complexity 
associated with the current rules mean that both employees and 
employers have more at stake, and both will benefit by revised rules 
that make the status determination process simpler, easier to 
understand, and less prone to error or disagreement. The possible loss 
of overtime pay to employees who are wrongly classified as exempt is an 
apparent concern, despite statistical evidence that classification has 
little or no impact of average weekly earnings.
    Workplace Dynamics.--Beyond the changes in workplace structure, 
education and earnings, the American workplace has become more dynamic 
in terms of employment growth and turnover. Technological change, 
global competition and changing social norms have resulted in a 
workplace in which new jobs are created and old jobs eliminated at a 
faster rate than ever before. In 1938, most workers expected to stay 
with a single employer for his or her working life. Today, average job 
tenure is under five years and declining.
    The typical worker entering the workforce today can expect to 
change jobs seven times over a working life. Both new jobs created by 
economic growth and replacement job openings created by job-shift 
turnover and retirement result in decisions that employers must make 
about FLSA coverage/exemption status. According to data from the Bureau 
of Labor Statistic's Job Openings and Turnover Survey, private sector 
employers made 45.6 million hiring decisions in 2002, despite a total 
employment level that was essentially unchanged. The 45.6 million 
hiring actions reflects replacement of employees who lost jobs, changed 
jobs or retired. This 42.2 percent turnover rate indicates the flux of 
job creation, i.e., the job elimination and job switching that 
constantly characterizes our dynamic labor market.
    Each of these hiring actions involves some degree of decision-
making regarding FLSA coverage/exemption status of the job. For 
replacement positions, the decision may be limited to a review of the 
existing determination to confirm whether it is still appropriate. For 
newly created positions, the decision making process to determine FLSA 
coverage/exemption status is more lengthy. Net job growth (1.6 million 
annually) is a minimal estimate of new job positions created. Because 
of changing job duties, expansion and contraction of employment within 
industries, and offsetting job eliminations and creations, the number 
of new positions that require more intensive effort for determination 
of coverage/exemption status may include a sizable number of the 45.6 
million hiring actions per year previously identified as 
``replacement'' hires.
    Increased Regulatory Burden Now and in the Future.--Each of the 
categories of change discussed above reflects on-going and accelerating 
forces affecting the American workplace. These changes have already 
increased the regulatory burden under the existing Part 541 rules to a 
significant degree. The higher regulatory burden has already raised 
costs and eroded competitive advantages. The effect the regulatory 
burden has been especially hard for manufacturing and other production 
workers who have seen their jobs lost to foreign competition. The 
increased burden of the regulation has harmed some of the very workers 
that the original law was designed to protect.
    However, the need for revisions to Part 541 does not rest solely on 
the history of workplace change and increased burden. The changes 
described here are on-going and accelerating. The impacts seen thus far 
may be dwarfed by the adverse impacts that will accumulate in the 
future if action to modernize the rules is delayed. The greatest 
justification for changing the existing rules is avoidance of adverse 
economic impacts that will result in the future if nothing is done now.
    The complexity and ambiguity of the existing rule is evidenced by 
the amount of disagreement and litigation it generates. For the past 
two years, FLSA issues--many related to this rule-have been the leading 
employment-related civil action in federal courts.
    The DOL proposal is a revision that is long overdue. It has been on 
the regulatory agenda for 25 years. Inflation, along with rising real 
wages, has rendered the long-test for exemption--applicable to 
employees making between $155 and $250 per week--almost moot. In 2001, 
78.7 percent of employees who earned between the current minimum 
threshold of $155 per week and the proposed new salary test threshold 
of $425 also earned over $250 per week. For those 5.4 million full-time 
and part-time employees, determination of their exemption status was 
based on an attenuated list of duties under the ``short test.''
    The proposal would ensure that everyone who earns less than $425 is 
classified as non-exempt. They would be guaranteed the protections of 
the FLSA, including having a basic hourly wage rate defined, having 
their working hours tracked and recorded, and being paid a fifty 
percent hourly wage rate premium in the event that they work over 40 
hours during a given week.

        THE IMPACT OF THE PROPOSED REVISION ON EXEMPTION STATUS

    Recent discussions about the proposed revision have focused largely 
on the questions of how many people gain exempt status and how many 
might lose exempt status. In fact, many policy makers have expressed 
dismay over the wide fluctuations in estimates of how employees will be 
affected. The reason for these fluctuations is that solid empirical 
research and reliable survey data that identifies actual classification 
status of individuals is scarce and incomplete.
  --The available data tells us with fair accuracy how much people earn 
        per week. So, we know how many people earn amounts below and 
        above the relevant salary thresholds--$155, $250 and $425.
  --We also know with fair accuracy the actual hours that people 
        believe they worked in each monthly survey reference week and 
        how many hours they think they usually work in a typical week. 
        So, we can identify people who work part-time (under 35 hours 
        per week), full-time (over 35 hours per week).
  --We can identify the number who work over 40 hours per week and 
        consequently would be entitled to overtime premium pay if 
        classified as non-exempt.
  --We know whether people say they are paid on an hourly basis or a 
        salaried basis. So we can presume by the salary test that 
        people paid hourly are non-exempt and currently get overtime 
        premium pay, but we do not know whether they are currently 
        exempt solely because of their pay method or also because of 
        their duties.
  --We even know to a reasonable degree of specificity the number of 
        people whose occupations fall under various job titles, but we 
        do not know enough about their duties to say with certainty who 
        is actually exempt under the current rules and who is not. 
        Because duties tests remain a major element of the proposed new 
        rules, the same problem applies to attempts to estimate the 
        number who would be exempt under the proposed rule.
    The limitations of the data have led to attempts to associate 
duties that relate to classification status with job titles for which 
we have employee counts. Some researchers have conducted assessments of 
samples of written job descriptions and interviews of employees to 
duties associated with occupations. In other cases, wage and hour 
enforcement officers have made broad estimates of the percentage of 
people with currently exempt duties in each occupation based on their 
field experience. These estimates are useful, but they are not precise, 
some were based on information or experience that is now outdated, they 
are not based on statistically valid random samples of the universe of 
employees. The estimates of exempt proportions of jobs under selected 
occupation titles are a pragmatic effort to overcome the limitations of 
available data, but such estimates are inherently subjective and 
speculative.
    The Impact of Revised Salary Thresholds.--Because employee salaries 
are more readily known than job duties, we can be most certain that 
raising the salary threshold for exemption will increase the number of 
workers who are absolutely eligible for overtime regardless of what 
their duties are today and regardless of how their duties may evolve in 
the future so long as their pay stays below the threshold. Currently 
36.4 million employees earn between $155 and $425 per week. These 
include 29.5 million who are paid hourly and 6.9 million who are paid 
on a salary basis.
    All of the employees who are paid on an hourly basis are non-exempt 
by definition because they are not paid on a salary basis. The extent 
to which their duties reinforce non-exempt status is not known with 
certainty.
    Some of the salaried employees may be non-exempt under current 
rules also and would be entitled to overtime premium pay in the event 
that they worked over 40 hours. Because exempt status depends on 
duties, we do not know the number for certain, but DOL used existing 
subjective estimates of exemption probabilities based on past 
assessment studies to estimate that 1.3 million salaried workers who 
now usually work full-time are likely exempt today and would definitely 
become non-exempt under the proposed revision.
    The Employment Policy Foundation examined the DOL estimate and 
concluded that it was a very conservative estimate of the number of 
individuals who would be converted to non-exempt status by the proposed 
increase in the salary threshold. EPF found that 5.1 million salaried 
employees currently work full-time (35 hours or more in a typical 
survey week) and, therefore, may work over 40 hours at least some weeks 
during the year. Even if many of these workers are presently non-exempt 
by duties (DOL estimated that 75 percent were non-exempt), they all 
benefit to some degree by having their status more surely defined by 
the increased salary threshold. In addition, there may be some among 
the hourly pay group who currently have duties that would make them 
eligible for exemption except for their hourly pay basis.
    It is important to recognize that everyone who is eligible by 
duties for exempt status is not automatically paid on a salary basis. 
For example, I used to work for a government contractor firm. My job 
duties as an economist and education qualified me for exemption as a 
professional, and my weekly earnings were in excess of the minimum 
thresholds. Nevertheless, my employer and I agreed to an hourly pay 
arrangement. My earnings fluctuated from week to week depending on my 
recorded hours, and I was paid an overtime premium when I worked over 
40 hours. Needless to say, I frequently wanted to work over 40 hours a 
week but the boss was less frequently willing to let me work as many 
extra hours as I would have liked.
    The point is that I was an hourly worker, and non-exempt because of 
the pay status, but my employer could have treated me as exempt based 
on duties. That did not happen because it was in both of our interests 
to keep things on the hourly basis. For me, it meant occasional extra 
income, and for my employer it meant less risk of losing me to a 
competitor because I was happy with the arrangement. In today's labor 
market, many employees have more bargaining power than was typical 50 
years ago. An employer who would change an employee's status to shave a 
few cents off the payroll would do so at his peril and risk losing a 
valuable worker to a competitor.
    Impact on Employees Who Earn Over $425 Per Week.--Some have argued 
that changes in certain definitions of exempt duties will cause 
employees who now are entitled to overtime to be reclassified as non-
exempt. Estimates of the number affected have been published based on 
subjective evaluations of how changes in wording of duties definitions 
would change the percentage of exempt people under each occupation 
title. At their foundation, however, these estimates are purely 
speculative and subjective. Five lawyers representing one perspective 
on the issue will come up with very different subjective conclusions 
than five lawyers representing another perspective, and all of them 
will come up with different conclusions than five lawyers selected at 
random.
    Indeed, the idea that you need lawyers to figure out the meaning of 
the exemption criteria is the heart of the problem with the current 
rules. This complexity is the reason DOL is trying to simplify the 
rules and make them relevant to contemporary language and contemporary 
ways of organizing work. Employees and employers should be able to read 
the rules, and each know and both readily agree on the right answer to 
the exemption eligibility question.
    Consider one example.--The proposed rule replaces the requirement 
that an employee exercise ``discretion and independent judgment'' with 
a new ``position of responsibility'' requirement for exemption as an 
administrative employee. The current language is as follows:

    ``In general, the exercise of discretion and independent judgment 
involves the comparison and the evaluation of possible courses of 
conduct and acting or making a decision after the various possibilities 
have been considered.''----( 541.207(a)) and ``The term does apply to 
the kinds of decisions normally made by persons who formulate or 
participate in the formulation of policy within their spheres of 
responsibility or who exercise authority within a wide range to commit 
their employer in substantial respects financially or otherwise.''----
( 541.207(d)(2))

    The proposed new language requires that an exempt employee perform:

    ``Work of substantial importance [that] includes activities such as 
. . . Making or recommending decisions that have a significant impact 
on general business operations or finances; analyzing and recommending 
changes to operating practices; planning long or short-term business 
objectives; analyzing data, drawing conclusions and recommending 
changes; handling complaints, arbitrating disputes or resolving 
grievances; representing the company during important contract 
negotiations; and work of similar impact on general business operations 
or finances. Work of substantial importance thus is not limited to 
employees who participate in the formulation of management policies or 
in the operation of the business as a whole. It includes the work of 
employees who carry out major assignments in conducting the operations 
of the business, or whose work affects general business operations to a 
significant degree, even though their assignments are tasks related to 
the operation of a particular segment of the business.''----(proposed  
203(b))

    This change has been cited to support claims that thousands of 
employees would be reclassified as exempt and lose earnings that they 
now receive. The reality is that such claims are only a wild guess. 
There is no objective data about job duties at sufficient specificity 
to determine whether the proposed change in wording will change the 
result for anyone. To the extent that anyone might become exempt who is 
not exempt now, it is also reasonable to consider that some who are now 
exempt might become non-exempt.
    Also, one should consider whether any rational employer would 
reclassify an employee and cut effective pay in a job market where most 
people are not trapped and where many of us have more options and 
opportunities than we did 50 years ago. Unilateral reclassification is 
likely to increase turnover, and turnover cost is a much more critical 
concern for today's human resource managers than overtime payroll cost.

             DOL DID NOT PROVIDE GUIDANCE TO EVADE THE LAW

    Amid the recent controversies about duties definitions, several 
press articles reported in error that the Department of Labor's 
economic analysis of the proposed rule was guidance to employers on how 
to avoid their obligation to pay overtime. EPF examined the complex 
questions involved in estimating the economic impact of the proposed 
regulation. When an agency proposes new or revised regulations, the 
government is required to publish an extensive analysis of the likely 
economic impacts of the proposal. The impact analysis requirements 
mandate that the government describe in detail all of the assumptions 
and contingencies that go into its estimates and consider all possible 
ramifications of the proposed change.
    Press reports described the DOL analysis of alternatives for 
calculating the cost of converting from salary to hour wages as 
guidance for circumventing the payment of overtime. If DOL had intended 
to provide guidance to employers, it is unlikely that they would have 
hidden it 40 pages inside a technical document and the preamble to the 
proposed regulations that only economists and policy analysts are apt 
to read.
    Press articles described the DOL analysis of alternatives for 
calculating the cost of converting from salary to hour wages as 
guidance for circumventing the payment of overtime. In fact, three of 
the four alternatives discussed result in higher wages than the 
employees in question are currently earning. The only alternative that 
might hurt an individual employee is the one that reflects the original 
Roosevelt administration intention for the FLSA--cutting hours to 40 
per week and sharing available work among other employees. The 
compensating wage adjustment alternative examined in the DOL regulatory 
analysis is a logical extension of the reduced hours scenario based on 
the idea that employees might choose to negotiate terms that would 
enable them to maintain their desired working hours and earning 
objectives despite the intention of the FLSA to discourage employers 
from offering extra work opportunity.
    The complex policy analysis problem that DOL examined in its 
preliminary regulatory impact analysis document arises from the fact 
that currently exempt salaried employees do not have a clearly defined 
hourly pay rate to use in the computation of the cost of converting 
them from exempt to non-exempt status when the salary threshold is 
raised. Their base hourly rate is unclear because their hours vary from 
week to week while their pay is fixed. This problem introduces a major 
uncertainty into the regulatory impact analysis.
    The following hypothetical example illustrates the four scenarios 
that are covered by the DOL analysis. In this example, assume that Jane 
is currently an exempt manager who is paid $400 per week, and this week 
she worked 40 hours, but last week she worked 32 hours and the week 
before that she worked 50 hours. Over the entire year she averages 41 
hours per week. There are four different ways to logically calculate 
how the proposed change of Jane's status from exempt to non-exempt 
would affect her potential earnings and her employer's payroll costs.
    1. Calculate Jane's pay based on a ``straight-time'' rate of $10 
per hour (her $400 per week salary divided by a 40 hours per week 
standard). This approach assumes that Jane is currently not being paid 
anything for the 41st hour worked during the average week--i.e., she 
agreed to a $400 salary based on the expectation of a 40 hour (or less) 
weekly work requirement and regrets her employment choice. On this 
basis, Jane would get $15 for the average weekly hour of overtime, 
raising her weekly earnings to $415. Her annual earnings would go up by 
$780, if her employer continues scheduling an average of 41 hours of 
work per week.
    2. Calculate Jane's wages based on an hourly rate of $9.76 per hour 
($400 per week divided by the average 41 hours per week of work) This 
alternative assumes that Jane expects to work 41 hour a week on average 
and accepted a $400 weekly salary on that basis. In this case her $400 
weekly pay already includes a ``straight-time'' equivalent payment for 
the 41st hour at the base rate, but switching Jane to non-exempt status 
would trigger a 50 percent wage premium for the hour of overtime during 
the average week. Her average weekly earnings would increase by $4.88 
per week or $254 per year.
    3. Avoid the whole issue by raising Jane's salary to $425 per week, 
which will maintain her FLSA exempt status under the proposed rule. 
This approach will save Jane and her employer from the paperwork of 
keeping time records and ensure Jane a predicable weekly paycheck, 
regardless of fluctuations in actual hours. This approach would raise 
her annual earnings by $1,300 to $22,100.
    4. Limit Jane's hours to 40 per week, and hire additional workers 
to cover the extra hours needed. This is the approach that was 
envisioned by President Roosevelt and the authors of the FLSA in 1938--
a shortened work week that would create jobs for more individuals. 
Based on Jane's average hourly equivalent wage rate of $9.76 per hour, 
Jane's annual earnings would decrease by $390 as her annual working 
time was decreased by 52 hours. Someone else (a new employee or a part-
time employee assigned additional hours) would pick up 52 hours more 
employment and an extra $390 per year in earnings. The net impact on 
employers would be zero--the payroll total would be unchanged.
    The fourth alternative deserves special attention, because it 
suggests that the proposed change could lower Jane's earnings. Because 
the hours worked would be reduced also, it might be argued that Jane 
would be no worse off. The impact depends on how Jane values extra time 
off from work versus extra income.
    If Jane valued extra income more highly than time off, she might 
take a second job to supplement her income. Currently about five 
percent of the work-force holds a second job--``moonlighting'' for 
extra income because their primary jobs do not offer them enough hours 
to meet their weekly earnings desires. The fact that the typical second 
job pays a lower hourly rate than the primary job, suggests that these 
individuals would be willing to work more hours on their primary jobs 
if the opportunity were available.
    Alternatively, if Jane wanted extra income instead of extra hours 
off, she also might bargain with her employer to let her continue 
earning an average of $400 per week by continuing to work 41 hours per 
week on average, subsequent to implementation of the proposed FLSA rule 
change. This unchanged average weekly wage solution makes sense from 
the perspective that Jane is currently choosing 41 hours a week of work 
(on average) for a salary package of $400. Her continuing employment 
choice reveals she is satisfied with getting $400 for a work week that 
averages 41 hours. If she and her employer agree to an equivalent 
``straight-time'' hourly wage rate of $9.64, then she can earn the same 
$400 per week and be equally satisfied after the new rule goes into 
effect by being paid for 40 hours at $9.64 per hour and one average 
weekly overtime hour at $14.46 (rounding results in six cents extra). 
This alternative assumes that Jane cares only about the total amount 
that she is paid and not about how the amount is calculated. It saves 
Jane the trouble of finding and scheduling a second job to achieve her 
earning goal.
    The ``straight-time'' rate in this example is slightly less than 
the $9.76 average hourly rate that results from simple division of 
Jane's $400 weekly salary by 41 average hours. Recent economic research 
supports the theory that this sort of adjustment has occurred in the 
past in response to existing FLSA overtime rules. Trejo (1991) compared 
persons covered by FLSA overtime rules in the 1970s and those who were 
not.\1\ He found that for similar persons who worked the same hours, 
their weekly earnings were nearly identical regardless of whether their 
wage computation included an overtime premium. In other words, for 
workers who are concerned only with the total earnings and expected 
total hours of work, then a change in FLSA classification status has no 
economic impact on the overall outcome of competitive labor markets. 
The proposal would not change payroll costs, total hours of work or 
employee earnings.
---------------------------------------------------------------------------
    \1\ Stephen J. Trejo, ``The Effects of Overtime Pay Regulation on 
Worker Compensation,'' American Economic Review, vol. 81, no. 4 
(September 1991), pp 719-740.
---------------------------------------------------------------------------
    Our examination of the DOL impact analysis found that the 
alternatives discussed are the opposite of guidance. They are carefully 
considered examinations of how the marketplace may operate as people 
make free choices to adjust to a changed policy framework. The 
alternatives represent a good-faith effort by DOL to consider the full 
range of possibilities. This thoroughness is the hallmark of good 
regulatory impact analysis.
    Thank you for the opportunity to present my views. I will be glad 
to answer any questions that you may have.

    Senator Specter. Thank you very much, Dr. Bird.

STATEMENT OF ANDREW J. McDEVITT, MANAGER, GOVERNMENETAL 
            RELATIONS, AMERICAN PAYROLL ASSOCIATION

    Senator Specter. Our next witness is Mr. Andrew McDevitt, 
manager of the governmental relations at the American Payroll 
Association here in Washington, BA degree in political science 
from California State University.
    Thank you for joining us, Mr. McDevitt. And the floor is 
yours.
    Mr. McDevitt. Good afternoon, Mr. Chairman. My name is 
Andrew McDevitt. And I am the manager of government relations 
for the American Payroll Association. It is my privilege today 
to appear before your committee to provide APA's specific 
comments concerning the U.S. Department of Labor's proposal to 
amend the regulations governing how employers determine if 
their white collar workers are to be classified as exempt from 
the minimum wage and overtime requirements under the Fair Labor 
Standards Act of 1938.
    The APA is a nonprofit, professional association 
representing 21,000 companies and individuals in all 50 States 
and Canada. APA's central mission is to educate its members in 
the entire payroll industry about the best practices associated 
with paying America's workers their wages while successfully 
complying with all Federal, State, and local employment, tax 
withholding, and information reporting laws.
    APA's secondary mission is to work with legislative and 
executive branches of all levels of government to find ways for 
employers to meet their requirements under law and support 
government objectives while minimizing administrative burden 
for government, employers, and individual taxpayers.
    When the Department of Labor released its proposed 
revisions to the FLSA regulations in March 2003, APA and its 
members were very enthusiastic about the prospect of these 
sweeping and necessary changes. APA believes that the changes 
proposed by the DOL are needed to benefit both employers and 
workers so that legal controversies about worker classification 
matters, as it pertained to overtime pay, can be eliminated or 
minimized.
    The duties test for the existing regulations, which 
describe the type of work that is exempt from overtime, has not 
been changed since 1949. However, the workplace has certainly 
changed a lot since then. And there are countless jobs held by 
workers today that did not even exist at that time. With rules 
and examples that do not recognize today's workplace, it is 
very difficult for an employer to make a decision as to exempt 
status.
    The task of classifying workers correctly is a very 
important one in ensuring that workers are properly paid what 
they are entitled to receive under the law. But, as one can 
observe in the various courthouses throughout the country, 
worker classification lawsuits are on the rise because the 
outdated overtime exemption regulations provide little guidance 
to help employers properly classify their workers in today's 
dynamic and modern workplace.
    Since payroll professionals work closely with their human 
resources counterparts in today's work environment, these 
proposed regulations are very important to APA. As previously 
summarized in the letter to the DOL in June 2003, APA and its 
members are in favor of the direction taken by the proposed 
regulations and suggests the following improvements upon the 
DOL's already sound proposal. These suggestions would make it 
easier for employers to make the appropriate and correct worker 
classification determinations for their employees.
    One, the DOL should strengthen its guidance to provide 
additional, real-life examples of the types of jobs that will 
qualify for exemption, including guidance relating to customer 
service employees, entry-level researchers, and various types 
of trainers, including those who provide software or other 
technical training away from their employer's primary place of 
business. This expanded guidance would help employers a great 
deal when applying the new primary duties test to make the 
accurate classification determination.
    Two, additional guidance should be provided to address the 
circumstances of those workers who may meet the position of 
responsibility test by virtue of the fact that they are the 
only individuals in certain positions performing the function 
of those positions, for example, one-person departments.
    The Department should provide more comprehensive guidance 
addressing the application of the exemption in hospitals and 
other environments where employees are given supervisory duties 
on a rotating basis. And the Department should provide 
additional guidance addressing instances in which the FLSA 
nonexempt employee temporarily takes on duties of an exempt 
employee. For instance, in the common situation where a 
nonexempt employee is filling in temporarily for a supervisor 
who has taken family or medical leave or is on vacation.
    Clarification is also needed for the reverse situation when 
an exempt employee fills in for an exempt employee or takes on 
some extra nonexempt work in another area to earn extra money. 
The DOL should also provide a definition of other non-
discretionary compensation, which employers must use to 
determine if a worker meets the proposed $65,000 annual salary 
threshold that would classify workers as exempt from the 
overtime laws, if they meet any one of the components of the 
proposed primary duties test.
    APA also believes the Department's proposal does not go far 
enough to define the types of infractions of company rules for 
which an employer may legitimately dock the pay of an exempt 
employee.
    Finally, the proposal needs to be more specific about 
whether employers may subtract from leave balances when exempt 
employees take off fractions of work days for personal reasons.

                           PREPARED STATEMENT

    APA is confident that the additional guidance we are 
requesting on behalf of employers would help avoid confusion, 
conflict, and litigation in the future. And most importantly, 
employers and workers would be able to believe that there are 
clear and concise labor regulations to which they can refer 
when worker classification issues arise.
    APA thanks you for your time and opportunity today to 
comment on this important labor issue. And we would be more 
than happy to answer questions that the committee may have.
    [The statement follows:]

                Prepared Statement of Andrew J. McDevitt

    Good morning Mr. Chairman and members of the Committee. My name is 
Andrew McDevitt and I am the Manager of Government Relations for the 
American Payroll Association. It is my privilege today to appear before 
the committee to provide APA's specific comments concerning the U.S. 
Department of Labor's proposal to amend the regulations governing how 
employers determine if their ``white collar'' workers are to be 
classified as exempt from the minimum wage and overtime pay 
requirements under the Fair Labor Standards Act of 1938.
    The APA is a non-profit professional association representing 
21,000 companies and individuals in all 50 states and Canada. APA's 
central mission is to educate its members and the entire payroll 
industry about the best practices associated with paying America's 
workers their wages while successfully complying with all federal, 
state, and local employment, tax withholding, and information reporting 
laws. APA's secondary mission is to work with legislative and executive 
branches of all levels of government to find ways for employers to meet 
their requirements under law and support government objectives, while 
minimizing administrative burden for government, employers, and 
individual taxpayers.
    When the Department of Labor released its proposed revisions to the 
FLSA regulations in March 2003, APA and its members were very 
enthusiastic about the prospect of these sweeping and necessary 
changes. APA believes that the changes proposed by the DOL are needed 
to benefit both employers and workers so that legal controversies about 
worker classification matters as they pertain to overtime pay can be 
eliminated or minimized. The ``duties'' tests of the existing 
regulations, which describe the type of work that is exempt from 
overtime, have not been changed since 1949. However, the workplace has 
certainly changed a lot since then, and there are countless jobs held 
by workers today that didn't even exist at that time. With rules and 
examples that don't recognize today's workplace, it is very difficult 
for an employer to make the decision as to exempt status.
    The task of classifying workers correctly is a very important one 
in ensuring that workers are properly paid what they are entitled to 
receive under the law. But, as one can observe in the various 
courthouses throughout the country, worker classification lawsuits are 
on the rise because the outdated overtime exemption regulations provide 
little guidance to help employers properly classify their workers in 
today's dynamic and modern work place. Since payroll professionals work 
closely with their human resources counterparts in today's work 
environment, these proposed regulations are very important to APA.
    As previously summarized in a letter to the DOL in June 2003, APA 
and its members are in favor of the direction taken by the proposed 
regulations and suggest the following improvements upon the DOL's 
already sound proposal. These suggestions would make it easier for 
employers to make the appropriate and correct worker classification 
determinations for their employees:
  --The DOL should strengthen its guidance by providing additional, 
        real-life examples of the types of jobs that would qualify for 
        the exemption, including guidance relating to customer service 
        employees, entry-level researchers and various types of 
        trainers, including those who provide software or other 
        technical training away from their employer's primary place of 
        business. This expanded guidance would help employers a great 
        deal when applying the new ``primary duties test'' to make an 
        accurate classification determination.
  --Additional guidance should be provided to address the circumstances 
        of those workers who may meet the ``position of 
        responsibility'' test by virtue of the fact that they are the 
        only individuals in certain positions performing the functions 
        of those positions (i.e., ``one-person departments'').
  --The Department should provide more comprehensive guidance 
        addressing the application of the exemption in hospitals and 
        other environments where employees are given supervisory duties 
        on a rotating basis.
  --The Department should provide additional guidance addressing 
        instances in which an FLSA-nonexempt employee temporarily takes 
        on the duties of an exempt employee; for instance, in the 
        common situation where a nonexempt employee is filling in 
        temporarily for a supervisor who has taken family or medical 
        leave or is on vacation. Clarification is also needed for the 
        reverse situation, where an exempt employee fills in for a 
        nonexempt employee or takes on some extra nonexempt work in 
        another area to earn extra money.
  --The DOL should provide a definition of ``other non-discretionary 
        compensation'' which employers must use to determine if a 
        worker meets the proposed $65,000 annual salary threshold that 
        would classify workers as exempt from the overtime laws if they 
        meet any one of the components of the proposed primary duty 
        tests.
    APA also believes that the Department's proposal does not go far 
enough to define the types of infractions of company rules for which an 
employer may legitimately dock the pay of an exempt employee.
    Finally, the proposal needs to be more specific about whether 
employers may subtract from leave balances when exempt employees take 
off fractions of workdays for personal reasons.
    APA is confident that the additional guidance that we are 
requesting on behalf of employers would help avoid confusion, conflict, 
and litigation in the future. And, most importantly, employers and 
workers would be able to believe that there are clear and concise labor 
regulations to which they can refer when worker classification issues 
arise.
    APA thanks you for your time and the opportunity today to comment 
on this important labor issue and would be pleased to answer any 
questions that the committee may have.

    Senator Specter. Thank you very much, Mr. McDevitt.

STATEMENT OF PATTY HEFNER, ON BEHALF OF THE AMERICAN 
            NURSES ASSOCIATION

    Senator Specter. We now turn to Ms. Patty Hefner, staff 
nurse at Sewickley Valley Hospital, representing the American 
Nurses Association; R.N. diploma from St. Margaret Memorial 
Hospital in Pittsburgh, and a bachelor of science degree in 
health education from Point Park College in Pittsburgh.
    Thank you for joining us, Ms. Hefner. And we look forward 
to your testimony.
    Ms. Hefner. Thank you, Senator.
    On behalf of the American Nurses Association, I would like 
to thank you for allowing me the opportunity to comment on the 
proposed changes to the overtime provisions. As you stated, I 
am a staff nurse at Sewickley Valley Hospital in Sewickley, 
Pennsylvania. And I have been a registered nurse since 1969.
    At the outset of my testimony, I would like to address the 
Labor Department's claim that these proposed changes would not 
affect registered nurses. To be considered an exempt employee, 
nurses, like all professionals, have to meet strict educational 
requirements. Under the proposed rule, work experience may be 
substituted for all or part of the educational requirement for 
any learned profession, including nursing. This will allow 
employers, under the proposed rule, to exempt all registered 
nurses regardless of their level of education from overtime 
compensation.
    Our members represent the interests of registered nursing 
practicing in hospitals, nursing homes, and a wide range of 
other health facilities. The implementation of these proposed 
revisions to the Fair Labor Standards Act will have 
implications to their practice, their work environment, and, 
most importantly, the quality of patient care they provide.
    Under these proposals, millions of workers, including 
nurses, who enjoy overtime protection, would no longer qualify 
for overtime pay. These proposed changes to the overtime 
regulations will mean a huge pay cut for these workers. For 
nurses, it will mean longer hours with less pay, and likely 
mandated hours.
    Mr. Chairman, the nursing profession is at a crossroad. Our 
Nation is struggling with a growing shortage of registered 
nurses. And this impacts our hospitals, our long-term care 
facilities, home health agencies, and public health clinics on 
a daily basis. The shortage is growing just as the need for 
nursing services is mounting. America's demand for nursing care 
is expected to balloon over the next 20 years, as a result of 
an aging population, advances in technology, and various 
economic and policy factors.
    The Bureau of Labor Statistics estimated that attrition and 
retirement will create more than 1 million openings for R.N.'s 
between 2000 and 2010. More money by itself will not, of 
course, solve these projected shortages. But no labor shortage 
has ever been solved without a market-based set of economic 
incentives.
    Mr. Chairman, I know of no nurse who went into this 
profession hoping to become a millionaire. Enhancing the 
professionalization stature and respect of all nursing will 
make this profession more attractive. One of the main reasons 
500,000 registered nurses have left the profession is 
conditions at the workplace. Nurses across the Nation are 
reporting a dramatic increase in the use of mandatory overtime.
    Today, mandatory overtime is the most common method used by 
facilities to cover staffing insufficiencies. This dangerous 
staffing practice is having a negative impact on patient care. 
It is fostering medical errors, and it is driving nurses away 
from the bedside. A recent survey by ANA of nearly 5,000 nurses 
across the country revealed that more than 67 percent are 
working unplanned overtime every month. Increased reliance on 
mandatory overtime has occurred at the same time that patient 
acuity has increased, the use of sophisticated technology has 
increased, and the length of hospital stay has decreased.
    The IOM study, keeping patients safe, transforming the work 
environment of nurses, recommends limiting the number of hours 
a nurse can work to 12 hours in any 24-hour period and 60 hours 
in any 7-day period. Currently, nurses where I work and across 
the country are paid for overtime, whether this is voluntary or 
forced.
    Overtime pay is not money that most families use to pay for 
extras, such as luxury items and lavish vacations. For most of 
us, overtime pay is used to put food on the table, to pay for 
clothes for our kids, and to fund their college educations. 
Expanding the number of professional workers, such as 
registered nurses, who are exempt from overtime protection, 
will lower the marginal cost for the employers.
    Under this misguided proposal, nurses will be working the 
same long hours they now work, in fact, probably longer hours 
without overtime compensation. This proposal will take away the 
one thing that discourages hospital administrators from forcing 
overtime, and that is the cost factor.

                           PREPARED STATEMENT

    Mr. Chairman, the public understands the vital role that 
nurses play in delivering quality healthcare to our patients. 
Just last month, the annual survey by Gallop on the honesty and 
ethics of various professions again rated nurses at the top. We 
speak on behalf of all of our patients when we say that these 
proposed regulations will lead to more nurses leaving the 
profession, resulting in reduced care, increases in the errors, 
and the potential for tragic results with our patients. I urge 
you to help prevent these proposed regulations and changes to 
the overtime provisions.
    Mr. Chairman, thank you again for this opportunity to speak 
to you.
    [The prepared statement follows:]

                   Prepared Statement of Patti Hefner

    Chairman Specter, members of the Subcommittee, my name is Patti 
Hefner and I am a Registered Nurse at the Sewickley Valley Hospital in 
Sewickley, Pennsylvania. I have been a registered nurse since 1969.
    On behalf of the American Nurses Association (ANA) which represents 
the nation's registered nurses through its 54 constituent member 
associations including state and territorial nurse associations thank 
you for allowing me the opportunity to comment on the proposed changes 
to the overtime provisions.
    At the outset of my testimony, I want to address the Labor 
Department's claim that these proposed changes would not affect 
registered nurses. To be considered an exempt employee, nurses like all 
professionals have to meet strict educational requirements. Under the 
proposed rule, as both the text of the rule and the regulatory analysis 
make plain, work experience may be substituted ``for all or part of the 
educational requirements'' for any learned profession, including 
nursing. This will allow employers, under the proposed rule to exempt 
all registered nurses regardless of their level of education from 
overtime compensation.
    Also, according to Ross Eisenbrey of the Economic Policy Institute, 
the new regulations will make it much easier to establish that ``a'' 
primary duty of a nurse is administrative or executive. An otherwise 
non-exempt nurse who spends 90 percent of his or her time providing 
patient care could still be found to have a primary duty that is 
administrative or executive, especially since the administrative duty 
tests have been substantially weakened.
    Our members represent the interests of registered nurses practicing 
in hospitals and nursing homes and a wide range of other health 
facilities. The implementation of these proposed revisions to the Fair 
Labor and Standards Act (FLSA) will have implications for their 
practice, their work environment and the quality of patient care they 
provide. Under these proposals millions of workers, including nurses 
who enjoy overtime protection would no longer qualify for overtime pay. 
Make no mistake about it. The proposed changes to the overtime 
regulations will mean a huge pay cut for these workers. For nurses, it 
will mean longer hours with less pay and likely mandated hours.
    Mr. Chairman, the nursing profession is at a crossroad. Our nation 
is struggling with a growing shortage of registered nurses (RNs) which 
impacts our hospitals, long-term care facilities, home health agencies 
and public health clinics on a daily basis.
    The shortage is growing just as the need for nursing services in 
mounting. America's demand for nursing care is expected to balloon over 
the next twenty years as a result of the aging population, advances in 
technology, and various economic and policy factors. The Bureau of 
Labor Statistics estimated that attrition and retirement will create 
more than one million openings for RNs between 2000 and 2010. More 
money, by itself, will not solve the projected labor shortages, but no 
labor shortage has ever been solved without a market-based set of 
economic incentives. Mr. Chairman, I know of no nurse that went into 
the profession with the hope of becoming a millionaire. Enhancing the 
professionalization, stature and respect of all nursing will make the 
profession more attractive.
    One of the main reasons 500,000 registered nurses have left the 
profession is conditions at the workplace. Nurses across the nation are 
reporting a dramatic increase in the use of mandatory overtime. Today, 
mandatory overtime is the most common method used by facilities to 
cover staffing insufficiencies. This dangerous staffing practice is 
having a negative impact on patient care, fostering medical errors and 
driving nurses away from the bedside. A recent ANA survey of nearly 
5,000 nurses across the country revealed that more than 67 percent are 
working unplanned overtime every month. Increased reliance on mandatory 
overtime has occurred at the same time that patient acuity has 
increased, the use of sophisticated technology has increased, and the 
length of hospital stay has decreased.
    Last November, the Institute of Medicine (IOM) released a report 
which shows a clear link between the nursing work environment and 
patient safety, and recommends improvements in health care working 
conditions that would lead to safer patient care. The study, Keeping 
Patients Safe: Transforming the Work Environment of Nurses recommends 
to limit the number of hours a nurse can work to 12 hours in any 24-
hour period and 60 hours in any seven-day period.
    Currently, nurses where I work, and across the country are paid for 
overtime, whether voluntary or forced. Overtime pay is not money that 
most families use to pay for extras such as luxury items or lavish 
vacations. For most overtime pay is the money used to put food on the 
table and clothes on the backs of their children. Expanding the number 
of professional workers, such as registered nurses, who are exempt from 
overtime protections, will lower the marginal cost of overtime for the 
employers. Under this misguided proposal, nurses will be working the 
same long hours they now work--in fact, probably longer hours, without 
overtime compensation. This proposal will take away the one thing that 
discourages hospital administrators from forcing nurses to work 
overtime--the cost factor!
    Mr. Chairman, the public understands the vital role that nurses 
play in delivering quality health care to their patients. Just last 
month Gallup's annual survey on the honesty and ethics of various 
professions rated nurses at the top. We speak on behalf of the patients 
when we say these proposed regulations will lead to more nurses leaving 
the profession resulting in reduced care, increases in medical errors, 
ending in potentially tragic results for the patients that we serve. I 
urge you to help prevent these proposed regulations and changes to the 
overtime provisions.
    Mr. Chairman, thank you once again for this opportunity to speak to 
you on this important matter. I would be happy to answer any questions 
that you may have.

    Senator Specter. Ms. Hefner, thank you very much for your 
testimony.
    I regret that we are not going to have time for very 
extensive questioning because the caucuses are now meeting as 
we prepare for a cloture vote a little later this afternoon. 
But we will be submitting questions in writing, which we would 
appreciate your response to.
    Ms. Hefner, starting with you, there is no doubt about a 
major nursing shortage in America. That is something I say from 
the chairmanship of this Subcommittee on Health and Human 
Services and also from the chairmanship which I hold on the 
Veterans' Committee. I have looked at the point and 
counterpoint with the concerns about whether nurses will be 
covered and a response that they will not lose overtime pay. 
But this is an ambiguity which we do not have an answer to.
    Mr. McDevitt, as a proponent of the regulations, can you 
respond? Will nurses be covered? And will there be a risk of 
nurses losing overtime pay?
    Mr. McDevitt. You know, I am not--I would not call myself a 
healthcare field expert. So I really could not answer that 
question. Although what I could do is go back to my association 
to talk to members that are in that field and submit my 
response to you in writing.
    Senator Specter. Well, I would appreciate that.
    Mr. Fortney, I would appreciate it if you and Dr. Bird 
would respond as well, so we can have an idea as to the impact 
on nurses, and whether you could amplify it as to whether there 
will be any impact on other healthcare professionals.
    Mr. Fortney. We would be happy to. And nurses, 
specifically, Mr. Chair, in fact are exempt today under the 
regulations. Under the proposed regulations, they would 
continue to be exempt. Remember, the law----
    Senator Specter. Would you give me the backup on that?
    Mr. Fortney. Oh, yes, I will.
    Senator Specter. I am sorry I cannot go into it in any 
greater detail now.
    Dr. Bernstein----
    Mr. Fortney. The market factors actually is what compels 
people to receive overtime today.
    Senator Specter. Dr. Bernstein and Dr. Bird, you two 
gentlemen have come to diametrically opposed positions here, 
our two Ph.D.s as to what is what. Dr. Bird, what do you think 
of Dr. Bernstein's analysis?
    Dr. Bernstein, I am going to ask you the identical 
question. But you only have 1 minute to answer.
    Dr. Bird. Thank you, sir. I think that we are dealing here 
with asking very different questions. Dr. Bernstein has said 
that the Department of Labor, in his analysis, said that the 
Department of Labor made an error, a serious error, by not 
including in its analysis people who may or may not lose a 
hypothetical protection. The Department of Labor, in its 
analysis, focused on people who were actually likely to have 
their right to overtime either added to or, in the case of 
600,000----
    Senator Specter. Dr. Bird, I am going to have to ask you to 
conclude.
    Dr. Bird. Okay. In fact, I think that the Department of 
Labor did it the right way, because their obligation under the 
regulatory impact analysis rules was to estimate the cost to 
employers and to industry and to the economy of adding the 
protection, primarily of adding the protection that is 
associated with raising the threshold. They did it correctly.
    Senator Specter. Dr. Bernstein, do you have----
    Dr. Bernstein. No. That misrepresents actually both our and 
their approach. I mean, we examined all workers who are 
currently covered by the Fair Labor Standards Act overtime 
protection. And that is historically what has always been done 
in this analysis. We in fact not only use the same methodology, 
we actually purchased the computer code that had been used to 
do this by the DOL historically. And in every single case, the 
analysis has been on all covered workers, because they are the 
group that stands to lose, whether they work overtime or not.
    In fact, when we look at salaried workers, as we show on 
our chart over there, the Department of Labor and EPI comes to 
almost precisely the same numbers. They find that about 2 
million workers would likely be exempt. We find 2.5 million. So 
our methods are not that far apart, except for this one 
difference. And I think any policy analyst who evaluates the 
impact of such a policy would have to agree that all the 
workers who are covered are in danger of losing coverage. And 
therefore, they are the appropriate group to examine.
    Senator Specter. Let me ask all of you to respond to these 
questions in writing. I wish we could take the time now, but, 
as I say, we are past the 1 hour and 45 minute mark. This 
hearing has gone considerably longer than we had expected.
    Question one. Do you all agree or disagree with Mr. 
McDevitt's suggestion that the Department of Labor should 
strengthen its guidance by providing additional real life 
examples of the types of jobs which would qualify for the 
exemption?
    Question two. When Dr. Bird testifies about the 8 million 
figure and he uses the words ``subjective guessing about 
duties,'' I would like all of your responses as to whether that 
really is not an underlying problem with the new regulations, 
as well as the old regulations?
    Question three. Then I would like you to respond to the 
analysis on the examples, which I cited for Secretary Chao, as 
to whether you think there is a significant improvement in the 
new regulations and whether you could suggest language to the 
subcommittee which would realize the agreed objective of trying 
to eliminate litigation?

                WRITTEN RESPONSES TO COMMITTEE QUESTIONS

    The subcommittee thanks you all for coming. Again, we wish 
we could spend longer. But if you would supply those written 
answers, we would appreciate it. And we will have some more for 
you, as well.
    [The following questions were asked at the hearing for 
written responses:]

           Responses of Richard Trumka to Committee Questions

    Question. Do you all agree or disagree with Mr. McDevitt's 
suggestion that the Department of Labor should strengthen its guidance 
by providing additional real life examples of the types of jobs which 
would qualify for the exemption?
    Answer. A number of employers submitted comments to the Department 
of Labor (DOL) last June suggesting that the final 541 overtime 
regulation list particular occupations that are presumptively exempt. 
Please see attached list of employer comments (also available at http:/
/www.epinet.org/newsroom/releases/03/09/030903topemployer.pdf).
    We do not believe DOL should expand the scope of the overtime 
exemptions in this way. As DOL likes to emphasize, the duties tests 
apply to the job responsibilities of individual workers, rather than 
entire job occupations. Listing occupations as presumptively exempt 
threatens to deny overtime protection to individual workers whose job 
responsibilities do not warrant exemption.
    Further, absent a change in the law itself, we think it would be 
entirely inappropriate and indefensible for DOL to determine that any 
occupation is presumptively exempt from any section of the FLSA. The 
courts have consistently held that employees are presumed to enjoy the 
protections of the FLSA, and that the burden is on employers to prove 
exemptions. For DOL to determine that any employee, by virtue of his or 
her occupation, is presumptively exempt would thus be contrary to the 
language of the FLSA and consistent case law.
    Question. When Dr. Bird testifies about the 8 million figure and he 
uses the words ``subjective guessing about duties,'' I would like all 
of your responses as to whether that really is not an underlying 
problem with the new regulations, as well as the old regulations?
    Answer. There are two issues raised by this question. One is the 
difficulty of estimating the aggregate effect of the proposed 
regulation; the other is the application of overtime eligibility rules 
to individual employees. Dr. Bird seemed to be referring to the former.
    Certainly, the accuracy of any estimate of the aggregate impact of 
proposed regulatory changes will be strengthened by the maximum amount 
of data on job responsibilities of workers in individual occupations. 
At a minimum, any serious regulatory impact analysis would need to 
begin by estimating the impact on individual occupations and then 
aggregating those figures. This is the methodology employed by DOL in 
the past, and it is the methodology used by the Economic Policy 
Institute (EPI) in its 2003 report. Unfortunately, neither Dr. Bird's 
organization nor DOL has bothered to estimate the impact of the 
proposed overtime regulation on workers in individual job titles. It 
should also be noted that, even in the absence of additional data on 
job responsibilities, there are many regulatory changes DOL could make 
with objective certainty that loss of overtime rights would not result.
    The second issue is the application of eligibility rules to 
individual employees. We believe DOL greatly exaggerates the ambiguity 
of the current overtime eligibility rules. Application of the current 
rules does not generally require ``subjective guessing.'' By and large, 
employers and courts are very familiar with the current standards and 
understand their meaning quite well. When overtime litigation occurs, 
it is generally not because employers cannot manage to decipher arcane 
overtime rules. It is generally because employers are cheating their 
workers out of overtime pay in order to minimize labor costs, and DOL 
enforcement is so ineffective that litigation is the only recourse for 
cheated workers to enforce the statute. It should be noted that DOL's 
proposed regulation would eliminate the much more detailed and precise 
``long'' duties test that provides superior guidance to employers, and 
DOL would replace it with the vaguer ``short'' test that is more likely 
to lead to unnecessary litigation. In other words, an even vaguer and 
more subjective test is certainly no cure for any problems in the 
existing rules.
    Finally, we reiterate that employees are presumptively entitled to 
overtime protections. Thus, to the extent that an employer may find the 
existing rule (or proposed rule) requires subjective judgments, it 
should err on the side of determining that workers are protected.
    Question. Then I would like you to respond to the analysis on the 
examples, which I cited for Secretary Chao, as to whether you think 
there is a significant improvement in the new regulations and whether 
you could suggest language to the subcommittee which would realize the 
agreed objective of trying to eliminate litigation?
    Answer. We do not believe that the proposed new criteria for the 
administrative exemption are in any way superior to the current 
criteria. We believe that DOL's proposed language would not only expand 
the administrative exemption, but would also result in widespread 
confusion and increased litigation. This litigation would be precisely 
the kind that can and should be avoided because it does not result in 
the vindication or enforcement of workers' overtime rights.
    We do believe there are a number of ways DOL could reduce 
unnecessary litigation of the kind that does not vindicate workers' 
overtime rights.
    First, DOL could abandon its proposed regulatory changes that would 
add considerable ambiguity and confusion to the overtime eligibility 
regulations and would, as Administrator Tammy McCutchen admitted to the 
Chicago Tribune, result in a ``deluge of lawsuits.''
    Second, DOL could apply its inflation adjustment to the salary 
levels for the clearer and more unambiguous ``long'' duties test, as it 
has on the occasion of every previous inflation adjustment.
    Third, we support suggestions made by the Economic Policy Institute 
(EPI) at your hearing of July 31, 2003 (e.g., eliminating any ambiguity 
that the professional exemption requires a professional degree, and 
eliminating any ambiguity that exempt workers must spend more than 50 
percent of their time performing a primary duty of exempt work).
    Fourth, if DOL were to insist on a comprehensive revision, we 
believe it would be possible to simplify the overtime rules 
dramatically by refocusing them on the original purposes of the Fair 
Labor Standards Act (FLSA). The FLSA was intended to discourage 
excessive hours, to reward workers who work overtime, and to encourage 
job creation. However, these purposes are not served by applying the 
40-hour workweek to management and independent professionals, who 
presumably control their own workload and work schedules. Greater 
emphasis on actual and real employee control over work loads and work 
schedules could dramatically simplify the overtime rules, and would 
undoubtedly extend overtime protection to more workers, consistent with 
the original intent of the FLSA.
    The bottom line is that clarity and certainty could be easily 
achieved in ways that maintain or expand overtime coverage, but DOL has 
shown no interest in this kind of clarification. In fact, DOL has 
vehemently opposed the Harkin amendment, which would allow DOL to 
clarify the rules in any way that does not restrict overtime 
eligibility. Our disagreement with DOL is not about whether the rules 
should be clarified to reduce unnecessary litigation, it is about 
whether overtime eligibility should be restricted.

                       Economic Policy Institute

  TOP EMPLOYER GROUPS NAME SPECIFIC OCCUPATIONS AND ACTIVITIES TO BE 
             INELIGIBLE FOR OVERTIME UNDER NEW REGULATIONS

    The U.S. Department of Labor obviously knew about an old saying in 
legal circles that goes something like, ``never ask a question you 
don't already know the answer to,'' when it invited comments from top 
employer groups on which occupations should be included in the final 
rule as examples of exempt jobs (68 Fed. Reg. 15559, 15564), i.e., 
those not eligible for overtime pay.
    Not only did eight of the nation's largest employer groups respond 
to DOL's invitation, they also proposed specific occupations, as well 
as exempt duties to be included in the final rule. Their responses 
clearly demonstrate that employers are eager to take advantage of the 
changes in the proposed regulations to make millions of employees 
ineligible to receive any extra pay for hours worked beyond 40 per 
week.
    These responses from employers make clear that the proposed 
regulations could result in substantial changes--despite DOL's 
assertions to the contrary. The employers who responded clearly 
interpret the proposed revised regulations as giving them leeway to 
reclassify employees as exempt from the FLSA's overtime protection.
    Moreover, once occupations are reclassified by employers, the only 
recourse for a worker is to challenge the employer's action, which is 
almost certain to involve hiring an attorney and lengthy litigation. 
This recourse is not financially feasible to the vast majority of 
adversely affected workers.

         COALITION, REPRESENTED BY MORGAN, LEWIS & BOCKIUS, LLP

    This Coalition is described as ``a significant number of employers 
which conduct business in a cross-section of industry and service 
sectors, including banking, financial services, education, information 
technology, aerospace/defense, manufacturing, construction, Internet 
services, staff, professional consulting services, telecommunications 
and call center operations.'' It proposes to:
    ``Add the following types of work to the list of those that are 
related to management or business operations of the employer's clients 
or customers [thus able to be reclassified under the revised 
administrative exemption]:
  --tax experts,
  --stock brokers,
  --registered broker assistants,
  --mortgage brokers,
  --loan officers,
  --insurance advisors,
  --financial consultants,
  --benefits consultants & administrators,
  --travel consultants,
  --dietary managers in retirement homes, and
  --staffing recruiters.''
    ``Add the following types of work to the list of those that are 
related to management or business operations of the employer [thus able 
to be reclassified under the revised administrative exemption]:
  --actuary,
  --forensic accounting,
  --computer network, database and Internet administration,
  --pension & benefit plan administration,
  --advice to clients on industry and product trends,
  --management of customer relationships,
  --customer service,
  --organizational development,
  --training,
  --travel & event planning, and
  --projects/process management.''
    ``Work of substantial importance. The Coalition suggests the 
addition of the following activities to the list of exempt activities 
[for purposes of revised administrative exemption]:
  --representing and preserving the image and reputation of employer to 
        the public,
  --representing the company to regulatory bodies and industry groups,
  --maintaining client relationships,
  --determining financial direction of company or its clients,
  --filling employee/contractor vacancies, and
  --qualifying borrowers for loans and managing the application process 
        to a closing.''
    ``High level of skill or training. The Coalition suggests the 
addition of the following types of work to the list of those that 
satisfy the [new] high level of skill or training' standard [in the 
revised administrative exemption]:
  --sales representatives who manage sales process for specialized 
        scientific or technical products or services,
  --computer network and database administrators,
  --benefit plan administrators,
  --mortgage brokers,
  --loan officers,
  --insurance advisors, and
  --travel consultants.''

               AMERICAN COUNCIL OF ENGINEERING COMPANIES

    Proposes the following examples of work of ``substantial 
importance'' or requiring ``high level of skill or training'' under the 
revised administrative exemption:
  --Computer Aided Design (CAD) technicians and operators,
  --Web designers,
  --Engineering designers and senior designers,
  --IT department managers without college degrees,
  --Geographic Information Systems (GIS) technician/specialist,
  --Right of Way agents,
  --Construction management representatives or commissioning agents,
  --Project managers,
  --Financial services analyst.
    Proposes the following occupations as examples for the revised 
learned and creative professional exemptions:
  --Any registered engineering and design professionals, including:
  --engineers,
  --surveyors,
  --architects,
  --landscape architects,
  --planners,
  --highway, bridge and rail inspectors,
  --computer graphics professionals.

                         FLSA REFORM COALITION

    This Coalition, represented by Gibson, Dunn & Crutcher, describes 
itself as ``a group of leading national employers and trade 
associations who have been working together for sensible reform of the 
FLSA exemption regulations for almost ten years. [representing] 
employers with significant `white-collar' workforces, in diverse field 
and industries including aerospace, automotive, defense, engineering, 
insurance, logistics, retail and social services.''
    The Coalition requests that the following occupations be included 
in the final regulation as examples of exempt occupations under the 
revised administrative exemption:
  --assistant program director of social services organization,
  --case manager at social services organization,
  --engineering designer,
  --expedition leader,
  --financial statement accountant at retail organization,
  --logistics specialist in aerospace industry,
  --manufacturing technology analyst,
  --quality of care staff for social services and medical providers,
  --therapists and counselors for social services organization.
    The Coalition requests that the following occupations be listed in 
the final regulation as examples of exempt jobs under the revised 
learned professional exemption:
  --engineering and architectural designer,
  --financial statement accountant (not a CPA),
  --logistics specialist,
  --manufacturing technology analyst,
  --therapists and counselors for social services organization.

                    NEWSPAPER ASSOCIATION OF AMERICA

    NAA proposes that DOL include a discussion of applicability of the 
learned professional exemption to journalists. ``[t]o ensure that there 
is no confusion about the effect of the revised Learned Professional 
Exemption to the traditional roles of editors, reporters and 
photographers.''

                  NATIONAL ASSOCIATION OF BROADCASTERS

    NAB requests that the proposed exemption for creative professionals 
explicitly include:
  --radio news writers,
  --broadcast journalists,
  --television reporters,
  --producers, including field producers,
  --news directors,
  --television news camera operators.

                    NATIONAL RESTAURANT ASSOCIATION

    Speaking of the revised exemption for ``learned professionals'' the 
NRA ``applauds DOL for recognizing professional workers who acquire 
their knowledge through alternative means to certain educational levels 
. . . In this sense DOL acknowledges that chefs in the restaurant 
industry are examples of such a mix of acquisition of advanced 
knowledge.''

                       NATIONAL RETAIL FEDERATION

    The NRF gives the following as examples of jobs that should be 
included as examples of exempt under the creative professional 
standards:
  --graphic artists,
  --designers,
  --display designers,
  --clothes designers,
  --visual managers.
    The NRF gives the following as examples of occupations exempt as 
administrative that should be included in the final regulation:
  --compensation analysts,
  --financial analysts,
  --field project managers,
  --assistant buyers,
  --merchandise coordinators,
  --human resources assistant managers,
  --clothing designers,
  --textile designers,
  --visual presentation managers,
  --staffing managers.

                  AMERICAN HOTEL & LODGING ASSOCIATION

    The AHLA requests that the following activities be included as 
examples of exempt duties:
  --market research,
  --designing marketing strategies,
  --entertaining potential customers,
  --formulating sales bids,
  --event planning,
  --coordinating the work of multiple departments,
  --monitoring customer satisfaction.
                                 ______
                                 
            Responses of Ronald Bird to Committee Questions

    Question. How many registered nurses are potentially affected by 
the current and proposed regulations?
    Answer. The nation's 2.4 million employed registered nurses (2003 
annual average) included 1.8 million paid on an hourly basis (and 
therefore entitled to overtime pay when working over 40 hours per week) 
and 612,000 paid on a salaried basis. As professionals, all registered 
nurses are potentially exempt under the current and proposed FLSA 
duties test regulations. The fact that 74.8 percent are nevertheless 
paid on an hourly basis--making them non-exempt by the salary test of 
FLSA regulations--suggests that the method of pay and classification 
status are influenced significantly by market factors that go beyond 
the literal language of the duties tests in the regulations. Having 
duties that could make one exempt does not mean that one will be 
treated as exempt. Since the status of nurses as potentially exempt 
professionals is unchanged by the proposed regulation, there is no 
basis to expect that any nurses would experience a change in status if 
the proposal is adopted. It is likely that 74.8 percent of nurses will 
continue to be paid on an hourly basis and qualify for overtime pay 
because that is the work arrangement that is mutually beneficial to 
themselves and their employers. Their current and future pay status 
reflects such mutual choices and is not determined by current or 
proposed regulatory language regarding presumptively exempt duties.
    Question. How will the proposed changes in the regulation affect my 
conclusion that estimates of numbers of persons who are exempt or non 
exempt under duties tests are inherently speculative?
    Answer. The speculative nature of estimates of number of persons 
exempt or non-exempt arises from the inadequacy of available data 
rather than from ambiguity in the current or proposed regulation. The 
available data provides only occupation titles. It does not provide any 
information about job duties of individual's who hold jobs with 
particular titles. Since both the current and proposed rules define 
exemption in terms of duties, the available data cannot provide an 
accurate count of persons who would meet the exemption criteria. Any 
estimate of the proportion of people with a given job title who also 
have exemption-eligible duties is inherently subjective and speculative 
unless it is based on a survey that examines both the occupation title 
and the job duties reported by employees and employers on a job-by-job 
basis.
    Only the salary threshold (currently $155 per week and proposed at 
$425 per week) provides a criterion that is unambiguous in relation to 
the available data. We can estimate with statistical precision that 6.9 
million salaried workers who currently earn less than $425 per week 
will be changed to hourly over-time eligible status by the proposal.
    Question. Do you agree or disagree with Mr. McDevitt's suggestion 
that the Department of Labor should strengthen its guidance by 
providing additional real life examples of the types of jobs which 
would qualify for exemption?
    Answer. The common sense value of real-life examples is obvious. 
Illustrations should reflect practical job analysis situations that 
human resource professionals encounter. Input from experienced human 
resource management practitioners would insure that illustrations are 
relevant.
    Question. Do you think that the proposed regulations provide a 
significant improvement to reduce litigation, and could you suggest 
language to the subcommittee which would realize the objective of 
trying to eliminate litigation?
    Answer. The proposal is a significant improvement. It is clearly 
written and relevant to the realities of the contemporary workplace. 
Clearer language is likely to reduce litigation. The fact that the 
increased salary threshold removes any question about status for over 
34 million workers is also an important factor that will contribute to 
reduced litigation. I have no recommendations for improved language.
    I hope that these responses will be helpful to you and to the other 
members of the subcommittee.
                                 ______
                                 
                      American Payroll Association,
                                      Government Relations,
                                    Washington, DC, March 17, 2004.
Hon. Arlen Specter,
Chairman, Senate Subcommittee on Labor, HHS, and Education, U.S. 
        Senate, Washington, DC.
    Dear Senator Specter: The purpose of this letter is to formally 
respond to the three specific questions that you posed to the American 
Payroll Association and other organizations represented at the January 
20 hearing that your subcommittee held to discuss the U.S. Department 
of Labor's proposal to modernize the white-collar overtime pay 
regulations of the Fair Labor Standards Act of 1938. In addition, APA 
would like to thank you again for providing our organization the 
opportunity to publicly voice our position on this important labor 
issue.
    As I mentioned at the beginning of my testimony, the APA is a non-
profit professional association representing 21,000 companies and 
individuals in all 50 states and Canada. APA's central mission is to 
educate its members and the entire payroll industry about the best 
practices associated with paying America's workers their wages while 
successfully complying with all federal, state, and local employment, 
tax withholding, and information reporting laws. APA's secondary 
mission is to work with legislative and executive branches of all 
levels of government to find ways for employers to meet their 
requirements under law and support government objectives, while 
minimizing administrative burden for government, employers, and 
individual taxpayers.
    In the spirit of APA's secondary mission, APA has prepared the 
following responses to your questions:
    Question. Do you all agree or disagree with Mr. McDevitt's 
suggestion that the Department of Labor should strengthen its guidance 
by providing additional real life examples of the types of jobs which 
would qualify for the [overtime] exemption?
    Answer. Since this question was intended for the other panelists to 
respond to, APA would like to simply reiterate that it believes that 
the DOL should incorporate ``real life examples,'' within the proposed 
regulations, that highlight the types of jobs that would qualify for 
the exemption, including guidance relating to customer service 
employees, entry-level researchers and various types of trainers, 
including those who provide software or other technical training away 
from their employer's primary place of business. This expanded guidance 
would help employers a great deal when applying the new ``primary 
duties test'' to make an accurate classification determination. This 
would be an excellent addition to the proposed regulations that could 
help to eliminate or minimize the worker classification lawsuits that 
have been on the rise in recent years.
    Question. When Dr. Bird testifies about the eight-million figure 
and he uses the words ``subjective guessing about duties,'' I would 
like all of your responses as to whether that really is not an 
underlying problem with the new regulations, as well as the old 
regulations.
    Answer. Since the DOL released its proposed white-collar overtime 
pay regulations on March 31, 2003, various employer, labor, and public 
policy organizations have debated their potential impact on today's 
nonexempt workers. One highly debatable figure in this debate estimates 
that eight million workers may lose the ability to qualify for overtime 
pay when they work more than 40 hours in a work week. This debatable 
figure is a result of how various labor law and policy experts have 
read and interpreted both the new and old duties-test language within 
both versions of the regulations to determine the future nonexempt 
status of today's non-exempt workers.
    When Dr. Ronald Bird of the Employment Policy Foundation testified 
at the hearing and commented on this debatable eight million figure, he 
states:

    ``Estimates of the number [of workers] affected have been published 
based on subjective evaluations of how changes in the wording of duties 
definitions [between the new and old regulations] would change the 
percentage of exempt people under each occupation title. At their 
foundation, however, these estimates are purely speculative and 
subjective.''

    However, Dr. Bird also states:

    ``The reality is that such claims are only a wild guess. There is 
no objective data about the job duties at a sufficient specificity to 
determine whether the proposed change in wording [of the duties test] 
will change the result for anyone. To the extent that anyone [worker] 
might become exempt who is not exempt now, it is also reasonable to 
consider that some who are now exempt might become nonexempt.''

    APA believes that ``the subjective guessing about duties'' would 
not be an underlying problem with the new regulations if employers were 
actually provided with some real life examples of specific jobs and 
duties that would help clarify who is and who is not exempt from 
overtime pay.
    Perhaps the DOL could determine if there are specific job types 
and/or duties that are creating the bulk of the growing number of 
overtime pay litigation cases in the country and provide guidance on 
these specific jobs within the final regulations so that employers are 
able to determine the exempt or nonexempt status of workers in these 
positions. This strategy may help minimize litigation cases that 
employers are experiencing.
    APA also believes it is worth reiterating the following statement 
contained within Dr. Bird's testimony when he comments on the impact of 
the revised salary thresholds in the proposed regulations:

    ``Because employee salaries are more readily known than job 
descriptions, we can be more certain that raising the salary threshold 
for exemption will increase the number of workers who are absolutely 
eligible for overtime regardless of what their duties are today and 
regardless of how their duties may evolve in the future so long as 
their pay stays below the threshold.''

    Dr. Bird also makes an interesting observation to addresses the 
potential impacts of the proposed regulations on workers who earn over 
$425 per week and would be subject to the new standard duties test:

    ``Also, one should consider whether any rational employer would 
reclassify an employee and cut effective pay in a job market where most 
people are not trapped and where many of us have more options and 
opportunities than we did 50 years ago. Unilateral reclassification is 
likely to increase turnover, and turnover cost is a much more critical 
concern for today's human resource managers than overtime payroll 
cost.''

    APA agrees with these assertions made by Dr. Bird and would hope 
that policy makers consider them as they evaluate the entire DOL 
proposal in question. The idea of delaying or impeding the 
implementation of these proposed regulations because of the varying and 
diverse opinions about their potential impacts would only allow the 
costly legal struggles that employers are currently facing to continue 
indefinitely. What harm would there be to employers and workers to at 
least take a step forward in attempting to improve today's worker 
classification system that we all know is truly broken? If it is later 
determined that parts of the proposed regulations have not solved all 
the worker classification litigation concerns that have been raised, 
the DOL and stakeholders could take a pragmatic approach and reexamine 
any potential shortcomings of the proposed regulations and work toward 
creating additional solutions that would benefit all parties involved.
    Question. And then I would like you to respond to the analysis on 
the examples, which I cited for Secretary Chao, as to whether you think 
there is a significant improvement in the new regulations and whether 
you could suggest language to the subcommittee which would realize the 
agreed objective of trying to eliminate litigation.
    Answer. APA believes that there are significant improvements within 
the entirety of the DOL proposal and that litigation could be 
eliminated or minimized by incorporating our suggestion that additional 
``real life examples'' of jobs that would qualify for the exemption be 
incorporated into final version of the regulations. APA would also 
suggests that the DOL to establish a practice of evaluating these 
whitecollar overtime regulations every 3-5 years to ensure they are 
updated appropriately to follow trends in U.S. labor practices, the job 
market, DOL audits, and FLSA-based lawsuits. This would be more 
effective than the infrequent modifications and reviews that have been 
initiated by the DOL in the past 66 years.
    Thank you again for providing APA and its 21,000 members the 
opportunity to publicly comment on this important labor issue and 
provide further input in answer to your questions. Should you or your 
subcommittee staff require any additional information from APA, please 
do not hesitate to ask.
            Sincerely,
                                        Andrew J. McDevitt,
       Manager, Government Relations, American Payroll Association.
                                 ______
                                 
          Responses of David S. Fortney to Committee Questions

    Question. Do you all agree or disagree with Mr. McDevitt's 
suggestion that the Department of Labor should strengthen its guidance 
by providing additional real life examples of the types of jobs which 
would qualify for the exemption?
    Answer. In the Proposed Regulations, the Department of Labor has, 
in fact, provided many ``real life'' examples of the types of jobs that 
would fall within a specific exemption. The Proposed Regulations are 
replete with examples not only of the types of jobs that would fall 
within an exemption category, but also of the types of duties that 
would bring an employee within the four corners of an exemption 
classification. This is clearly in furtherance of the DOL's commitment 
to issuing regulations that are both substantively/legally sound and 
reasonably easy for the employer community to understand and apply. 
Although it is impossible to predict to what extent such examples will 
remain in the final regulations, it would appear likely that such 
provisions, which are meant to further compliance by eliminating 
confusion and promoting consistency of application, will remain in the 
final version of the regulations. Moreover, DOL requested that parties 
submit as part of their comments, examples that could be incorporated 
into the final rule to further explain the application of those rules.
    Question. When Dr. Bird testifies about the 8 million figure, and 
he uses the words ``subjective guessing about duties,'' I would like 
all of your responses as to whether that really is not an underlying 
problem with the new regulations, as well as the old regulations.
    Answer. Under the current regulations, there is quite a bit of 
``subjective guessing of duties.'' Indeed, this is one of the primary 
reasons why it is so important that these regulations be updated. The 
Proposed Regulations seek to remedy this problem by providing explicit 
and detailed examples of duties and types of jobs that will qualify for 
each exemption. So, where the concepts themselves cannot be better set 
out, the examples provide guidance and clarity, thus allowing the 
employer community to apply properly the overtime rules.
    Question. Please respond to the analysis on the examples, which I 
cited for Secretary Chao, as to whether you think there is a 
significant improvement in the new regulations and whether you could 
suggest language to the subcommittee that would realize the agreed 
objective of trying to eliminate litigation.
    Answer. The Proposed Regulations include significant improvements, 
including the numerous examples designed to create clarity where now 
there is often confusion. Generally, if included in the final 
regulations, the streamlined tests for executive, administrative and 
professional exemptions and the examples designed to illustrate the 
application of such exemptions should make compliance easier and 
provide greater certainty. This result directly benefits all 
stakeholders--employers, employees and the Labor Department. Greater 
compliance should directly result in lower litigation claims and 
resulting exposures.
    Question. How will the new regulations impact nurses? Will they be 
covered? And will there be a risk of nurses losing overtime pay?
    Answer. The status of registered nurses under the Proposed 
Regulations is exactly the same as it is under the current regulations, 
and any attempt to imply otherwise is misleading. Under the current 
regulations, registered nurses are exempt from the overtime provisions 
under the professional exemption provisions. In practice however, in 
large part because of the nursing shortage, which creates a huge demand 
for nursing services, nurses are demanding and being paid overtime 
because of the market demand for their services. Nurses are being paid 
overtime, not because the law requires it, but because that is what the 
market will bear.
    Under the Proposed Regulations there will be no change in the 
status of nurse compensation. Nurses will continue to be exempt as 
professionals, and undoubtedly, to the extent the nursing shortage 
continues, nurses will continue to demand and command overtime pay. 
Again, under the Proposed Regulations, just as under the current 
regulations, which have been effective for decades, payment of such 
overtime is not required by law but merely by market pressures.

                         CONCLUSION OF HEARING

    Senator Specter. Thank you all very much for being here. 
That concludes our hearing.
    [Whereupon, at 12:47 p.m., Tuesday, January 20, the hearing 
was concluded, and the subommittee was recessed, to reconvene 
subject to the call of the Chair.]

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