While Washington DC arguments over raising the government’s debt ceiling have grown louder the past few weeks, Congress has quietly begun discussing a key issue for HR and Payroll: whether to amend the 73-year old Fair Labor Standards Act.

For decades FLSA and its state and local variations have regulated the pay practices of millions of employers, creating among other things the bedrock workplace distinction between hourly and “exempt” employees. The question is, does the law still make sense?

On July 14 Randy MacDonald, IBM Senior Vice President for Human Resources and Chairman of the HR Policy Association, bluntly told the U.S. House of Representatives Education & Workforce Committee that “the Fair Labor Standards Act is failing America.” Everyone interested in the world of work should read the testimony.

Suggesting that the nation’s basic wage-hour law has become an anachronistic obstacle to competitiveness, Mr. MacDonald called for major updating, observing that the U.S. economy has “changed drastically” since 1938 and that it “has an entirely new paradigm for how, where and when we work, as well as how professional employees want and expect to be treated.” Read more.

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FLSA Reform: Boats Against the Current?

Thu Jul 28, 2011

While Washington DC arguments over raising the government’s debt ceiling have grown louder the past few weeks, Congress has quietly begun discussing a key issue for HR and Payroll: whether to amend the 73-year old Fair Labor Standards Act.

For decades FLSA and its state and local variations have regulated the pay practices of millions of employers, creating among other things the bedrock workplace distinction between hourly and “exempt” employees. The question is, does the law still make sense?

On July 14 Randy MacDonald, IBM Senior Vice President for Human Resources and Chairman of the HR Policy Association, bluntly told the U.S. House of Representatives Education & Workforce Committee that “the Fair Labor Standards Act is failing America.” Everyone interested in the world of work should read the testimony.

Suggesting that the nation’s basic wage-hour law has become an anachronistic obstacle to competitiveness, Mr. MacDonald called for major updating, observing that the U.S. economy has “changed drastically” since 1938 and that it “has an entirely new paradigm for how, where and when we work, as well as how professional employees want and expect to be treated.”

The IBM executive’s central point was that in the contemporary global economy, where U.S.-based firms are exposed to tough competition, FLSA is a “job killer.” Left unchanged, said MacDonald, “The disconnect between the FLSA and the modern workplace will continue to grow, increasing tensions between employers, employees and regulators…”

Describing the new economy as “characterized by technological innovation, dynamic structural and market shifts, new business models, new workforce management models and changing labor pools,” Mr. MacDonald told the committee that “we need fresh thinking in U.S. labor law.”

More specifically, IBM’s top HR executive cited FLSA’s arcane distinctions between “exempt” and “non-exempt” workers as a particular challenge for both employers and workers. Employers must “decipher” Labor Department rules for paying overtime to so-called “white-collar” workers, he asserted, concluding that the rules governing exemptions are “riddled with ambiguities and imprecision.”

One result of the antiquated regulatory regime, according to Mr. MacDonald, has been an “explosion” of wage-hour litigation targeting employers. The number of FLSA-related lawsuits has “quadrupled” to 7,000 in 2010.

To make FLSA more relevant for the 21st Century, SVP MacDonald recommended a number of “fixes,” including modernizing the computer employee exemption; clarifying the de minimus exception; expanding the exemption for inside salespeople; and allowing for federal preemption of the myriad state and local wage and hour laws.

In a dramatic closing, MacDonald told the members of the committee, “The FLSA binds our businesses and our workers in European-style regulatory knots that restrain growth, innovation, jobs and work/life flexibility. But, we aren’t Europe. America fixes problems, and this is one we must fix.”

What’s the outlook on Capitol Hill?

No one in Washington DC or anywhere else in the U.S. for that matter would disagree that the 1938 Fair Labor Standards Act needs to be modernized. The nation’s wage-hour law has become an anachronism.

The challenge in framing a 21st Century FLSA, however, is that Capitol Hill inertia inevitably tends to lock in 1930s standards. The debt ceiling debate demonstrates that the gulf between Democrats and Republicans is widening and now affects almost every issue. Economic policy; workforce policy; education policy; tax policy; trade policy—all fall into the partisan divide.

Modernizing FLSA undoubtedly will provoke similar political schism. The issue nevertheless deserves to be presented and considered by Congress and the White House. For this the HR Policy Association, IBM and Randy MacDonald are to be commended.

But while we all aspire to a 21st Century FLSA we can have no illusions that policymakers will be able to escape the pull of 1938.

In the end advocates of FLSA change may have to identify with the last words of F. Scott Fitzgerald’s classic “The Great Gatsby”: So we beat on, boats against the current, borne back ceaselessly into the past.