Page 1 GAO-05-580R Fair Labor Standards Act 

June 3, 2005 

The Honorable George Miller 

Ranking Minority Member 

Committee on Education and the Workforce 

House of Representatives 

Subject: Fair Labor Standards Act: Labor Made Key Decisions in Studies 

 of Updated Overtime Rule and Contractor Provided Support

Dear Mr. Miller: 

In 2004, the Department of Labor (Labor) updated the rule that determines 

who is entitled to overtime pay of “time and a half” when they work more 

than 40 hours a week. As part of the rule-making process, Labor was 

required to estimate the impact of the updated overtime rule and publish 

the results in the Federal Register. Labor contracted with the CONSAD 

Research Corporation (CONSAD) to assist the agency in studying the 

impact of both the proposed and final overtime rule. 

Because of your interest in these studies and how they were conducted, 

we agreed to identify: (1) CONSAD’s contractual responsibilities in 

assisting Labor with estimating the impact of the updated overtime rule on 

workers and (2) CONSAD’s actions in carrying out these contractual 

responsibilities. To determine CONSAD’s responsibilities, we obtained and 

analyzed two contracts between Labor and CONSAD. The first contract 

covered CONSAD’s responsibilities related to Labor’s impact study for the 

proposed overtime rule, while the second contract covered CONSAD’s 

responsibilities related to Labor’s impact study for the final overtime rule. 

To determine CONSAD’s actions in carrying out these responsibilities, we 

reviewed CONSAD’s reports as well as the impact studies for the proposed 

and final rule that Labor published in the Federal Register. In addition, we 

interviewed officials from Labor and CONSAD. While this review 

describes the creation of the impact studies, it does not assess the 

soundness of the studies. We conducted our work from August 2004 to 

April 2005 in accordance with generally accepted government auditing 

standards. 

The contracts required CONSAD to provide technical and analytic support 

to assist Labor in estimating the impact of the updated overtime rule. For 

United States Government Accountability Office

Washington, DC 20548 

Results in Brief 
Page 2 GAO-05-580R Fair Labor Standards Act 

the proposed rule, the contract tasked CONSAD with writing reports on 

the costs and benefits of the rule as well as the impact of the rule on 

businesses and state and local governments. Although the contract did not 

specifically require CONSAD to estimate the impact of the proposed rule 

on workers, it did provide for CONSAD’s assistance in performing other 

analyses. In keeping with this provision, Labor asked CONSAD to estimate 

the number of workers who could gain or lose overtime pay as a result of 

the proposed rule. After CONSAD completed its work on the proposed 

rule, Labor and CONSAD set up a second contract to have CONSAD assist 

with the study of the final overtime rule. The contract language covering 

CONSAD’s work on the final rule specifically required CONSAD to 

estimate the impact of the updated rule on workers. CONSAD was 

required to provide information on affected workers, including their ages, 

educational backgrounds, and occupations. For both contracts, Labor was 

responsible for overseeing CONSAD’s work and had the authority to select 

the direction and scope of CONSAD’s analyses. 

Consistent with the contracts, CONSAD provided Labor with technical and 

analytic support, and Labor made all of the key decisions in estimating the 

impact of the updated overtime rule. CONSAD conducted literature 

searches, proposed certain research methods, analyzed data, and wrote 

summary reports. Labor, in turn, selected the research methodologies, 

picked the data sources, and provided the legal and policy interpretations 

used in the studies. Labor officials wrote the impact studies published in 

the Federal Register. For the CONSAD reports and the impact studies in 

the Federal Register, Labor noted it was responsible for creating the 

numbers that estimated the impact of the updated overtime rule on 

workers. 

In commenting on the draft of this report, Labor noted that it concurred 

with our findings. Labor also provided technical comments that we 

incorporated where appropriate. 

The Fair Labor Standards Act (FLSA) limits the normal work week to 40 

hours, requiring most employers to pay hourly overtime wages to 

employees who work longer than 40 hours. However, employees working 

in a “bona fide executive, administrative, or professional capacity” are 

Background 
Page 3 GAO-05-580R Fair Labor Standards Act 

exempted from the wage and hour standards and need not be paid 

overtime pay for a work week longer than 40 hours.1

Under the FLSA, Labor is responsible for setting the criteria for these 

exemptions, and historically it has formulated specific tests based on the 

accumulated experience of employers, employees, and its own field staff. 

In 2003, Labor proposed changes to the overtime rule, partly in response 

to a GAO report recommending that Labor modernize the rule, which had 

not been substantially changed in almost 50 years.2

Labor’s proposed rule changed the tests used to determine whether 

employers must pay overtime. For example, under the overtime rule in 

effect in 2003, workers who earned up to $155 a week were guaranteed 

overtime pay (time and a half of their regular rate) for the hours worked 

beyond a 40-hour work week. Workers who earned more than this amount 

were subject to various tests, called duties tests, to determine whether 

their duties exempted them from the overtime pay requirement.3

 Under the 

proposed rule, overtime eligibility for most workers earning up to $425 a 

week would be guaranteed. In addition, the proposed rule changed the 

tests used to determine whether the duties of higher income workers 

qualified them to be considered executive, administrative, or professional 

employees and therefore not entitled to overtime pay. 

Labor was required to publish its proposed changes to the overtime rule 

and its estimate of the impact of the proposed changes. Several different 

statutes and executive orders require executive agencies to prepare 

impact studies when publishing significant rules.4

 Accordingly, Labor 

published both the proposed rule and the related impact study in the 

 1

Fair Labor Standards Act, section 13(a)(1). 

2

GAO, Fair Labor Standards Act: White-Collar Exemptions in the Modern Work Place, 

GAO/HEHS-99-164 (Washington, D.C.: Sept. 30, 1999). 

3

The base salary level test for executive and administrative employees was $155 per week, 

and for professional employees it was $170 per week. 

4

The primary ones include Executive Order 12866, which requires agencies to conduct a 

cost-benefit assessment of “economically significant rules,” and the Regulatory Flexibility 

Act, which requires agencies to submit a regulatory flexibility analysis that describes the 

impact of the proposed rule on small entities. 
Page 4 GAO-05-580R Fair Labor Standards Act 

Federal Register.

5

 The Federal Register publication invited the public to 

provide comments on all aspects of the proposed rule. 

After considering over 75,000 public comments received on the proposed 

overtime rule, Labor revised the proposed changes, finalized the rule, and 

published a second impact study. For the final overtime rule, Labor 

increased the salary level below which workers would be guaranteed 

overtime to $455 per week, and revised the proposed language of the 

duties tests for higher income workers.6

 In April 2004, Labor published the 

final version of the overtime rule and the related impact study in the 

Federal Register.

7

 The updated rule went into effect in August 2004. 

Labor contracted with CONSAD, an economic and public policy 

analysis consulting firm, to assist with estimating the impact of both the 

proposed and final overtime rule. Labor noted that it solicited bids from 

several contractors and chose CONSAD because the firm had the expertise 

and experience to do the work and was the low cost bidder. CONSAD 

officials pointed out that since the 1970s the firm has assisted federal 

agencies in creating impact studies for federal rules. 

A general prohibition exists against contractors performing functions that 

are inherently governmental. Under guidance from the Office of 

Management and Budget, contractor services that relate to the 

development of regulations are not considered to be inherently 

governmental if agencies preserve appropriate control. 

At the time the overtime rule was being updated and the impact studies 

were being conducted, there was no federal requirement that technical 

 5

The proposed changes to the overtime rule, entitled “Defining and Delimiting the 

Exemptions for Executive, Administrative, Professional, Outside Sales and Computer 

Employees” and information on the impact of these proposed changes were published in 

the Federal Register on March 31, 2003 (68 Fed. Reg. 15560). Throughout this report, we 

refer to all of the impact analyses presented in this Federal Register notice as 

Labor's impact study on the proposed rule.

6

Similar to the overtime rule in effect in 2003, the updated overtime rule’s salary level for 

guaranteed overtime is not indexed for inflation. 

7

The final version of the overtime rule and information on the impact of the final rule were 

published in the Federal Register on April 23, 2004 (69 Fed. Reg. 22122). Throughout this 

report, we refer to all of the impact analyses presented in this Federal Register notice as 

Labor's impact study on the final rule. 
Page 5 GAO-05-580R Fair Labor Standards Act 

material in impact studies be subject to a peer review by outside experts.8

Accordingly, the impact studies for the overtime rule were not given a peer 

review.9

CONSAD was responsible for providing technical and analytic support to 

assist Labor in estimating the impact of the updated overtime rule. 

Specifically, CONSAD was charged with supplying the “information, data, 

and economic” analyses that Labor needed to prepare the impact studies 

for the proposed and final overtime rule. 

The contract for the proposed rule required CONSAD to produce various 

reports on the impact of the updated rule. For example, CONSAD was 

tasked with conducting a cost-benefit analysis for the rule, reporting on 

the impact of the rule on businesses as well as reporting on how the rule 

would affect state, local, and tribal governments. Although the contract 

did not specifically require CONSAD to analyze the impact of the proposed 

rule on workers, it did allow for “other economic reports and analyses.” 

According to both Labor and CONSAD, Labor asked CONSAD to estimate 

the number of workers who could gain or lose actual overtime pay under 

the proposed rule. 

After CONSAD completed its work on the proposed overtime rule, Labor 

and CONSAD set up a second contract to allow for CONSAD to assist in 

studying the final overtime rule. For the final rule, CONSAD was required 

to provide a report to Labor estimating the number of workers affected by 

the changes to the overtime rule. In addition, the contract specified that 

CONSAD would profile the types of workers affected by the updated rule 

and provide details on them, including their ages, educational 

backgrounds, and occupations. The contract also required CONSAD to 

review public comments on the impact study for the proposed rule. A 

Labor official noted that the contract for the work on the final rule was 

more detailed than the contract for the proposed rule, because the agency 

 8

The Office of Management and Budget has since issued guidance to federal agencies 

requiring peer review of important scientific information distributed by the federal 

government, including the models used in regulatory impact analyses. See Office of 

Management and Budget, Final Information Quality Bulletin for Peer Review 

(Washington, D.C.: Dec. 15, 2004). 

9

Labor noted that the Council of Economic Advisers and the Office of Management and 

Budget reviewed the impact study for the final overtime rule and furthermore, Labor 

pointed out that this review would have met many of the new peer review requirements 

had they been in effect at that time. 

Contracts Required 

CONSAD to Provide 

Technical and 

Analytic Support to 

Labor 
Page 6 GAO-05-580R Fair Labor Standards Act 

had more experience with the subject matter and had the benefit of 

thousands of public comments by the time it asked CONSAD to do this 

additional work. 

Consistent with federal guidance, both contracts noted that Labor was 

responsible for overseeing CONSAD’s work. Labor was responsible for 

approving the direction and scope of CONSAD’s analyses. In addition, 

Labor had the authority to approve the specific methodologies used by 

CONSAD to collect and evaluate data. According to the contracts, 

CONSAD’s performance would be evaluated in part on the contractor’s 

responsiveness to Labor’s directions. 

CONSAD provided Labor with technical and analytic support in estimating 

the impact of the updated overtime rule. Consistent with federal 

requirements, Labor made all of the key decisions in the studies for the 

proposed and final overtime rule. Figure 1 presents the respective key 

responsibilities of both Labor and CONSAD in developing these impact 

studies for the overtime rule (see fig. 1). 

While CONSAD 

Provided Support, 

Labor Made All Key 

Decisions in Impact 

Studies 
Page 7 GAO-05-580R Fair Labor Standards Act 

Figure 1: Key Responsibilities of Labor and CONSAD in Creating the Impact Studies 

Labor and CONSAD worked closely with one another during the studies of 

the proposed and final overtime rule. CONSAD conducted literature 

searches, proposed certain methods for conducting the impact studies, 

analyzed data, and wrote summary reports. In addition, during the 

development of the overtime rule, CONSAD served as a sounding board as 

Labor assessed the economic impacts of potential rule changes. Labor was 

developing the rule at the same time CONSAD was helping to measure its 

impact. As a result, the process can be characterized as quite dynamic, 

with Labor providing CONSAD with ongoing changes to the rule and Labor 

modifying both the proposed and final rule in response to CONSAD’s 

analyses. For example, Labor tested several salary levels for guaranteed 

overtime during the rule-making process and changed the levels in 

response to data from CONSAD on the number of workers who would be 

affected. To facilitate this exchange of information, Labor and CONSAD 

communicated frequently in person or via telephone and e-mails and sent 

data spreadsheets back and forth. 

 Department of Labor

Oversaw CONSAD’s

work

Made key decisions

Selected research 

methods

Provided legal 

and policy 

interpretations

Wrote official studies

Proposed research 

methods

Analyzed data and

conducted literature

searches

Wrote supporting

reports

Provided support 

to Labor

Carried out Labor’s 

directions

Source: Labor and CONSAD officials.

 CONSAD 

Research Corporation
Page 8 GAO-05-580R Fair Labor Standards Act 

Consistent with the contracts, Labor directed the impact studies and made 

the key methodological and data decisions. For example, Labor instructed 

CONSAD to estimate the impact of the updated overtime rule by looking at 

data on workers’ wages and occupations. CONSAD then performed 

analytic tasks in response to Labor’s direction and made modifications as 

needed in response to Labor’s requests. 

Labor also provided CONSAD with all of the legal and policy 

interpretations underlying the impact studies. For example, Labor 

informed CONSAD that certain workers— including federal employees, 

self-employed workers, and clergy—were not covered by the FLSA and 

therefore were not entitled to overtime pay. Additionally, Labor provided 

CONSAD with the agency’s interpretations of the updated rule’s duties 

tests and explained to CONSAD how the agency would enforce these tests. 

CONSAD used this information to help estimate the impact of the updated 

overtime rule on workers. 

Although Labor had key decision-making authority in the impact studies 

for both the proposed and final overtime rule, it played a much more 

“hands-on” role in estimating the impact of the final rule. According to 

Labor, the agency had additional staff resources available to assist with 

the final impact study. 

CONSAD produced two formal reports, one summing up its work with 

Labor on the proposed overtime rule and the other documenting its work 

with Labor on the final rule. In addition to covering topics such as the 

impact of the rule on businesses, both products described the effect of the 

updated rule on workers. The reports, however, varied in how they 

summarized the number of workers affected by the rule change. For 

example, the CONSAD report on the proposed rule used ranges to show 

the minimum and maximum number of workers affected by certain 

provisions of the rule. In contrast, the CONSAD report on the final rule 

used specific numbers to estimate the effect of the rule change on these 

workers. According to Labor, this shift from using ranges to using specific 

numbers to report the impact of the rule on workers was due to 

methodological differences between the study of the proposed rule and 

the study of the final rule. Labor noted that the agency decided to change 
Page 9 GAO-05-580R Fair Labor Standards Act 

methodologies due to technical concerns and was interested in improving 

the accuracy of the resulting estimates.10

In addition to providing Labor with these reports, CONSAD reviewed some 

public comments on the proposed rule. Specifically, CONSAD reviewed 

public comments that critiqued the impact study for the proposed rule on 

technical grounds. As part of its review of these public comments, 

CONSAD examined a critique submitted by the Economic Policy Institute 

(EPI). CONSAD officials then held discussions with Labor regarding the 

methodological issues raised by the EPI critique. CONSAD noted that it 

did not provide any quantitative analysis to Labor regarding the EPI 

critique.11 In response to the entire range of public comments on the 

proposed rule, Labor modified the final overtime rule and the impact study 

for the final rule. 

Labor officials wrote the impact studies published in the Federal Register. 

Portions of these studies were based on the analyses Labor had developed 

with CONSAD (see fig. 2 for timeline of studies and related CONSAD 

reports). Although Labor’s impact study for the proposed rule included 

some information on the rule’s impact on workers, it focused primarily on 

the impact on businesses and government. However, the study did note 

that readers could contact Labor to obtain a related report with additional 

information. In response to such requests, the agency provided copies of 

the CONSAD report on the proposed rule, which included more details on 

the impact of the proposed rule on workers. 

 10For Labor’s full description of the change in methodologies, see the Federal Register on 

April 23, 2004 [69 Fed. Reg. 22201]. 

11The EPI critique discussed the difference between measuring the impact of the updated 

overtime rule in terms of the actual number of workers whose paychecks would be 

affected and measuring it in terms of the number of workers whose broader rights to 

overtime protection would be affected even if they currently do not work more than 40 

hours a week. According to both Labor and CONSAD, CONSAD did not provide Labor with 

a ratio estimating the number of workers whose paychecks would be affected to the 

number of workers whose overtime rights would be affected by the updated rule. 
Page 10 GAO-05-580R Fair Labor Standards Act 

Figure 2: Timeline for CONSAD’s Reports and Labor’s Impact Studies for the 

Updated Overtime Rule 

For the impact study on the final overtime rule, Labor presented a much 

more detailed analysis, focusing in large part on the impact of the rule on 

workers. Although Labor published this impact study in the Federal 

Register before it received the CONSAD report on the final rule, much of 

the information in the CONSAD report had already been delivered to 

Labor, and the final CONSAD report simply compiled this information into 

one document. 

For the CONSAD reports and the impact studies Labor published in the 

Federal Register, Labor noted it was responsible for creating the numbers 

that estimated the impact of the updated overtime rule on workers. 

Consistent with federal requirements, Labor stated that it directed, 

reviewed and approved of the process for calculating these numbers. 

We provided a draft of this report to Labor for review and comment. 

Labor noted that it concurred with our report. Labor's official comments 

are reproduced in enclosure I. Labor also provided technical comments 

that we incorporated where appropriate. 

As we agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution of this report until 30 

days after its date. At that time, we will send copies to the Department of 

Labor and other interested parties. In addition, this report will be available 

at no charge on GAO’s Web site at http://www.gao.gov. 

Agency Comments 

and Our Evaluation 

Source: GAO analysis of CONSAD’s reports and Labor’s studies.

2/10/03 3/31/03 4/23/04 5/14/04

/ /

CONSAD

produces report 

on proposed rule

Labor publishes

impact study on

proposed rule

Labor publishes 

impact study on 

final rule using 

information 

developed with 

CONSAD

CONSAD 

produces report 

on final rule - 

a compilation of 

information 

previously delivered 

to Labor
Page 11 GAO-05-580R Fair Labor Standards Act 

Please contact me on (202) 512-7215 or robertsonr@gao.gov, if you or your 

staff have any questions about this letter. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in enclosure II. 

Sincerely yours, 

Robert E. Robertson, Director 

Education, Workforce, and Income Security Issues 

Enclosures – II 
Enclosure I: Comments from the Department 

of Labor 

Page 12 GAO-05-580R Fair Labor Standards Act 

Enclosure I: Comments from the Department 

of Labor 
Enclosure II: GAO Contact and Staff 

Acknowledgments 

Page 13 GAO-05-580R Fair Labor Standards Act 

Robert E. Robertson (202) 512-7215 

Brett Fallavollita, Assistant Director, and Melissa Emrey-Arras, Analyst in 

Charge, contributed significantly to all aspects of this report. In addition, 

Theresa Chen assisted in the design of the study and gathered information 

for our findings. Richard Burkard, James Rebbe and Sheila McCoy 

provided legal support, while Kenneth Bombara helped the team 

understand the impact analyses. Corinna Nicolaou assisted the team in 

writing the report. 

Enclosure II: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(130391) 
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