Compensation: Pay and Benefits

TERMINOLOGY

Comparable worth – a doctrine that maintains that jobs held primarily by women should be paid the same as jobs held by men having the same internal value

Compa-ratio – a ratio (average rate paid/range midpoint) that indicates whether actual pay is what the pay policy intends)

Compensatory time – time off, awarded at time-and-one-half, in lieu of overtime pay

Defined benefit plans – retirement plan in which the employer agrees to provide a specific level of retirement contribution

Defined contribution plans – retirement plan in which the employer contributes a fixed amount and the benefit depends on how the funds are invested

Equal pay for equal work – a standard that defines equal jobs as those with equal skill, effort, responsibility, and are performed under similar working conditions and requires that these jobs must receive equal pay. Unlike comparable worth, this is a legal standard

Exempt employees – certain employees exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act

Gain-sharing – giving employees part of the amount saved when labor costs are less than expected

Health maintenance organization (HMO) – alternative to traditional medical insurance that provides a standard of medical services to employees for a fixed cost

Managed care – plan under which employees receive comprehensive health care from designed providers that have negotiated a flat rate contract with the employer

Medical savings account (MSA) – employer-funded account from which the employee may pay out-of-pocket medical expenses

Minimum wage – a minimum hourly wage that must be paid to any employee covered by the Fair Labor Standards Act

Non-exempt – employees subject to minimum wage, overtime, and timekeeping requirements established by the Fair Labor Standards Act

Overtime pay – payment at the rate on one and one-half times the employee’s regular rate for hours in excess of 40 in a workweek. This required by the Fair Labor Standards Act.

Preferred provider organization (PPO) – plan under which various health care providers contract with the employer to provide services at competitive rates

Social security – federal program provided retirement, disability, death, survivor, and health insurance benefits, funded by employer and employee contributions

Unemployment compensation – a partial wage replacement program for employees laid off through no fault of their own who are willing to accept a similar jobs

Workers’ compensation – insurance that provides a percentage of lost wages and medical and rehabilitation expenses resulting form on-the-job injuries

FAIR LABOR STANDARDS ACT of 1938 as amended

  • Also known as the Wage and Hour Law

  • Congress intended to extend the Davis-Bacon Act and Walsh-Healy Act to all workers

  • Administered by the Department of Labor

  • Major provisions:

    • Minimum Wage

    • Overtime pay

    • Child labor restrictions

    • Equal pay for equal work regardless of gender

Note: State and local governments not required to pay overtime, but may award compensatory time at time and a half for hours worked over 40 per week in lieu of overtime (240 hours maximum accrual)

WHO IS COVERED BY THE FLSA?

  • Most people are covered by the law as a covered employee or because they are employees of an employer that is a covered enterprise

  • The Commerce Standard applies to these groups:

    • Employees who in any work week are engaged in interstate or foreign commerce

    • Or are engaged in the production of goods for interstate or foreign commerce

WHAT IS COMMERCE?

  • Commerce means trade, transportation, transmission, or communication among the several States or between any State and any place outside of it

  • Some employers must have annual sales above a specified amount to be covered by FLSA

  • Retail and service establishments must have $250,000+ annual revenue

  • The standard for other establishments is $362,500+ annual revenue

RECORDKEEPING REQUIREMENTS UNDER FLSA

  • Personal information, including name, address, occupation, gender, and date of birth (if under age 19)

  • Hour and day when workweek begins

  • Total hours worked each workday and each workweek

  • Total daily or weekly straight-time earnings

  • Regular hourly pay rate for any week when overtime is worked

  • Total overtime pay for the workweek

  • Deductions from or additions to wages

  • Total wages paid each pay period

  • Date of payment and pay period covered

HOURS OF WORK UNDER FLSA

  • All hours must be compensable

  • Overtime pay is not an option

  • FLSA covers all hours worked or permitted to work

  • If employee required to be on premises or at work station during lunch period, then time is compensable

  • For non-exempt employees, travel time, waiting and on-call time, rest periods, and training time may be considered hours worked under certain circumstances

MINIMUM WAGE HISTORY

  • 1938 — $. 25 hour

  • 1991 — $4.25 hour

  • October 1996 — $4.75 hour

  • September 1997 — $5.15 hour

NON-EXEMPT EMPLOYEES (Must keep record of time worked)

  • Can be hourly or salaried

  • Eligible for overtime in excess of 40 hours per work week

  • Usually clerical, skilled craft, maintenance, or technical positions

EXEMPT EMPLOYEES

  • Exempt from overtime and minimum wage

  • Uniform pay no matter how many hours worked

  • In many cases is on call for 24 hours, 7 days a week

  • Must meet test set forth by FLSA

  • Salaried is not synonymous with exempt

EXEMPT FROM TIMEKEEPING REQUIREMENTS AND OVERTIME

  • Executives

  • Administrative employees

  • Professional employees

  • Outside salespersons

FLSA EXECUTIVE SHORT TEST

  • Primary Duty — Management (50%+)

  • Directs two or more employees

  • Salary of $250 per week minimum

  • Has hire/fire authority

FLSA ADMINISTRATIVE SHORT TEST

  • Primary duty — Office (non-manual) related to management

  • Exercises discretion

  • Salary of $250 per week minimum

FLSA PROFESSIONAL SHORT TEST

  • Primary duty – work which requires advanced knowledge through prolonged course of study

  • Exercises discretion

  • Salary of $250 per week minimum

FLSA OUTSIDE SALES TEST

  • Sells away from employer’s business

  • Hours of non-selling not more than 20%

  • No salary test

CHILD LABOR

  • FLSA covers children under the age of 18

  • Generally children ages 13 and under can not work

  • 14 & 15 year olds may work in non-hazardous jobs at restricted hours

  • May not work more than 3 hours per day on a school day or more than 8 hours per day on a non-school day

  • Hours of work must fall between 7 AM and 7 PM except between June 1 and Labor Day, inclusive

  • May not work more than 18 hours per week when school is in session or more than 40 hours per week when school is not in session

  • 16 and 17 year olds may work in any non-hazardous job

FAMILY AND MEDICAL LEAVE ACT OF 1993

  • Objective

    • To balance demands of the workplace with the needs of families

    • To entitle employees to take reasonable leave for family and medical reasons

    • To foster a quality work environment

    • Recruitment, retention, and improved productivity of employees

  • What is FMLA?

    • Grants employees up to 12 weeks of unpaid leave per year

    • Childbirth, adoption, foster placement and aftercare of children (within 12 months after birth or placement)

    • Care for family members (child, spouse, or parent) with a serious health condition

    • Employee’s own serious health condition that makes the employee unable to perform the essential functions of the job

  • What is a serious health condition?

    • Illness, injury, impairment, or physical or mental condition that involves:

      • Inpatient care;

      • Continuing treatment which includes a period of incapacity of more than three consecutive calendar days and any subsequent treatment of period of incapacity relating to the same condition

      • Any period of incapacity due to pregnancy, or for prenatal care

      • Chronic serious health condition that requires periodic visits to a health care provider and may continues over an extended period of time

      • Permanent/long-term conditions requiring supervision

      • Multiple treatments

  • Who is eligible?

    • Those employed by the employer for at least 12 months ( can be broken months)

    • Those employed at lest 1,250 hours of service during the 12-month period (months do not have to be consecutive)

    • Those employed at a worksite where 50 or more employees are employed by the employer within 75 miles of the worksite

  • How to apply?

    • 30 days advance notice unless an emergency or unforeseen circumstance

    • Unforeseeable leave can be requested as soon as practicable

    • Complete an application for FMLA with Human Resources or designated office

    • Requests for illness also require a Health Care Provider’s Certification must be returned within 15 days

  • Employee notification

    • FMLA policy given to all new employees

    • If employee calls in sick, supervisor should advise employee that potential FMLA eligibility if a serious health condition

  • Return to comparable job

    • Employees will be returned to a same or equivalent position, including same shift or equivalent schedule

    • Benefits accrued prior to leave will be retained at the same levels upon return to work

EQUAL PAY ACT OF 1963

  • Provides for equal pay between men and women when they are engaged in equal duties, equal responsibilities, equal authority, for work that is substantially the same

  • The law does not guarantee a job, a pay increase or a stated income level

  • Prohibits employers from reducing the pay of a man in order to provide equal pay for a women

  • The Act does allow wage differentials in four general categories:

    • A bona fide seniority system, where wages are based on length of service

    • A merit pay system where pa is determined by legitimate performance measures

    • A system that measures earnings by quantity or quality of production

    • A differential based on any factor other than gender, such as differential between regular and temporary employees or geographic differences

AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967

  • ADEA prohibits discrimination against persons aged 40 and over

  • Prohibits mandatory retirement ages

  • Applies to employers with 20 or more employees

  • ADEA provides for BFOQ for age, but, only in very narrowly defined circumstances.

  • Airline pilots can be forced to retire from flying as can police force members

  • Courts have determined that public safety may be jeopardized if individuals above a certain age were to be permitted to continue working in their occupation

  • Employers may provide benefits on the basis of equal cost or equal benefit

TITLE IV OF THE CIVIL RIGHTS ACT OF 1964

  • Prohibits discrimination based on race, color, religion, gender, or national origin for essentially all personnel activity including benefits such as medical and retirement

  • Compensation practices must avoid both disparate treatment discrimination and disparate impact discrimination

    • Disparate Treatment occurs when an employee is the victim of intentional discrimination, such as refusing to allow women to participate in stock option plans

    • Disparate Impact occurs when a policy that seems to be neutral results in unintentional discrimination against members of a protected class. Offering a stock option only to full-time employees may discriminate against women if most of the part-time employees are women

DETERMINING PAY FOR EMPLOYEES

  • Administration of individual pay

  • Seniority-based pay

  • Performance-based pay

  • Merit Pay

  • Individual incentive pay

  • Group incentive pay

  • Skill-based pay

  • Executive Compensation

A HISTORICAL LOOK AT BENEFITS

  • Before 1970, benefit referred to as “fringe benefits”

  • Only represented a small portion of the total compensation program

  • Employee benefits represent an average of 40% of the total package

  • Compensation plans are designed to attract and retain employees, while controlling costs

ADVANTAGES OF EMPLOYER SPONSORED BENEFITS

  • Benefits are provided on a tax-free basis

  • Group benefits are usually better than those purchased by an individual

  • Group benefits are usually cheaper than those purchased by an individual

  • Can be designed to attract the desired labor market

  • Consider employee demographics

LEGALLY MANDATED BENEFITS

  • Workers’ compensation

  • Unemployment compensation

  • Social security

RETIREMENT AND SAVINGS PLANS

  • Social security

  • Personal savings

  • Company sponsored retirement programs

  • Defined Benefit Programs

  • Defined Contribution Programs

  • Deferred Compensation

  • Tax Advantages

DEFINED BENEFIT PLANS

  • Retirement benefits are formula based and usually a function of time worked and salary paid

  • Employers make annual contribution to plan based on actuarial computations to pay the vested retirement benefits

DEFINED CONTRIBUTION PLANS

  • Retirements benefits are based on amount of money invested and earnings over time

  • Employee assumes the investment risk and may be as conservative or aggressive as employee chooses

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA)

  • Federal law covering private sector benefit plans

  • Instruction for the operation of pension plans

  • Does not require establishment of retirement plans

  • Requires that participation in established plans begins at age 21

  • Established the Pension Benefit Guaranty Corporation (PBGC)

  • Provides insurance for pensions

  • If plan is under funded or if company goes bankrupt, the PBGC insures that pension benefits are received

HEALTH AND MEDICAL BENEFITS

  • Pays for all or part of hospital costs and physician’s charges

  • Premiums for coverage are usually all or part paid by employer

  • Types of health care systems

  • Community based plan such as Blue Cross Blue Shield

  • Commercial Insurance Plan (national or regional coverage)

  • Self-insured by the company

  • Health Maintenance Organization (HMO)

  • Preferred Provider Organization (PPO)

HEALTH INSURANCE PORTABILITITY AND ACCOUNTABILITY ACT OF 1996 (HIPPA)

  • Pre-existing condition exclusion periods and a newly created Certificate of Creditable Coverage

  • Guaranteed availability and renewability of coverage

  • Notice and disclosure requirements regarding these changes

LIFE INSURANCE

  • Group term life insurance offered by employer

  • Company may provide insurance in increment of salary level

  • Premiums for insurance in excess of $50,000 are taxed

  • Offer optional purchase of insurance

  • May offer dependent life benefits

BENEFITS TO COVER LOSS OF INCOME

  • Sick leave

  • Short-term disability

  • Long-term disability

TIME OFF BENEFITS

  • Paid Vacation

  • Paid Holidays

  • Sick Leave

  • Jury Duty

  • Military Duty

  • Sabbatical Leave (with or without pay)

NO FEDERAL MANDATES FOR THE FOLLOWING:

  • Rest or meal periods

  • Length of shift

  • Premium pay for weekend or holiday

  • Pay raises or benefits

  • Vacation or holiday pay

  • Severance or sick pay

  • Discharge notices or giving reason for discharge

  • Immediate payment of final wages

COMMON TYPES OF AWARDS PROGRAMS

  • Length of service

  • Attendance programs

  • Safety or accident free work days

  • Customer service

  • Sales awards

  • Suggestion programs

  • Productivity Improvement programs