aPHR - Compensation and Benefits
List of Professions Exempt from FLSA
(1) Business Owner (2) Executive (3) Creative Professional (4) Learned Professional (5) Computer-related (some) (6) Outside Salespersons
Types of external equities
(Uses market information to develop pay ranges) Wage and salary surveys Bench mark jobs: jobs within your organization that can be matched to similar jobs in the market Collecting salary data: participate in industry surveys, purchase surveys, develop own survey (drawbacks include knowing your competition's pay practices - Sherman Antitrust Act, price/wage-fixing) Age data: adjust all salary survey data to same date Level data: adjust the salary survey data to better fit your job requirements (subjective)
Portal to Portal Act (1947) - Rest and Meal periods
- 20 minutes or less counted as time worked - 30 minutes or more usually unpaid
Types of Defined Compensation Plans - 403(b) Plan
- Available to employees of educational institutions and certain non-profit organizations - Both 401(k) and 403(b) contributions and investment earnings grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income
Flexible Benefit Plans - Health reimbursement account (HRA)
- Company funded expense accounts - Typically, employers put about $1,000 to $2,000 into each account - Employees, who manage the accounts, use the funds to buy health services and prescription drugs
Strategic Benefits Objectives Strategy Designed to:
- Comply with government required benefits - Enhance workers satisfaction - Attract and retain qualified workers - Reduce turnover
Types of Defined Compensation Plans - Roth 401(k) Plan
- Contributions are made with after-tax dollars - The account grows tax free - Withdrawals taken during retirement will not be subject to income tax, provided the participant is at least 59 1/2 and has held the account for five years or more
Non-Qualified (for ERISA) Retirement Plans
- Employee benefit plans that do not adhere to strict IRS standards - Cover only select groups of employees - Do not receive favorable tax treatment - Often used to provide additional, non-tax deferred, retirement benefits for executives
Managed Care Plans - Point-of-Service (POS)
- Employee chooses primary health provider - Doesn't have to go there first - Deductible if goes elsewhere
Flexible Benefit Plans - Flexible spending accounts (FSA)
- Employee may add pre-taxed dollars to the plan to pay for un-reimbursed medical expenses and dependent care - Must use the dollars within the year or lose them (exception: employer plans may allow a 2 1/2 month extension into the next year for follow-up treatment begun in the previous year) Section 125 of the IRS code
Defined Contribution Plans
- Employer and/or employee funded - Account in employee's name - Balance in account determined by fund performance
Types of Defined Compensation Plans - Safe Harbor 401(k) Plan
- Employer contributions must be fully vested when made; - Not subject to many of the complex tax rules associated with a traditional 401(k) plan, including annual IRS nondiscrimination testing
Traditional Pension Plan
- Employer promise of retirement income - Benefit determined by formula (example: age, years of service, compensation at time of retirement) - Monthly income for life - Insured by the Pension Benefit Guarantee Corporation (PBGC) - part of ERISA
Flexible Benefit Plans - Cafeteria plan
- Employer provides "credits" for employees to use to select benefits - Employee may "buy" additional credits with pre-tax dollars - May receive cash for unused credits
Managed Care Plans - Preferred Provider (PPO)
- Employers, or third-party insurers, contract with health care providers for reduced fees - Members may go inside network of providers for reduced fees, or pay more to go outside of network
Types of Benefits
- Government mandated benefits - Voluntary employee benefits
In general, ERISA does not cover:
- Group health plans established or maintained by governmental entities; - Churches for their employees; - Plans maintained solely to comply with applicable workers compensation, unemployment, or disability laws; - Plans maintained outside the United States for nonresident alien - Unfunded excess benefit plans
Types of Health Insurance Plans
- Indemnity plans - Managed care plans - Managing health insurance costs
Accidental Death and Dismemberment
- Insurance providing benefits for loss of life, limbs, or eyesight as the result of an accident - Usually included with life insurance
Federal and Medical Leave Act, FMLA - Amendment to FMLA - National Defense Authorization Act
- Leave for military families to deal with the obligations arising from a call to duty - Employers required to provide: up to 12 weeks of unpaid leave during any twelve month period to a eligible employee who is the spouse, parent, or offspring of a member of the Armed Forces on active duty to address any "qualifying needs" - Up to 26 workweeks of leave during a 12 month period to care for that service member
Financial benefits
- Life insurance - Accidental death and dismemberment - Long term disability - Short term disability - Tuition reimbursement
Professional compensation
- Maturity curve - pay for years of experience - teachers, scientists, engineers - Dual career ladder (path) - professional may take technical or managerial track and be eligible for same compensation level
Types of Defined Compensation Plans Vesting Vesting schedules
- Maximums set by ERISA - For employer matching contributions 3 years cliff for 6 year graded - For employer profit sharing contributions 5 year cliff or 7 year graded
Tuition Reimbursement
- Must comply with Section 127 of IRS code - Now includes graduate level courses
Types of Defined Compensation Plans - Money Purchase Plans
- Non-discretionary - Fixed percentage of employee earnings each year
Job evaluation methods
- Non-quantitative (whole job) methods: ranking, paired comparison, job classification system - Quantitative methods: point factor method, factor comparison, hay profile, market-based evaluation
Portal to Portal Act (1947) - Waiting and on-call
- Not paid unless it restricts the employee's activities
Internal Revenue Service (IRS) Rulings
- Official documents published by the Internal Revenue Service as revenue rulings, revenue procedures, notices, announcements, and news releases provide information and guidance for tax payers. They are published weekly in the Internal Revenue Bulletin.
Portal to Portal Act (1947) - Training time
- Paid if employer requires the training - Unpaid if voluntary on employee's own time
Portal to Portal Act (1947) - Travel time
- Paid if on-the-job travel between work sites - Unpaid if commuting to and from work - Paid if one day assignment to another city (may deduct time employee would normally commute to the regular work site) - Travel away from home (overnight) (work day paid including travel time during work day; travel outside of work day is unpaid; however, work performed while traveling is paid)
Employer Compensation Philosophies - Contribution (Merit)
- Pay based on performance differences
Managed Care Plans - Health Maintenance Organizations (HMOs)
- Pre-paid - Health care provider paid per member each month - Member chooses primary care physician - Member pays nominal co-insurance fee each health care visit
Executive Exemption to FLSA
- Primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; - Must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and, - Must have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
Types of Defined Compensation Plans
- Profit Sharing Plans - Money Purchase Plans - 401(k) Plan - 403(b) Plan - Roth 401(k) Plan - Safe Harbor 401(k) Plan - Employee Stock Ownership Plans (ESOPS) - Vesting
Long term disability
- Provides partial income replacement - Usually third-party insurance
Short term disability
- Provides partial income until long-term disability insurance becomes effective - Usually employer self-insured
Computing Withholding from Pay Required reports
- Quarterly reports of gross payroll and withheld taxes filed with federal, state, and local taxing authorities - Annual IRS W-2 forms prepared for each employee and also submitted to federal and state tax agencies
ERISA Qualified Retirement Plans
- Retirement plans that meet ERISA fiduciary and reporting and disclosure standards may qualify under the IRS Code to receive favorable tax treatment - Employee contributions to the plan are tax deferred until retirement - Employer contributions are tax deductible for the current year
Types of Defined Compensation Plans - 401(k) Plan
- Section 401(k) of IRS code - Employee contributes pre-tax percentage of income through payroll deductions - Employee chooses investment options - The employee's dollars in the plan always belong to the employee - Employer may also contribute to the plan
State Laws
- State laws are often more restrictive than federal law - Must follow both and honor the most restrictive - The HRCI certification exams only address federal law
Patient Protection and Affordability Care Act (Affordable Care Act) (2010)
- The Act does not require employers to provide health insurance - However, all existing employer provided health plans must: 1. restrict annual limits; 2. prohibit rescinding (dropping) coverage except in the case of fraud or intentional misstatement of material fact; 3. limit excessive waiting periods of coverage; 4. provide coverage for non-dependent children up to age 26. Employers who do not offer health benefits, or whose workers get coverage through a state exchange, will pay a $2,000 annual penalty per employee. This provision applies to employers with 50 full-time or full-time equivalent workers. The first 30 employees are exempt from the penalty.
Voluntary Employee Benefits
- The Patient Protection and Affordability Care Act (Affordable Care Act) (2010)
Types of Defined Compensation Plans - Vesting
- The right the employee has to the employer provided funds in a defined-contribution plan - The employee may not own the employer dollars in the plan until vested
Life insurance
- Typical 1 1/2 time annual salary - Over $50,000, employee is taxed on the excess premium
Cash Balance Plan
- Unfunded account - Employees know what they will receive at retirement - At retirement can choose "lump sum" or annuity - If terminated earlier, can "cash out" fund
Determining Individual Pay - Compa-Ratio
- Used to determine how employees pay is disbursed within the pay range - Individual pay divided by the midpoint of the salary range - Can use to analyze if pay is too low or high for company's pay philosophy (lead, match, or lag) - May be used for individual jobs, departments, or total organization
Developing Job Grades
A job grade is a grouping that encompasses positions with the same or similar values in order to assign compensation rates and structures. The range of pay for every job within a job grade is traditionally the same, with a minimum and maximum rate being established. Determine natural breaks between jobs Determine number of grades Broadbanding Creates broad pay ranges
Types of Defined Compensation Plans - Employee Stock Ownership Plans (ESOPS)
A tax-qualified retirement plan Employer puts company stock into employee account rather than dollars Upon termination of employment, participants receive a tax-qualified distribution from the plan in shares of stock or cash
Incentive pay
Additional pay on top of base pay - bonus, incentives, stock options Based on individual, group, or organizational performance - Individual: cash bonus - Discretionary - Performance based - Formula based - percentage of profits Differential and incentive pay must be included when determining overtime pay for non-exempt employees
Voluntary Paid Time Off (not federally required) Paid time off banks (PTO)
Allow employees to combine their paid time off The accumulated time can then be used for vacation, personal time, personal illness or time off to care for dependents
Pay Increases - Skill-based pay
Also called Pay-for-Knowledge or Multi-Skilled pay - Salary increased as new skills are learned
Consolidated Omnibus Budget Reconciliation Act (COBRA) (1986)
Amendment to ERISA Provides for temporary continuation of group health coverage, at group rates, that otherwise might be terminated Covered employers: 20+ EEs (includes part-time EEs counted as a fraction of full time) Qualifying events: certain events that would cause an individual to lose health coverage - loss of job, full to part-time, divorce of beneficiary, maximum age of child Qualified beneficiaries: former employees and their dependents; retirees Coverage ends when: - the maximum continuation period expires: 18 months for the employees; up to 36 months for divorced spouse or children - eligible for another employer group health plan; or - eligible for Medicare or Medicaid
Health Insurance Portability and Accountability Act (HIPAA) (1996)
Amendment to ERISA Provides new rights and protections for participants and beneficiaries in group health plans Prohibits discrimination against employees and dependents based on their health status Requires group health plans to make individual coverage available to persons who leave the group health plan Provides standards for the protection of personal health information
Pay Increases - Cost of Living Allowance (COLA)
Annual salary increase based on the CPI Attempts to keep employees at same level of living Consumer Price Index (CPI) - measures the average change over time of the prices in a "market basket" of goods and services
The Mental Health Parity and Addiction Equity Act (2008)
Applies to employers with 50 or more employees; The Act does not require employer provided mental health benefits; It does require that group health insurance plans that include a mental health benefit provide the same annual and lifetime dollar limits for mental health benefits as they do for other medical and surgical benefits; The requirement does not apply to benefits for substance abuse or chemical dependency.
Pay Adjustment matrix, or Salary Guide Chart
Attempt to bring individual pay rates closer to the midpoint of the range Individuals below the midpoint receive higher percentage increase Individuals above the midpoint receive lower percentage increase
Managing health insurance costs
Attempt to control the financing and delivery of health services to keep health insurance premiums from escalating by the implementation of: - Utilization review: insurance provide, or third party, audits member health services - Pre-authorization for hospitalization - Reasonable and customary: insurance provider only pays what is typical fee for certain medical procedures in local geographical area - Second opinions: may be required before surgery - Wellness programs: encourage healthy lifestyles
Direct compensation
Base pay Hourly (non-exempt) Salaried (exempt) Salaried (non-exempt) Single Rate (flat rate)] Piecework Knowledge-based pay Competency based Skill based Sales commission Differential pay Incentive pay
Pay Increases - Seniority
Based on time spent in the organization or on a particular job
Types of Defined Compensation Plans Vesting Types of Vesting
Cliff vesting: must be member for specified period of time; then all employers contributions become employees Gradual, or Graded Vesting: employer contribution belongs to employee in specified percentage amounts over time
Job evaluation methods: paired comparison
Compare each job to every other job and rank in order of relative worth
Job evaluation methods: factor comparison
Compares benchmark jobs with market rates Select compensable factors and assign monetary value to each factor Each factor = dollars instead of points - Add up dollars to get wage for the job - Very quantitative and complex; rarely used
Direct compensation - Sales Commission
Compensation is computed as a percentage of sales in units or dollars Straight commission only: commission for each sale made Salary plus commission: small salary and commission for each sale; most common sales plan is salary plus bonus and/or commission Commission plus draw: loan to be repaid from future commission
Internal Revenue Service (IRS) Form W-4
Completed by employee to indicate his or her tax situation (exemptions, status, etc.). The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck.
Direct compensation - Salaried (non-exempt)
Consistent payments made each pay period regardless of number of hours worked Overtime pay required
Amendments to ERISA
Consolidated Omnibus Budget Reconciliation Act (COBRA) (1986) Health Insurance Portability and Accountability Act (HIPAA) (1996)
Computing Withholding from Pay Involuntary Deductions
Court ordered Wage garnishment Child support
Other employer provided health plans
Dental: encourage timely dental check-ups - may pay 100% for preventative care; less for dental treatments Vision: may pay for exams and corrective lens Prescription Drugs: may pay for drugs after a deductible
Types of Defined Compensation Plans - Profit Sharing Plans
Discretionary employer contributions based on annual profits
Incentive pay Organization Plans - Profit-sharing
Distributing a portion of the organizations profits to employees
Social secuirty
Employer matches employee contribution Provides income when: - Retired - Disabled - Survivor benefit to spouse and minor children Medicare is a social security benefit
Computing Withholding from Pay Payroll Taxes
Employer required to withhold and/or pay on behalf of each employee: - Federal and state/local employee income taxes - Social security and medicare taxes - paid equally by employer and employee - State and federal unemployment tax (SUTA and FUTA) - paid by employer based on number of employees and experience rated
Indemnity health insurance plans
Full choice - any doctor, any hospital Fee-for-service - provider paid when service is provided May require deductibles
Genetic Information Non-Discrimination Act (GINA 2008)
Group health plans - Cannot require or request genetic testing - Cannot collect or use genetic information (such as family medical history) Exceptions - can collect or request genetic information only if necessary to comply with: - Occupational Safety and Health Act (OSHA) - Family and Medical Leave Act (FMLA)
Newborns' and Mothers' Health Protection Act (1996)
Group health plans that provide benefits for childbirth must permit mothers and their newborn children to remain in the hospital for 48 hours after a normal delivery or 96 hours following a cesarean section
Managed Care Plans
Health Maintenance Organizations (HMOs) Preferred Provider (PPO) Point-of-Service (POS)
Computing Withholding from Pay Voluntary deductions
Health insurance Retirement Union dues
Voluntary Paid Time Off (not federally required)
Holidays Vacation Sick leave Personal Absences Paid time off banks (PTO)
Hourly v. Piecemeal
Hourly: paid for amount of time spent working; must make minimum wage for every hour worked Piecemeal: paid for each product produced; must make minimum wage based on average workweek; if they don't produce product on average week to make minimum wage, need to increase pay rate
Women's Health Cancer Rights Act (1998)
If a group health plan or health insurance issuer covers mastectomies, then the plan is required to cover breast reconstruction surgery in connection with a mastectomy
Voluntary Paid Time Off (not federally required) Vacation
Main reasons employers provide paid vacation Reward for commitment to the organization Renewal time away from the physical mental stress of the job
Workers compensation
Mandated by federal law, regulated by each state Experience rated insurance funded by employer No-fault insurance if injured on-the-job or work-related disease Benefits - Fully paid medical care - Disability care - Rehabilitation - Death benefit
Unemployment insurance
Mandated by federal law, regulated by each state Experienced rated insurance funded by employers Administered and paid by each state Eligible if lose job - Not voluntarily termination - Must be actively seeking employment
Developing and establishing pay ranges - 2 methods
Market line (or wage curve) Range spread (width of the range)
Prevailing Wage Laws - Federal projects
Minimum wages and benefits workers on federal projects are to be paid are established based on what other workers doing the same job are paid in the geographic area Davis Bacon Act (1931) Walsh-Healy Public Contract Act (1936) McNamara-O'Hara Service Contract Act (1965) Defense Authorization Bill (1986)
Exempt Level Employees
Must regularly receive a predetermined amount of compensation each pay period; The compensation cannot be reduced because of variations in the quality or quantity of the work performed; The employee must be paid the full salary for any week in which the employee performs any work.
Exempt and Non-exempt status
Non-exempt: must be paid for all hours worked; must comply with overtime provisions of the FLSA; non-exempt employees must be paid overtime for hours worked over 40 hours per week Exempt from the provisions of the Fair Labor Standards Act, not entitled to overtime pay.
Developing Job Grades - Determine number of grades
Number of grades based on: Management philosophy, and Administrative considerations
Pay Increases - Lump sum increases
Onetime payment for all or part of a yearly pay increase Base pay remains the same - Next increase does not compound on current year's income
Direct compensation - Hourly (non-exempt)
Paid for each hour worked Overtime pay required
Sarbanes-Oxley Act (2002)
Participants and beneficiaries of defined contribution plans must be given 30 days' notice before plan blackout periods go into effect Blackout period - period of time when plan participants cannot make investment changes, obtain loans, or take distributions from their plan account (any period of time more than three consecutive days) - Typical blackout periods last four to six weeks while record keeping changes are being made due to changes in the plan provider
Direct compensation - Differential pay
Pay in addition to base pay for special work circumstances Shift pay - work undesirable 2nd or 3rd shift Premium pay - work on holidays ; may be 1 1/2 or even 2 x base pay Hazard pay - paid extra for hazardous duty Additional pay is temporary based on the unusual assignment
Types of Pay Withholding
Payroll taxes Voluntary deductions Involuntary deductions
Retirement benefits
Pension plans
Minimum standards for ERISA
Plans must provide participants with Summary Plan Descriptions (SPD) - Easy to read written summary of the plan documents giving participants details about the plan: services and benefits, eligibility, vesting, benefit Requires fiduciary responsibilities for those who manage and control plant assets - Employer has duty to handle and invest retirement funds prudently for the benefit of plan members - Fiduciary can be held personally liable for losses resulting from their fiduciary breach - Requires plans to establish a grievance and appeals process for participants to get benefits form their plans - Gives participants the right to sue for benefits and breaches of fiduciary duty - Revised SPD's must be given if plan changes
Incentive pay Organization Plans - Employee stock ownership plans
Profit sharing plan that gives employees shares of stock in the company Gives employees a stake in the organizations success Designed to increase employee effort, commitment, and loyalty
Voluntary Paid Time Off (not federally required) Sick leave
Provides income protection in case of personal illness
Pension plans
Provides income to retired employees - Contributory plans - both ER and EE contribute - Non-contributory plans - employer funded only
Social Security Act (1935)
Provides retirement, disability, and health insurance for retired persons and those unable to work
Employee Retirement Income Security Act, ERISA (1974)
Regulates private employ pension and health care to assure that retirement and health care plans are managed prudently and provide the benefits promised. Compliance allows IRS tax incentives for both employers and employees. Sets minimum standards.
Flexible Benefit Plans
Section 125 of the IRS Code - Premium only plans - Flexible spending accounts (FSA) - Cafeteria plan - Health reimbursement account (HRA) - Health savings account (HSA) 2004-2005 - Adverse selection
Flexible Benefit Plans Adverse Selection
Situation in which only higher-risk employees select and use certain benefits Employer faces higher rates if insufficient numbers select an insurance option that provides higher benefits
Voluntary Paid Time Off (not federally required) Holidays
Six usually recognized and paid by employers in the US New Years Day Memorial day Independence day Labor day Thanksgiving day Christmas day Most employers offer four to six additional holidays
Flexible Benefit Plans - Health Savings Account (HSA) 2004 - 2005
Tax-exempt employee savings accounts to pay for "out-of-pocket" medical expenses - Participants must be covered under "high-deductible" health insurance plans - minimum $1000; individual deductible, $2000; there is also family deductible option - Both employees and employers may contribute to the account - Qualified medical expenses: health insurance deductible, prescription drugs or products, over-the-counter drugs, long-term care insurance, health insurance premiums during any period of unemployment - Funds not used by the end of the year may be rolled over into the next year - Account is portable and may be "rolled-into" another employer plan
Payroll Administration Collect Wage Informaiton
The Department of Labor's Wage and Hour Division (under the Fair Labor Standards Act) requires employers to keep payroll records for all non-exempt employees. The basic records include: 1. Employee's full name and social security number; 2. Address, including zip code; 3. Birth date, if younger than 19; 4. Sex and occupation; 5. Time and day of week when employee's workweek begins; 6. Hours worked each day; 7. Total hours worked each workweek; 8. Basis on which employee's wages are paid (hourly, weekly, piecework, etc.); 9. Regular hourly pay rate; 10. Total daily or weekly straight-time earnings; 11. Total overtime earnings for the workweek; 12. All additions to or deductions from the employee's wages; 13. Total wages paid each pay period; 14. Date of payment and the pay period.
Computing Withholding from Pay Record retention
The IRS requires employers to keep payroll records for all current employees, and for a minimum of six years after employment ends
Direct compensation - Base pay
The basic compensation an employee receives, usually as a wage or salary
Safe Harbor for Exempt Level Employees
The exemption will not be lost even when improper deductions are made, if the employer: - Has a "clearly communicated" policy prohibiting improper deductions which includes a complaint mechanism; - Reimburses employees for any improper deductions; and, - Makes a good faith commitment to comply in the future
Older Workers Benefit Protection Act (OWBPA) 1990
This is an Amendment to the Age Discrimination in Employment Act (ADEA) - Employers must provide workers over 40 years of age with benefits equal to those offered to younger employees unless there is greater cost for providing the benefits to older workers - Employer cannot stop or lower contributions to employee retirement plans when reach a certain age
Employer Compensation Philosophies - Entitlement
Traditional compensation philosophy believes that employees should be rewarded for the length of service. Automatic salary increases based on: - Seniority - Cost of living allowances (COLA)
Pension plans: Defined Benefits Plans
Traditional pension plan Cash balance Plan
FLSA Salary Tests for determining exempt status
UNDER $23,660/year ($455/wk) = definitely non-exempt EXCEPTION: If employee receives non-discretionary bonuses and incentive payments (including commissions). This extra payment may only be used to satisfy up to 10% of the standard salary level. These are usually bonuses for productivity and profitability. These payments must be paid on a quarterly or more frequently basis. "Super salary" test for highly-compensated employees IF PAID AT LEAST $100,000/year, most likely exempt, especially if customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee.
Flexible Benefit Plans - Premium only plans
Used to pay for employee contributions to health insurance with pre-tax dollars Section 125 of the IRS code
External equity
Uses market information to develop pay ranges
Voluntary Paid Time Off (not federally required) Personal absences
Usually provided for absence beyond the employee's control Jury duty, bereavement leave, military duty
Job evaluation methods: hay profile
Variation on the factor comparison and point factor methods Uses knowledge, mental activity, and accountability to evaluate executive and managerial positions
Professional Exemption to FLSA - Creative Professional
Work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
Direct compensation - Piecework
Workers are paid for each unit produced based on a predetermined standard Straight v. differential
Government Mandated Benefits
social security, unemployment insurance, workers compensation
Exempt Level Employees Exceptions to the "no pay docking" rule - need not be paid for:
(1) Any full workweek when no work is performed (2) Absence from work for one or more full days for personal reasons other than sickness or disability (3) Absence from work for one or more full days due to sickness of disability if the deductions are made under a bona fide plan, policy, or practice of providing wage replacement benefits for these types of absneces and the employee has used all accrued paid leave (4) To offset any amounts received as payment for jury fees, witness fees, or military pay (5) Penalties imposed for violating safety rules of "major significance" (6) Unpaid disciplinary suspension of one or mmore full days imposed for violations of workplace conduct rules (7) Unpaid leave taken pursuant to the Family and Medical Leave Act (8) Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment
Independent Contractors - Facts that provide evidence of the degree of control and independence fall into three categories:
(1) Behavioral: does the company control or have the right to control what the worker does and how the worker does his or her job? (2) Financial: are the business aspects of the worker's job controlled by the payer (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) (3) Type of Relationship: are there written contracts or employee benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Special minimum wage for youth
- $4.25 per hour - Employees under age twenty - First 90 consecutive calendar days of employment with an employer - Must pay full federal minimum wage after 90 days, or when worker reaches age 20 (whichever comes first) - Worker must not displace other workers entitled to standard minimum wage
Developing and establishing pay ranges - Range spread (width of the range)
- Minimum and maximum of each range is determined from the midpoint - Usually expressed as a percentage of the different between the minimum and the maximum divided by the minimum - Range for top level jobs usually broader than for lower level jobs
Job evaluation methods: point factor method
Allocate points to each job based on compensable factors to determine its relative worth Knowledge, skills, responsibility, effort, working conditions, etc.
Portal to Portal Act (1947)
Amendment to the Fair Labor Standards Act Defines the start and end of the workday for non-exempt employees Provides guidelines for: - Waiting and on-call - Rest and Meal periods - Training time - Travel time
Special Exemption of Business Owners to FLSA
An employee who owns at least a bona fide 20% equity interest in the enterprise in which employed, and who is actively engaged in its management, is considered a bona fide exempt executive.
Compensatory Time in Lieu of Overtime Pay
An hour and 1/2 off at some later date for every hour worked over 40 per week, instead of paying overtime. Also called "comp time". Generally illegal for private employers. May offset time within same work week - work less one day to offset excess hours worked another day. Federal, state, and local governments can offer comp time, in certain circumstances. - up to 240 hours (30 days)/year; police/fire 480 hours (60 days)/year
Executive compensation
Base pay guaranteed, usually by employment contract with the executive Incentive pay at risk - based on over-all success of the organization; usually large portion of total compensation; long term - deferred compensation, rolling incentives plans, want long term success, not short term thinking Perquisites (PERKS) - special benefits, golden golden parachutes, silver parachutes
Direct compensation - Salaried (exempt)
Consistent payments made each pay period regardless of number of hours worked Paid for the job, not for the time Exempt from the provisions of the FLSA - overtime pay not required
Developing Job Grades - Broadbanding
Consolidates a large number of pay grades into fewer extended grades Enhances career development Employees can learn new skills, move into other job areas within their grade However, fewer promotional opportunities - may use "in band promotions" to recognize increased skilled/experience Creates broad pay ranges - Problem: organization may be paying larger salaries than necessary for some jobs
Pay Increases - types
Cost of Living Allowance Seniority Automatic step-rate Merit (pay for performance) Lump sum increases Skill-based pay
Incentive pay Group Gainsharing Plans - Scanlon Plan
Employees share in greater-than-expected gains in profits and/or productivity Focus on completing production in less labor hours A formula determines the employees' share of cost savings
Incentive pay Group Gainsharing Plans - Improshare Plan
Employees share in greater-than-expected gains in profits and/or productivity Improved Productivity through Sharing Non-production employees also share in the profits of increased productivity resulting from a reduction in production time
Incentive pay Group Gainsharing Plans
Employees share in greater-than-expected gains in profits and/or productivity Scanlon Plan Rucker Plan Improshare Plan
Incentive pay Group Gainsharing Plans - Rucker Plan
Employees share in greater-than-expected gains in profits and/or productivity Similar to Scanlon Plan, but ties incentives to a wide variety of savings including materials, supplies, and services
Federal Insurance Contribution Act (FICA)
Employment tax imposed in an equal amount on employees and employers to pay for Social Security and Medicare benefits
Employer Compensation Philosophies
Entitlement Contribution (merit) Organizational pay policy
Fair Labor Standards Act, FLSA (1938)
Establishes a minimum wage, overtime provision, and child labor regulations. Enforced by the Wage and Hour Division of the Department of Labor. Applies to most non-managerial employees in a private industry.
Overtime
For hours worked in excess of a 40-hour workweek, covered employees must be paid at least time and a half their hourly rate of pay. Includes all "pay", including bonus, shift differential, etc. Shift differential refers to the extra compensation a staff member receives for hours worked that are outside the hours of 8:00 a.m. to 5:00 p.m., Monday through Sunday. A typical shift differential schedule would consist of hours worked between 5:00 p.m. and 8:00 a.m., Monday through Sunday. Does not include paid time off.
Developing and establishing pay ranges - Market line (or wage curve)
Graph showing the relationship between job evaluation points and market rates determines by salary surveys - Using the least squares regression method - Plots the intersecting points on a graph to determine the midpoint pay rate for each benchmark position - Line then used to determine midpoint pay rates for organization's jobs not found in market
Nursing mothers (addition to FLSA) 2010
Guarantees "reasonable" unpaid breaks to nursing mothers who need time to express milk Also requires employers to provide a private place for mothers, other than a bathroom, for up to one year after a nursing child's birth
Incentive pay Organization Plans
Incentives are paid based on meeting financial business objectives. Profit-sharing Employee stock ownership plans
Determining Individual Pay - Green Circle
Individual paid below the minimum of salary range
Determining Individual Pay - Red Circle
Individual paid over the maximum of salary range
Independent Contractors
Individuals who contract with employers to perform specific projects or tasks. They are: - Not employees of the organization - Not covered by the FLSA
Establishing pay rates: Internal equity
Job Evaluation - determining the internal worth of one job to others in the organization Compensable factors: essential, compensable elements of a job, typically include: - Skills - the proficiency required or developed through training or experience - Effort - the use of physical or mental energy required to perform; - Responsibility - the obligation to perform certain tasks or duties; and - Work Conditions - indoor, outdoor, hot, cold, dangerous, stressful, etc. Specific factors may be different for each organization
Job evaluation methods: job classification system
Jobs are classified and grouped using a series of predetermined grade definitions Used by the federal government
Employer Compensation Philosophies - Organizational pay policy
Lead the labor market - Employer establishes pay structures and targets pay above the market median - Sets salary range mid-points above or ahead of the market Match the labor market - Sets pay structures and target pay to meet the market - Pay ranges set to meet the market Lag the labor market - Set pay structures lower than/behind competitors - Midpoint set below market levels
Goals of a compensation plan
Linked to strategic goals - Supports organization philosophy and culture Internally equitable - Perceived as fair Externally competitve - Ability to recruit and retain employees Efficient to administer
Davis Bacon Act (1931)
Minimum wages and benefits workers on federal projects are to be paid are established based on what other workers doing the same job are paid in the geographic area - Covers workers on a federal construction projects worth more than $2,000 - TO prove they are paying prevailing wages, contractors must submit weekly certified payroll reports along with signed statements of compliance
Walsh-Healy Public Contract Act (1936)
Minimum wages and benefits workers on federal projects are to be paid are established based on what other workers doing the same job are paid in the geographic area - Government contracts for supplies, equipment, and materials over $10,000
McNamara-O'Hara Service Contract Act (1965)
Minimum wages and benefits workers on federal projects are to be paid are established based on what other workers doing the same job are paid in the geographic area - Government services contracts over $2,500
Defense Authorization Bill (1986)
Minimum wages and benefits workers on federal projects are to be paid are established based on what other workers doing the same job are paid in the geographic area - Now federal contractors may pay overtime after 40 hour week (not 8 hour day)
Determining Individual Pay - Pay Compression
Occurs when employees with clearly different capabilities paid very similar wages Example: due to inability to hire for certain skills or occupations, new hires are paid close to or more than current employee salaries
Computer related occupations
Overtime pay not required if paid $27.63/hour on salary basis (approximately $58,000/year); and primary duties include: - The application of systems analysis techniques and procedures, including consulting with users; or - The design, development, documentation, analysis, creation, testing or modification of computer systems or programs.
Direct compensation - piecework - straight
Paid for each unit completed
Direct compensation - Piecework - differential
Paid more for each unit after standard number of unit completed; or Paid more for all units completed after the standard number is completed
Direct compensation - Competency based
Pay based on ability to influence and direct others behavior
Direct compensation - Knowledge-based pay
Pay based on education and experience Increases given when new knowledge is obtained May be combination of knowledge and seniority
Direct compensation - Skill based
Pay based on skills mastered
Pay Increases - Merit (pay for performance)
Pay increased based on past effort and performance
Pay Increases - Automatic step-rate
Pay increased by a pre-determined time table - May be combined with performance based increase - May skip steps
Professional Exemption to FLSA - Learned Professional
Performs work requiring advanced knowledge, predominately intellectual requiring consistent exercise of discretion and judgment. Advanced knowledge customarily acquired by a prolonged course of specialized instruction - i.e., 4-year college degree. The exemption does not apply to occupations in which most employees acquire skill by experience.
Child Labor
Permissible jobs: -- 18 years or older - any job, hazardous or not; considered an adult -- 16 and 17 years - any non-hazardous job; limited driving -- 14 and 15 years - may work outside of school hours in non-manufacturing, non-mining, non-hazardous -- Youth at any age - deliver newspapers; perform in radio, television, movies, or theatrical productions; work in parent-owned business (except mining, manufacturing, or hazardous jobs); work as home-worker to gather evergreens and make evergreen wreaths Different age requirements apply to youth employed in agriculture
Job evaluation methods: ranking
Place each job in order of relative worth to the organization
Job evaluation methods: market-based evaluation
Price jobs by comparing them to the outside market wages
Administrative Exemption to FLSA
Primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and Exercises "discretion and independent judgment" with respect to matters of significance
Outside Salespersons to FLSA
Primary duty must be making sales; and Must be customarily and regularly engaged away from the employer's place or places of business Inside sales persons are non-exempt
Federal and Medical Leave Act, FMLA (1993)
Provides up to 12 weeks of unpaid leave during a 12 month period for: - Birth, adoption, or foster-care placement - Care of a spouse, child, or parent with a serious health condition - Serious health condition of employee - Leave may be intermittent - Must be employed 12 months with 1,250 hours worked in previous 12 months - Employers covered if have a combined total of 50 or more employees in a 75-mile radius - Employer, generally, required to restore returning employee to same, or comparable, position 2008 Amendment - National Defense Authorization Act
Direct compensation - Single Rate (flat rate)
Same pay for each job - Union rate - Elected jobs in government
Developing Job Grades - Determine natural breaks between jobs
Skills and responsibility levels Example: supervisor and subordinates are not in the same grade
Federal Benefit Laws
Social Security Act (1935) Federal Insurance Contribution Act (FICA) Federal and Medical Leave Act, FMLA (1993) Employee Retirement Income Security Act, ERISA (1974)
Executive compensation - Perquisites (PERKS)
Special benefits (usually non-cash items, so usually not taxed) for executives - Examples: private club memberships, first class travel, company cars Golden parachutes: enhanced severance pay if executive loses position through merger or acquisition Silver parachutes: severance benefit for mid-level managers in the even they lose their job through a merger or acquisition; not as "rich" a benefit as golden parachutes
Federal minimum wage
The current federal minimum wage is $7.25 per hour, and has not increased since July 2009 Tipped employees may be paid $2.13/hour, however wages plus tips must equal at least minimum wage. State minimum wage requirements may be higher. WA state: 12.00 USD per hour Jan 1, 2019
Establishing pay rates: job analysis
The process of determining the skills and duties required of a job - Job descriptions: written duties and responsibilities of a job - Job specifications: knowledge, skills, and abilities required for a job
Strategic Compensation Objectives
Total Rewards: (1) Compensation - direct pay (2) Benefits - indirect (3) The work experience - intangible rewards important to employees
