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Government and Legal Issues in Compensation

Chapter. 17. Government and Legal Issues in Compensation. Learning Objectives After discussing Chapter 17, students should be able to:. Discuss the government’s role in the employment relationship and its interests in compensation decisions .

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Government and Legal Issues in Compensation

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  1. Chapter 17 Government and Legal Issues in Compensation

  2. Learning ObjectivesAfter discussing Chapter 17, students should be able to: • Discuss the government’s role in the employment relationship and its interests in compensation decisions. • Identify the major provisions of the Fair Labor Standards Act and describe how this Act affects the regulation of pay. • Identify the key components of the Equal Pay Act of 1963 and explain how they affect wage discrimination. • Discuss how the two theories of discrimination under Title VII of the Civil Rights Act of 1964 (as amended) affect pay issues. • Explain the difficulties and issues in determining pay discrimination for dissimilar jobs. • Discuss the social implications of the earnings gap between men and women and among racial groups.

  3. Legislation establishes a minimum wage, governs overtime pay, protects employees from discrimination, regulates benefits, and determines how compensation is taxed. Overview of Federal Regulations

  4. Government: Part of theEmployment Relationship • Government is a key stakeholder in compensation decision making • Governments’ usual interests are whether • Procedures for determining pay are fair (pay discrimination) • Safety nets for the unemployed and disadvantaged are sufficient (minimum wage, unemployment insurance) • Employees are protected from exploitation (overtime pay, child labor)

  5. Exhibit 17.1: Evolving Nature ofUnited States Federal Pay Laws • Davis Bacon Act (1931) • Copeland Act (1934) • Walsh-Healey Act (1936) • Fair Labor Standards Act (FLSA) (1938) • Equal Pay Act (1963) • Title VII of Civil Rights Act (1964) • Service Contract Act (1965) • Age Discrimination Act (1967) • Wage Garnishment Law (1968)

  6. Exhibit 17.1: Evolving Nature ofUnited States Federal Pay Laws • Fair Credit Reporting Act (1970) • Pregnancy Discrimination Act (1978) • Americans with Disabilities Act (1990) • Civil Rights Act (1991) • Family and Medical Leave Act (1993) • Health Insurance Portability and Accountability Act (HIPPA) (1996) • Small Business Job Protection Act (1996) • Mental Health Act (1997)

  7. Fair Labor Standards Act (1938) • Minimum wage • Hours of work • Overtime pay • Employee status • Exempt • Nonexempt • Child labor Three Major Provisions

  8. Minimum Wage • Legislation is intended to provide an income floor for workers in society’s least productive jobs • Federal minimum wage is $5.15an hour (set in 1997) • Almost all states have their own minimum wage to cover jobs omitted from federal legislation • If state and federallegislation cover samejob, the higher rate prevails

  9. Minimum Wage Under FLSA • 1938 $0.25 per hour • 1978 $2.65 per hour • 1979 $2.90 per hour • 1981 $3.35 per hour • 1990 $3.80 per hour • 1991 $4.25 per hour • 1997 $5.15 per hour

  10. Effects of Minimum Wage RateIncreases on Wage Structure • Direct and indirect effects • Direct effect – Refers to increase in wages for jobs at bottom of wage curve that have been below minimum wage • Indirect effect – Refers to changes in remainder of the wage curve to maintain appropriate differentials for jobs that deserve higher pay • Analysis indicates indirect effect is usually greater than direct effect • Companies spend more money on increasing pay of high-level jobs than they spend on raising pay of low-level jobs to new minimum

  11. Employee Status Under FLSA • When classified as an employee, an organization must • Withhold federal/state/local income taxes • Match Social Security/Medicare withholding • Include person in company benefit programs • Pay for unemployment insurance and workers’ compensation • Allow up to 12 weeks of unpaid leave for family emergencies (after one year of service) • Provide any other state or federally mandated benefits

  12. Contractor Status Under FLSA • To be classified as a contractor, a person must • Have ability to set own hours and determine sequence of work • Work off-site • Work by the project rather than have a continuous relationship with the employer • Be paid by the job • Have an opportunity for profit and loss • Furnish own tools and training • Be self-employed or work with a leasing company

  13. Exempt and Non-ExemptStatus Under FLSA • Non-exempt employees are included in FLSA regulations and have full protection of law • Exempt employees are excluded from FLSA minimum wage and overtime provisions • Four classifications of exempt employees • Executives • Professionals • Administrative employees • Outside salespeople

  14. Non-exempt workers must be paid 1.5 times their regular rate of pay for hours worked in excess of 40 in any workweek Regular rate of pay includes base pay plus Non-discretionary bonuses Shift premiums Production bonuses Commissions Overtime is paid on time worked, not time compensated A workweekis any fixed, recurring period of 168 consecutive hours FLSA Basic Overtime Provisions 2004

  15. Compensatory Time Under FLSA • Compensatory time off may sometimes be offered instead of cash overtime • Rate is the same as for cash • Public employees can accumulate compensatory time • In private sector, practice of allowing compensatory time must be part of an established plan

  16. Child Labor Provisions • FLSA restricts hours and conditions of employment for minors • Persons under 18 cannot work in hazardous jobs • Persons under 16 cannot beemployed in jobs involvinginterstate commerce

  17. FLSA Compliance: Enforcement. • Wage and Hour Division of U.S. Department of Labor enforces FLSA minimum wage and overtime provisions • Equal Employment Opportunity Commission (EEOC) enforces equal pay provisions

  18. When State Laws Differ • Pay frequency, minimum wage, severance or vacation pay, or unclaimed wages may be governed by individual states • Rule of thumb - Whenever state and federal laws differ, follow regulation that most benefits employees

  19. Pay Discrimination: What Is It? • Law recognizes two types of discrimination • Access discrimination – denies particular jobs, promotions, or training opportunities to qualified women or minorities • Valuation discrimination – looks at pay women and men receive for the jobs they perform • It is discriminatory to pay minorities or women less than males when performing equal work - working side-by-side, in the same plant, doing the same work, producing the same results

  20. Types of Antidiscrimination Acts • Equal Pay Act (1963) • Civil Rights Act (1964) • Age Discrimination in Employment Act (1967) • Wage Garnishment Act (1968) • Americans with Disabilities Act (1990)

  21. Discriminatory Compensation Practices • Types of compensation practices which may be discriminatory • Extra pay plans • Leave policies • Maternity leave • Pension policies

  22. Equal Pay Act (1963) • Prohibits wage discrimination on the basis of gender when • Employees perform work inthe same establishment, or • Employees perform jobsrequiring equal skill, effort,and responsibility undersimilar working conditions

  23. A plaintiff would have a prima facie case if he/she received a lower wage than members of opposite sex for performing work that requires substantially the same skills, effort, and responsibilities under similar working conditions - all performed at the same location. What Is Discrimination Under EPA?

  24. Provisions of Equal Pay Act • Equal workis defined in terms of • Skill, effort, responsibility, and working conditions all performed at the same location • Differences in payare legal if differences are based on any one of four criteria • Seniority, merit or quality of performance, quality or quantity of production, or some factor other than sex • Not permitted are defenses such as • Union rules or the wage is prevailing pay for market • Time of day does not constitute dissimilar working conditions • However, if a differential for working at night is paid, it must be separated from base wage for job

  25. Title VII of the Civil Rights Act (1964) • Prohibits discrimination in all terms and conditions of employment on the basis of race, religion, ethnic group, sex, or national origin. • Defines two theories ofdiscrimination behavior • Disparate treatment • Disparate impact • Civil Rights Act of 1991 reinforcedthese two standards of discrimination

  26. Theories of Discrimination • Disparate treatment • Occurs when an employee who is a member of a protected group is intentionally paid less • Disparate impact • Occurs when an apparentlyneutral compensation practiceresults in unintentional wagediscrimination for a protected group

  27. Pay Discrimination and Dissimilar Jobs • Gunther v. County of Washington • Supreme Court determined pay differences for dissimilar jobs may reflect discrimination • Proof of discrimination • Use of market data • Spaulding v. University of Washington • Jobs of “comparable worth” • AFSCME v. State of Washington

  28. Differencesin firms Differences inemployees Differences in employee work behaviors Differences inunions Differences in Pay Differencesinwork Discrimination Differencesin labor market conditions Exhibit 17.6: PossibleDeterminants of Pay Differences

  29. What Is Comparable Worth? If jobs require comparable skill, effort, and responsibility, the pay must be comparable, no matter how dissimilar the job content may be.

  30. Comparable Worth • Establishing a comparable worth plan involves the following four basic steps • Adopt a single job evaluation plan for all jobs within a unit • All jobs with equal job evaluation results should be paid the same • Identify general representation (percentage male and female employees) in each job group • The wage-to-job evaluation point ratio should be based on the wages paid for male-dominated jobs since they are presumed to be free of pay discrimination

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