Part VI Managing the System 17-1 Chapter 17 Government and Legal Issues in Compensation Chapter 18 Budgets and Administration
17-2 STRATEGIC POLICIES TECHNIQUES STRATEGIC OBJECTIVES ALIGNMENT COMPETITIVENESS CONTRIBUTORS Work Descriptions Evaluation/ INTERNAL Analysis Certification STRUCTURE Market Surveys Policy PAY Definitions Lines STRUCTURE Seniority Performance Merit INCENTIVE Based Based Guidelines PROGRAMS EFFICIENCY Performance Quality Customers Stockholders Costs FAIRNESS COMPLIANCE ADMINISTRATION Planning Budgeting Communication EVALUATION
17-3 Chapter 17 Government and Legal Issues in Compensation
Learning Objectives After studying Chapter 17, students should be able to: 1. Discuss the government s role in compensation. 2. Discuss how trying to achieve the objective of compliance with laws and regulations could conflict with other objectives in the pay model. 3. Explain the provisions and importance of relevant wage laws. 4. Discuss the type of proof required in discrimination cases. 5. Discuss the concept of comparable worth and its relationship to the objectives of compliance and fairness. 17-4
Government As Part Of The Employment 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) 17-5
The Evolving Nature of United States Federal Pay Laws!Davis Davis Bacon Act (1931)!Copeland Copeland Act (1934)!Walsh-Healey Act (1936)!Fair Fair Labor Standards Act (FLSA) (1938)!Equal Equal Pay Act (1963)!Title Title VII of Civil Rights Act (1964)!Service Service Contract Act (1965)!Age Age Discrimination Act (1967)!Wage Wage Garnishment Law (1968) 17-6
17-7 U.S. Federal Pay Laws (continued)!fair Fair Credit Reporting Act (1970)!Pregnancy Discrimination Act (1978)!Americans with Disabilities Act (1990)!Civil Civil Rights Act (1991)!Family Family and Medical Leave Act (FMLA) (1993)!Health Health Insurance Portability and Accountability Act (HIPPA) (1996)!Small Small Business Job Protection Act (1996)!Mental Mental Health Act (1997)
17-8 Minimum Wages and Overtime!The The federal government sets standards relative to how much and how employees are paid in:!davis-bacon Act (1931)!Copeland Copeland Anti-Kickback Act (1934)!Walsh-Healey Act (1936)!Fair Labor Standards Act (1938)!Service Contract Act (1965)
17-9 Fair Labor Standards Act (1938)!The Fair Labor Standards Act (FLSA) regulates:!minimum wage!employee status!overtime pay!child labor!record keeping!other other administrative requirements
17-10 Minimum Wage:!Minimum Minimum wage legislation is intended to provide an income floor for workers in society s least productive jobs.!federal minimum wage is $5.15 an hour (set in 1997)!Almost Almost all states have their own minimum wage to cover jobs omitted from federal legislation.!if state and federal legislation cover the same job, the higher one prevails.
Effects of Minimum Wage Rate Increases on the Wage Structure:!There There are direct and indirect effects. 17-11!Direct Effect of a minimum wage increase refers to the increase in wages for jobs at the bottom of the wage curve that have been below the minimum wage.!indirect Effect of a minimum wage increase refers to the changes in the remainder of the wage curve to maintain appropriate differentials for jobs that deserve higher pay.
Effects of Minimum Wage Rate Increases on the Wage Structure: (continued)!analysis Analysis indicates that the indirect effect is usually greater than the direct effect. 17-12!Companies spend more money on increasing the pay of high-level jobs than they spend on raising the pay of low-level level jobs to the new minimum.
17-13 Employee Status Under FLSA!When When someone is classified as an employee, the organization must:!withhold federal/state/local income taxes!match Social Security/Medicare withholding!include the person in the company benefit programs!pay for unemployment insurance and workers compensation!allow up to 12 weeks of unpaid leave for family emergencies!provide any other state or federally mandated benefits
17-14 Contractor Status Under FLSA!To be classified as a contractor, a person must:!have the 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 employed or work with a leasing company
17-15 Exempt and Non-Exempt Status Under FLSA!Non-exempt employees are included in FLSA regulations and have full protection of the law.!exempt Exempt employees are excluded from FLSA minimum wage or overtime provisions.
17-16!There are four classifications of exempt employees:!executives!administrative Employees!Outside Outside Salespeople!Professionals
17-17 FLSA Basic Overtime Provisions!All non-exempt workers must be paid one and one-half times their regular rate of pay for hours worked in excess of 40 in any workweek.!regular rate of pay includes basic pay plus non- discretionary bonuses, shift premiums, production bonuses, and commissions.
17-18 Overtime (continued)!overtime Overtime is paid on time worked, not time compensated.!a A workweek is any fixed, recurring period of 168 consecutive hours 2001
17-19 Compensatory Time Under FLSA!Compensatory time off may sometimes be offered instead of cash overtime.!the The rate is the same as for cash.!public Public employees can accumulate compensatory time.!in the private sector, the practice of allowing compensatory time must be part of an established plan.
17-20 Child Labor Provisions!The The FLSA restricts the hours and conditions of employment for minors.!persons under 18 cannot work in hazardous jobs!persons under 16 cannot be employed in jobs involving interstate commerce
17-21 FLSA Compliance: Enforcement.!The The Wage and Hour Division of the U.S. Department of Labor enforces FLSA minimum wage and overtime provisions.!the The Equal Employment Opportunity Commission (EEOC) enforces equal pay provisions.
17-22 When State Laws Differ!Pay Pay frequency, minimum wage, severance or vacation pay, or unclaimed wages may be governed by the individual states.!the The rule of thumb is: Whenever state and federal laws differ, follow the regulation that most benefits the employee.
Antidiscrimination acts include the following: 17-23!Equal Equal Pay Act (1963)!Civil Civil Rights Act (1964)!Age Age Discrimination in Employment Act (1967)!Wage Wage Garnishment Act (1968)!Americans with Disabilities Act (1990)
17-24 Pay Discrimination: What Is It?!The The law recognizes two types of discrimination:!access Discrimination denies particular jobs, promotions, or training opportunities to qualified women or minorities.!valuation Discrimination looks at the 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. "That is, working side-by-side, in the same plant, doing the same work, producing the same results.
17-25 Equal Pay Act (1963)!The The Equal Pay Act (EPA) of 1963 prohibits wage discrimination on the basis of gender when:!employees perform work in the same establishment, or!employees perform jobs requiring equal skill, effort, and responsibility under similar working conditions
17-26 Equal work (under EPA)!Equal Equal work is defined by:!equal skill!equal effort!equal responsibility, and!equal working conditions!all performed at the same location
What is discriminatory under EPA?!A A plaintiff would have a prima facie case if he/she received a lower wage than members of the opposite sex for performing the work that requires substantially the same skills, effort, and responsibilities under similar working conditions, all performed at the same location. 17-27
17-28 Exceptions under EPA:!Differences in pay between men and women doing equal work are legal if these differences are based on any one of four criteria:!seniority!merit or quality of performance!quality or quantity of production!some factor other than sex
For an employer to support a claim of unequal work, the following must be met:! The effort/skill/responsibility must be substantially greater in one of the jobs compared. 17-29! The tasks involving the extra effort/skill/responsibility must consume a significant amount of time for all employees whose additional wages are in question.! The extra effort/skill/responsibility must have a value commensurate with the questioned pay differential (as determined by the employer s own evaluation.
17-30 Not permitted under EPA:!Are Are defenses such as:!union rules, or that!the wage is the prevailing pay for the market!time Time of day does not constitute dissimilar working conditions.!however, if a differential for working at night is paid, it must be separated from the base wage for the job.
17-31 Civil Rights Act (1964)!Title Title VII of the Civil Rights Act of 1964 prohibits discrimination in all terms and conditions of employment on the basis of race, religion, ethnic group, sex, or national origin.!it defines two theories of discrimination behavior:!disparate treatment,, and!disparate impact!the The Civil Rights Act of 1991 reinforced these two standards of discrimination
17-32 Disparate treatment:!occurs Occurs when an employee who is a member of a protected group is intentionally paid less.
17-33 Disparate impact:!occurs when an apparently neutral compensation practice results in unintentional wage discrimination for a protected group.
Compensation practices which may be discriminatory: 17-34!extra pay plans!leave policies!maternity leave!pension policies
Pay Discrimination and Dissimilar Jobs 17-35!The The U.S. Supreme Court, in Gunther v. County of Washington,, determined that pay differences for dissimilar jobs may reflect discrimination
17-36 Comparable Worth!Establishing a comparable worth plan typically 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 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.
Possible Determinants of Pay Differences 17-37 Differences in Organizations Differences in employees Differences in Employee Work Behaviors Differences in in Pay Pay Differences in Unions Differences in Work Discrimination Differences in Labor Market Conditions
Summary! Governments around the world play varying roles in the workplace.! Legislation in any society reflects people s expectations about the role of government.! Beyond direct regulation, government affects compensation through policies and purchases that affect supply and demand for labor.! In the United States, legislation reflects the changing nature of work and the workforce.! 1930s legislation was concerned with the social safety net! 1960s legislation turned to the issue of civil rights 17-38
Summary (continued)! Pay discrimination laws require special attention for several reasons.! First, these laws regulate the design and administration of pay systems.! Second, the definition of pay discrimination, and thus the approaches used to defend pay practices, are in a state of flux.! Many of the provisions of these laws simply require sound practices that should have been employed in the first place.! Sound practices are those with three basic features:! They are work related.! They are related to the mission of the enterprise.! They include an appeals process for employees who disagree with the results. 17-39
17-40 Review Questions 1. What is the nature of government s role in compensation? 2. Explain why changes in minimum wage can affect higher-paid employees as well. 3. What is the difference between access discrimination and valuation discrimination? 4. Consider contemporary practices such as skill / competency-based plans, broad banding, market pricing, and pay-for for-performance plans. Discuss how they may affect the pay discrimination debate.
17-41 Review Questions (continued) 5. What factors help account for the pay gap? 6. What kinds of proactive activities can an employer undertake to enhance the regulatory environment? 7. Could the pay objective of regulatory compliance ever conflict with other objectives? Could it conflict with the employer s notion of consistency or competitiveness? An employee s notion of fairness? If so, how would you deal with such situations?