Government and Legal Issues in Compensation
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Transcript of Government and Legal Issues in Compensation
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-1
Government and Legal Issues in
Compensation
Chapter
17
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-2
1. Discuss the government’s role in the employment relationship and its interests in compensation decisions.
2. Identify the major provisions of the Fair Labor Standards Act and describe how this Act affects the regulation of pay.
3. Identify the key components of the Equal Pay Act of 1963 and explain how they affect wage discrimination.
4. Discuss how the two theories of discrimination under Title VII of the Civil Rights Act of 1964 (as amended) affect pay issues.
5. Explain the difficulties and issues in determining pay discrimination for dissimilar jobs.
6. Discuss the social implications of the earnings gap between men and women and among racial groups.
Learning ObjectivesAfter discussing Chapter 17, students
should be able to:
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Legislation establishes a minimum wage, governs overtime pay, protects
employees from discrimination, regulates benefits, and determines
how compensation is taxed.
Overview of Federal Regulations
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-4
Government: Part of theEmployment Relationship
Government is a key stakeholder in compensation decision making
Governments’ usual interests are whetherProcedures 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)
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-5
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)
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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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)
Exhibit 17.1: Evolving Nature ofUnited States Federal Pay Laws
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Fair Labor Standards Act (1938)
Minimum wage
Hours of work
Overtime pay
Employee status Exempt
Nonexempt
Child labor
Three Major Provisions
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Minimum Wage
Legislation is intended to provide an income floor for workers in society’s least productive jobsFederal minimum wage is $5.15
an 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
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Minimum Wage Under FLSAMinimum 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
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
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Effects of Minimum Wage RateIncreases on Wage Structure
Direct and indirect effectsDirect 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
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Employee Status Under FLSA
When classified as an employee, an organization mustWithhold federal/state/local income taxesMatch Social Security/Medicare withholdingInclude person in company benefit programsPay for unemployment insurance and
workers’ compensationAllow up to 12 weeks of unpaid leave for
family emergencies (after one year of service)
Provide any other state or federally mandated benefits
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Contractor Status Under FLSA
To be classified as a contractor, a person mustHave ability to set own hours and determine
sequence of workWork off-siteWork by the project rather than have a
continuous relationship with the employerBe paid by the jobHave an opportunity for profit and lossFurnish own tools and trainingBe self-employed or work with a leasing
company
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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 employeesExecutivesProfessionalsAdministrative employeesOutside salespeople
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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 workweek is any fixed, recurring period of 168 consecutive hours
2004
FLSA Basic Overtime Provisions
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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
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17-16
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
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17-17
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
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17-18
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
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Pay Discrimination: What Is It?
Law recognizes two types of discriminationAccess 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
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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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)
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Types of compensation practices which may be discriminatory
Extra pay plans
Leave policies
Maternity leave
Pension policies
Discriminatory Compensation Practices
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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
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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?
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Provisions of Equal Pay Act
Equal work is defined in terms of Skill, effort, responsibility, and working conditions
all performed at the same locationDifferences in pay are 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
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-25
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 behaviorDisparate treatment
Disparate impact
Civil Rights Act of 1991 reinforcedthese two standards of discrimination
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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
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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
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Differencesin Pay
Differencesin Pay
Differencesin
employees
Differencesin
employees
Differencesin
unions
Differencesin
unions
Differencesin labor market
conditions
Differencesin labor market
conditions
DiscriminationDiscriminationDifferences
inwork
Differencesin
work
Differences in employee
work behaviors
Differences in employee
work behaviors
Differencesin
firms
Differencesin
firms
Exhibit 17.6: PossibleDeterminants of Pay Differences
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17-29
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.
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
17-30
Comparable Worth
Establishing a comparable worth plan involves the following four basic stepsAdopt a single job evaluation plan for all jobs
within a unitAll jobs with equal job evaluation results
should be paid the sameIdentify 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