Module 4 Compensation and Benefits 19 PHR 13

Module 4: Compensation and Benefits 19% PHR 13% SPHR Any student use of these slides is subject to the same License Agreement that governs the student’s use of the SHRM Learning System materials. © SHRM 4 -1

Types of Compensation and benefits are two of the most visible elements of a total rewards system. Types of Compensation Direct compensation Pay systems © SHRM + Indirect compensation Benefit and recognition programs 4 -2

Compensation Legislation Davis-Bacon Act • Requires prevailing wages/benefits on federal construction projects Copeland “Anti. Kickback” Act • Precludes federal contractors from inducing employees to give up any part of compensation Walsh-Healey Act Service Contract Act © SHRM • Extends prevailing wages to federal suppliers • Stipulates overtime pay • Requires prevailing wages/benefits on all federal contracts 4 -3

Fair Labor Standards Act (Wage and Hour Law) • Applies to organizations with employees who engage in interstate commerce, produce goods for interstate commerce, or handle, sell, or work on goods/materials that have been moved in/produced for interstate commerce. • Applies to employers with at least $500, 000 in annual dollar volume of business. • Under FLSA, an employer has no ongoing obligations to independent contractors. © SHRM 4 -4

Which of the following factors would indicate independent contractor status? A. Opportunity for profit and loss B. Regular oral and written reports presented to a manager C. Right to end the relationship with the organization at any time without incurring liability D. Services provided to a single organization © SHRM 4 -5

IRS Independent Contractor Test Behavioral control Financial control Type of relationship © SHRM 4 -6

Exempt and Nonexempt Employees Type of Employee Exempt Importance: Excluded from minimum wage and overtime pay requirements of the law. Nonexempt Are not excluded from minimum wage requirements and are entitled to overtime. Overtime is guaranteed to employees who are paid less than $23, 660 per year or $455 per week. © SHRM 4 -7

FLSA Exemptions Minimum salary An exempt employee must meet three requirements. Paid on a salary basis without improper deductions Exempt duties © SHRM 4 -8

Primary Duty Issue A primary duty is the main or most important duty and is an important part of exemption. No particular percentage of exempt duties is required under the FLSA. The lower the total percentage, the greater the legal risk if challenged. © SHRM 4 -9

Executive Exemption An employee must: © SHRM Have a primary duty of managing an organization, department, or subdivision. Direct the work of at least two full-time employees or their equivalent. Have the authority of the employer to hire and fire. Affect promotion decisions. 4 -10

Administrative Exemption ü Requires performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers. ü Includes the exercise of discretion and independent judgment related to “matters of significance. ” © SHRM 4 -11

Professional Exemptions • Requires advanced knowledge in a field of science or learning that is acquired by prolonged instruction. • Work is intellectual in nature and requires exercise of Learned discretion and judgment. professionals • Must meet minimum salary requirements. • Perform work that requires invention, imagination, originality, or talent. Creative professionals • Perform in a recognized field of creative or artistic endeavor. © SHRM 4 -12

Highly Compensated Exemption A highly compensated employee must: ü Be paid total annual compensation of $100, 000 or more that includes at least $455 per week paid on a salary or fee basis. ü Perform one of the duties of an exempt executive, administrative, or professional employee. © SHRM 4 -13

Computer Employees ü Must meet the salary minimum with a salary of $455 per week or $27. 63 per hour. ü Employee’s pay cannot be subject to deductions inconsistent with the salary basis requirement. ü Primary duties must fall into one of four categories. © SHRM 4 -14

Outside Sales An employee must: ü Have a primary duty involving making sales or obtaining orders and contracts. ü Be customarily and regularly engaged away from the employer’s place of business. Outside sales employees are not subject to the minimum salary requirements of other exemptions. © SHRM 4 -15

Improper Deductions Example: An exempt employee is normally not subject to deductions for illness in less than full-day increments. (An FMLA exception may occur. ) Employers that make improper © SHRM 4 -16

Safe Harbor A “safe harbor” exists if: ü The employer has a clearly communicated policy prohibiting improper pay deductions. ü Employees are reimbursed for any improper deductions. ü The organization makes a good-faith effort to comply in the future. © SHRM 4 -17

FLSA Basic Overtime Provisions Sets rate of overtime pay (1. 5 times regular pay after 40 hours worked). Requires overtime on time worked, not time compensated. Sets workweek as any fixed, recurring period of 168 consecutive hours (7 days 24 hours). © SHRM 4 -18

An employer pays an employee a $40 attendance bonus for working a full 40 -hour workweek. If the worker works 45 hours during that week, what will the employee’s gross paycheck be if her hourly rate is $10? A. B. C. D. $495. 00 $509. 50 $515. 00 $517. 25 © SHRM 4 -19

Compensatory Time • Overtime usually must be paid in cash. • Public-sector employers may grant compensatory time off. • Public employees can accumulate “comp” time. $ $ $ Presently, compensatory time is not allowed for private-sector nonexempt employees. © SHRM 4 -20

FLSA Child Labor Provisions Restrict hours and conditions of employment for minors. © SHRM 4 -21

Minimum Wage Provisions Fair Minimum Wage Act of 2007 Raised minimum wage to $7. 25 per hour in three phases © SHRM Provides $2. 13 per hour cash wage if claiming a tip credit 4 -22

Portal-to-Portal Act • Amends FLSA and defines general rules for hours worked. • Provides guidelines on: – – – © SHRM On-call/standby time. Preparatory/concluding activities. Waiting time. Meals and breaks. Travel time. Training time. 4 -23

Travel Pay © SHRM 4 -24

Equal Pay Act (EPA) Mandates equal pay for equal work. © SHRM Skills Effort Responsibility Working Conditions 4 -25

Which of the following is true under the Equal Pay Act? A. Seniority systems cannot result in pay disparity. B. Companies should provide all employees with the same working conditions. C. Employees doing equal work should receive the same pay. D. Jobs filled primarily by women should have the same salary as similar jobs filled by men. © SHRM 4 -26

Work Opportunity Tax Credit (WOTC) Federal tax credit to encourage employers to hire targeted groups of job seekers. Administered by the DOL’s Employment and Training Administration (ETA) and the IRS. Includes individuals from 12 categories. © SHRM 4 -27

Additional Compensation Legislation Lilly Ledbetter Fair Pay Act • States that the statute of limitations on pay discrimination lawsuits resets as each allegedly discriminatory paycheck is issued Dodd-Frank Wall Street Reform and Consumer Protection Act • States required communications related to executive compensation at publicly traded companies IRS Intermediate Sanctions • Provides guidelines regarding the determination of reasonable compensation for executives of nonprofit organizations © SHRM 4 -28

Objectives of a Compensation and Benefits System Compatible with mission and strategy Compatible with organizational culture Appropriate for the workforce Externally and internally equitable Effective for recruiting and retention © SHRM 4 -29

External Equity • Compares an organization to other organizations that share its industry, occupation, or location. • Organizations may decide to: Lag © SHRM Match Lead 4 -30

Internal Equity Meets employees’ needs for a fair wage and adequate benefits. Recognizes employees’ contributions to the organization. Rewards equal work with equal pay. Does not discriminate against protected classes. © SHRM 4 -31

Job Evaluation • Determines the relative worth of each job by establishing a hierarchy. • Follows job analysis, which focuses on job descriptions and specifications. © SHRM 4 -32

Job Evaluation Methods © SHRM 4 -33

Nonquantitative (Whole-Job) Evaluation • Establishes a relative order of jobs. • Does not assign numeric values. Job ranking Paired comparison Job-to-job comparison © SHRM Job classification Job-to-predeterminedstandard comparison 4 -34

Quantitative Evaluation • Uses a scaling system to evaluate the value of one job is as compared to another. • Provides a score. Point-factor method Less complex, commonly used © SHRM Factor comparison method Most complex, used infrequently 4 -35

Point-Factor Method • Each job receives a total point value, and relative worth can be compared. • Examples: Guide Chart-Profile (Hay Plan) and the U. S. government Factor Evaluation System (FES). • Points often determine pay grade assignment. © SHRM 4 -36

Market-Based Evaluation Not a true job evaluation system; can be used to develop a job-worth hierarchy. Prices jobs in the labor market(s) in which an organization competes. © SHRM Uses prevailing rates as the relative “worth” of the jobs. 4 -37

Pay Surveys © SHRM 4 -38

Data Analysis • Salary data may need to be aged, leveled, and/or factored for geography. – Aging uses movement in market rates to adjust outdated salary data. – Leveling adjusts salaries when surveyed jobs are similar but not identical to jobs in the organization. – Since wage rates will vary by location, the organization should factor for geography any national salary survey data. © SHRM 4 -39

Sorting Salary Data Frequency distributions and tables sort salary data. • Frequency distribution − Lists the grouped data, from lowest to highest. • Frequency table − Shows the number of incumbents who receive a particular salary. © SHRM Mean Salary Number of Incumbents $55, 000 $60, 000 $65, 000 $70, 000 $75, 000 2 1 2 5 1 4 -40

Salary Data: Measures of Central Tendency Unweighted average gives equal weight to every salary. Weighted average considers the number of people who receive each salary. Median is the middle number in the range. Mode is the most frequently occurring wage. Annual Salary # of Incumbents Total Salary $55, 000 $60, 000 $65, 000 $70, 000 $75, 000 2 1 2 5 1 $110, 000 60, 000 130, 000 350, 000 75, 000 Totals 11 $725, 000 Unweighted Average = $65, 000 Weighted Average = $65, 909 © SHRM 4 -41

Quartiles and Percentiles • Show groups relate to each other. • Show if an organization leads, lags, or matches the job market. © SHRM 4 -42

Creating a Pay Structure Establish pay grades. • Group jobs that have the same relative internal or external worth. • Pay the same rate or within the same pay range. Set pay ranges. • Set upper/lower bounds of possible compensation for individuals whose jobs fall in a pay grade. • Market data from surveys used to determine a midpoint. © SHRM 4 -43

Compa-Ratios • Divide the pay rate of an employee by the midpoint of the range. • Given a range of $16 to $20 an hour, a midpoint of $18, and a salary of $16 an hour, the comparatio is: $16 ÷ $18 =. 89 or 89%. • Compa-ratios below 1. 00 mean wages are below the midpoint; compa-ratios greater than 1. 00 mean wages exceed the midpoint. © SHRM 4 -44

An employee earns $9 an hour, and the pay range is $8 to $12. What is the compa-ratio? A. 66% B. 80% C. 90% D. 111% © SHRM 4 -45

Broadbanding • Combines several salary grades or job classifications. © SHRM 4 -46

Broadbanding Advantages and Disadvantages Advantages • Provides wider ranges. • Reduces the number of job grades. • Supports de-layering. • Provides more autonomy to line managers. • Enhances employee mobility. © SHRM Disadvantages • Reduces the value of ranges. • Affords less control. • Creates overly broad ranges. • Difficult to maintain perception of equity. • Reduces the opportunity for promotion. • Can lead to divergence from the market. 4 -47