Module 4: Total Rewards

16% PHR (36 questions) 12% SPHR (27 questions)

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Compensation Legislation

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Fair Labor Standards Act (Wage and Hour Law)

• Covers most private-sector employers and governmental agencies.

• If state laws are more generous, they take precedence.

• Any employee covered by the FLSA may initiate a complaint.

• Under FLSA, an employer has no obligation to independent contractors.

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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 relationship with principals at any

time without incurring liability D. Services provided to a single firm

Answer: A 4-4© SHRM

IRS Independent Contractor Test

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Exempt and Nonexempt Employees

Type of Employee Importance: Exempt Excluded from overtime pay

requirements of the law. Nonexempt Are not excluded and are entitled to

overtime. Overtime is guaranteed to employees with a quoted salary of less than $23,660 per year or $455 per week.

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FLSA Exemptions

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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 federal law.

• However, the lower the percentage, the greater the legal risk if challenged.

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Executive Exemption

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An employee must:

Administrative Exemption

• Requires performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers.

• Includes the exercise of discretion and independent judgment related to “matters of significance.”

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Professional Exemptions

• Learned professionals – 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

discretion and judgment.

• Creative professionals – Must meet minimum salary requirements. – Perform work that requires invention, imagination,

originality, or talent. – Perform in a recognized field of creative or artistic

endeavor. 4-11© SHRM

Highly Compensated Exemption

A highly compensated employee must: • Make an annual salary of $100,000 or more

that includes at least $455 per week paid on a salary or fee basis.

• Perform one of the duties of an exempt executive, administrative, or professional employee.

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Computer Employees

• Must meet the salary minimum with a salary of $455 per week or $27.63 per hour.

• Employee’s pay cannot be subject to deductions inconsistent with the salary basis requirement.

• Primary duties must fall into one of four categories.

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Outside Sales

An employee must: • Have a primary duty involving making

sales or obtaining orders and contracts. • 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.

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Improper Deductions

• Employers who make improper deductions will lose the exemption if they did not intend to pay on a salary basis.

• Example: An exempt employee is normally not subject to deductions for illness in less than full-day increments. (An FMLA exception may occur.)

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Safe Harbor

A “safe harbor” exists if: • The employer has a clearly communicated

policy prohibiting improper pay deductions.

• Employees are reimbursed for any improper deductions.

• The company makes a good-faith effort to comply in the future.

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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 hours (7 days 24 hours).

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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. $495.00 B. $509.50 C. $515.00 D. $517.25 Answer: D To calculate the total pay for the week, you must add the bonus to the hours worked at base pay (45 $10/hour = 450 + $40 bonus = $490). To get the average straight time hourly earnings (ASTHE), the $490 is divided by the total hours worked, 45, to yield $10.89. Pay calculation: 45 hours base pay ($450) + bonus ($40) = $490.00 ASTHE = $490/45 hours = $10.89 Overtime premium = $10.89 0.5 = $5.45 5$ 27.25 Total gross pay $517.25

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Compensatory Time

• Overtime usually must be paid in cash.

• Public-sector employers may grant compensatory time off.

• Public employees can accumulate “comp” time.

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FLSA Child Labor Provisions

Restrict hours and conditions of employment for minors.

Age FLSA Regulations Under age 14

• Prohibited from most nonfarm work • May be employed by parents • Certain jobs permitted (e.g., actors, newspaper

carriers) Ages 14- 15

• During school hours: 3 hours/day, 18 hours/week • During school vacations: 8 hours/day, 40

hours/week • Hours restricted

Ages 16- 17

• Prohibited from hazardous jobs • No other restrictions

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Minimum Wage Provisions

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Portal-to-Portal Act

• Amends FLSA and defines general rules for hours worked.

• Provides guidelines on: – On-call/standby time. – Preparatory/concluding activities. – Waiting time. – Meals and breaks. – Travel time. – Training time.

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Equal Pay Act (EPA)

• Mandates equal pay for equal work. • Defines equal work based on:

Skills ResponsibilityWorking conditions

Effort

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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.

Answer: C 4-24© SHRM

A Total Rewards System

Total compensation

+Direct compensation Indirect compensation

Pay systems Benefit and recognition programs

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Objectives of a Total Rewards System

• Aligned with mission and strategy

• Compatible with corporate culture

• Appropriate for the workforce

• Externally equitable • Internally equitable

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External Equity

• Compares an organization to other organizations that share its industry, occupation, and location.

• Organizations may decide to:

Lag Match Lead

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Internal Equity

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Job Evaluation

• Determines the relative worth of each job by establishing a hierarchy.

• Follows job analysis, which focuses on job descriptions and specifications.

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Job Evaluation Methods

Nonquantitative Methods

Quantitative Methods

Job-to-job comparison

Job ranking

Factor comparison

Job-to- predetermined- standard comparison

Job classification

Point-factor method

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Nonquantitative (Whole-Job) Evaluation

• Establishes a relative order of jobs. • Does not assign numeric values.

Job ranking

Paired comparison

Job classification

Job-to-job comparison

Job-to-predetermined- standard comparison

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Quantitative Evaluation

• Uses a scaling system to evaluate the value of one job as compared to another.

• Provides a score.

Point-factor method

Factor comparison method

Less complex, most commonly used

Most complex, used infrequently

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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.

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Market-Based Evaluation

• Not a true job evaluation system; can be used to develop a job-worth hierarchy.

• Prices jobs in the labor market in