Compensation and Benefits

legislation

Compensation Legislation

Compensation Legislation

Law Provisions

Davis-Bacon Act (1931)

Requires contractors and subcontractors in federal construction projects with $2000+ to pay prevailing wages and benefits.

Copeland “Anti-Kickback” Act (1934)

• Prohibit employer to induce employee to give up any part of the compensation to which he/she is entitled.

• Imposed criminal and civil penalties.

Walsh-Healy Act (1936)

• Extended the concept of prevailing wage to manufacturers and suppliers of goods for federal contracts in excess of $10,000

• Required overtime pay after 40 hours/week at 1.5 rate

Service Contract Act (1965)

• Extended prevailing wage to federal contractors providing services with contracts above $2500

Fair Labor Standards Act-FLSA (1938) Broadest law dealing with compensation. Applies to organizations that engage in

interstate commerce, produce goods for interstate commerce, handle, sell or work on goods or materials that have been moved in or produced for interstate commerce.

Applies to employers with at least $500,000 annual volume of business.

Covered organizations regardless to volume of business include; hospitals, institutions engaged in care of sick, aged, disabled or gifted, schools, higher education institutions, federal, state and local government agencies.

Employee vs. Independent Contractor Employers have no obligations under FLSA

toward self-employed independent contractors.

Some critical test to differentiate between employee and contractor: Ability to set own hours and determine sequence

of work Working off-site Working by project, no continuous relationship Being paid by the job Opportunity for profit or loss Using own tools

Exhaustive list available and should be reviewed.

Exempt vs. Nonexempt Exempts are excluded from minimum wage

and overtime pay as set by FLSA. Nonexempt employees are covered by the

minimum wage requirement and entitled for overtime pay. Worker who are paid $455/week or $23,660/ year are nonexempt

FLSA Exemption

Exemption results when these

conditions are metMinimu

m salary($455/

wk)

Paid on salary basis

Exempt duties

Exempt Duties For an employee to be exempted, the primary duties

(the main and most important duties) should be exempt as discussed later. It is about duties not titles.

No minimum percentage is set for exempt duties in the law, but the lower the percentage the higher the legal risk.

Exemption categories: Executive Administrative Professional Highly compensated Computer Outside sales

Executive Exemption Have primary duty involving management of

and enterprise or a customarily recognized department or subdivision.

Customarily and regularly direct the work of two or more other employees.

Have the employer authority to hire and fire or his/her recommendations for hiring, firing, advancement, promotion or the change of status are given a particular weight by the employer.

Administrative Exemption Primary duty of performing office or

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

It must include the exercise of discretion and independent judgment with respect to matters of significance

Professional Exemption Learned Professionals:

Primary duty of performing work requiring advanced knowledge.

Intellectual in nature, and requiring consistent exercise of discretion and judgment.

advanced knowledge is customarily acquired by prolonged course of specialized intellectual instruction

Creative Professionals: Primary duty of performing work that requires

invention, imagination, originality, or talent in a field of artistic or creative endeavor.

Examples: music, writing, acting and graphic art.

Highly Compensated Employees Paid total annual compensation of $100,000

or more including minimum weekly wage of $455.

Perform at least one exempt duty of an exempt executive, administrative or professional employee

Computer Employees Must meet salary minimum with either $455/

week or $27.63 per hour. Duties must fall into one of these categories:

Application of system analysis techniques Design, development, documentation, analysis,

creation, testing or modification of computer systems or programs.

Design, documentation, creation, testing or modification of machine operating systems.

Any combination of the above duties

Outside Sales Employees Have primary duty involving making dales or

obtaining orders or contracts. Customarily and regularly be engaged away

from employer’s places of business. Outside sales are not subject to the minimum

salary requirement of other exceptions.

Improper Deductions Deducing amounts from exempt employee

salary while he/she is not entitled for the deduction.

If employer has an actual practice of making improper deductions, the employer may loses the overtime exception for all employees in the same job classification.

Employer may be protected by a “safe harbor” if: Has clearly communicated policy that prohibits

improper deductions Reimburses employees for any improper

deductions Make a good-faith to comply in the future

Overtime Pay All nonexempt worker must be paid 1.5 of the

regular rate of pay for the time worked in excess of 40 hours in any workweek.

Regular rate of pay includes base pay, nondiscretionary bonuses, shift premiums, production bonuses and commissions.

A workweek is any fixed, recurring period of 168 consecutive hours

Compensatory Time As a general rule, overtime must be paid in

cash. Public sector employees may grant

compensatory time off instead of cash. Compensatory time is earned at a rate of 1.5

of the overtime worked.

Child LaborAge FLSA Regulations

Under age of 14 • Prohibited from most nonfarm work

• May be employed by parents, except in hazardous industries, manufacturing or mining

Age 14-15 • During school hours, cannot work more that 3 hours/day

• During school vacations, cannot work more that 8 hours/day, 40 hours/week

• Hours restricted to 7:00 AM to 7:00 PM

Age 15-17 • Prohibited from on hazardous jobs such operating trash binders or shredders or material handling equipment

• No other restrictions

Minimum Wage Fair minimum wage act (2007) raised the

hourly wage to $7.25 beginning on July 24, 2009. the minimum wage applies to the covered nonexempt employees under FLSA.

Some exceptions to minimum wage applies. Minimum wage and overtime provisions and

prevailing wage provisions are enforced by “Wage and Hour Division” of the Department of Labor.

Portal–to-Portal Act (1947) Amended FLSA and defined general rules for hours

worked. Provided guidelines on many situations as shown below: On call/standby time: if employer restricts the

employee’s activities and does not allow any personal business, then hours are included in overtime.

Preparatory/concluding activities: if activity is performed solely for the employer benefit and is an indispensable part of the employee’s job activities, it must be compensated.

Waiting time: if the employee reports early and stays idle, this time is not compensable. If waiting occurs in the middle of the shift, this time is compensable.

Meals and breaks: rest periods of 5-20 minutes are considered hours worked.

Equal Pay Act (1963) Prohibits unequal pay for equal or substantially

equal work performed by men and women. Equal work is based on equal:

Skills Effort Responsibility Working conditions

Exceptions: Seniority system Merit system Difference in the quality or quantity of work Geographic work differentials Any factor other than gender

Work Opportunity Tax Credit A federal tax credit that encourages

employers to hire people from targeted groups.

A list of targeted categories is clarified in the study material.

Some Concepts Compa-ratio: a ratio between the employee

pay rate and midpoint of the pay grade. It is used as an indicator to how wages lead, lag or match the market when the pay structure is based market rate.

Red circle rates: the employee rate that exceeds the range maximum

Green circle rates: the employee rate that is below the range minimum

Legislation Related to Benefits

Employee Retirement Income Security Act- ERISA (1974) Establishes uniform minimum standards to ensure

that employee benefit plans are established and maintained in a fair and financially sound manner.

Designed to protect the interests of participants in employee benefit plans and their beneficiaries.

Employers are not required to offer a retirement or health and welfare plan, but if they do, it must have to conform to the Internal Revenue Code and ERISA in order to receive the tax advantage.

The legislation applies to and regulates qualified private retirement plans and welfare plans such as employer sponsored group medical insurance programs, group life insurance and long term disability coverage.

General Rules Under ERISA An ERISA plan must be operated for the

exclusive benefit of the participants and their beneficiaries. The employer must follow the “prudent person rule” with the management of the plan assets.

Eligibility under ERISA are: attainment the age of 21 and completion of 12 months of service. Employers cannot increase these figure but lowering it is allowed.

ERISA establishes minimum vesting requirements. Vesting is the process by which a retirement benefit becomes nonforfeitable, that is when the employee is permanently entitled to a portion or all of his or her benefit.

Retirement Equity Act (1984) Provides certain legal protections for spousal

beneficiaries of qualified retirement plans. Requires written spousal consent for:

Changes in retirement plan distribution elections Changes in spousal beneficiary designations In-service withdrawals

Consolidated Omnibus Budget Reconciliation Act (COBRA) 1985 Provides continuation of group medical

coverage for employees and their dependents when a qualifying event occurs; termination, reduction in hours, divorce or death

Employer with 20+ employees are covered Employee has the choice to continue medical

coverage and required to pay the full cost of the coverage plus 2% admin fee.

COBRA Coverage Expansion American Recovery and Reinvestment Act

(ARAA)-2009. Provides COBRA premium subsides to

“Assistance Eligible Individual” for 9 months max.

Assistance Eligible Individual: individuals are or were eligible for COBRA continuation coverage, who lost coverage under employer sponsored health plan due to involuntary termination of employment between 1/9/2008 and 31/12/2009.

Permits eligible individuals to elect alternative coverage.

Health Insurance Portability and Accountability Act (HIPPA) 1996 The purpose of the law is to ensure that

individuals who leave (or lose) their jobs can obtain health coverage even if they or a member of their immediate family has a serious illness or injury or pregnant.

Limits exclusions for preexisting conditions. Guarantees renewability of health coverage as

long as premium are paid Allows people to change jobs without having

to worry about loss of coverage by making coverage without preexisting exclusions possible.

HIPPA Privacy Rule HIPPA permits covered entities to use or

disclose protected health information for treatment, payment and health care operations

Some duties under HIPPA privacy rule: Establish systems for tracking the use of protected

health information Establish a complaint mechanism for privacy

concerns Ensure that individuals cannot waive their rights

under the rule Keep all relevant records for six years Establish written contracts with third parties who

have access the protected health information

HIPPA Security Rule and ARRA Related to the protection of the integrity,

availability and confidentiality of electronic protected health information

ARRA requires that: Notification each individual in case of a security

breach of protected health information Stricter enforcement and civil penalties for

violating HIPPA’s privacy ad security rules Additional access and accounting requirements ARRA provides fund for improving nation’s health

care information systems

Older Worker’s Benefit Protection Act (OWBPA) 1990 Prohibits discrimination in employee benefits

and includes specific requirements for waivers of claims.

Older workers may waive their rights under ADEA if they are given 21 days to consider the agreement and consult attorney

Employees must be given seven days to revoke the agreement after signing it.

Family and Medical Leave Act (FMLA) 1993

Allows employees to take up to 12 workweeks of unpaid leave during designated 12-month period in these cases: For incapacity due to pregnancy, prenatal medical care or

childbirth To care for child after birth, spouse, son or daughter or a

parent who has a serious health problem For a serious health condition that makes the employee

enable to perform his/her job. To be eligible, employee must have worked a least 12

months for the employer, have worked 1250 hours in the 12 months preceding the commencement of the leave, and work at a site with 50 o more employees work within 75 miles

It covers employers with 50+ employees