Compensation and Benefits Flashcards
compensation and benefits OR total rewards
Exchange of payment from an employer for the services provided by its employees. Often the single largest operating expense. Includes all forms of rewards, including monetary and nonmonetary compensation.
monetary compensation
Includes any costs the organization inclurs for the benefit of employees, such as all forms of cash compensation, 401(k) matching, medical care premiums, pension plans, and paid time off. Other kinds of rewards include benefits that support the culture such as stock options, Employee Stock Ownership Programs (ESOPs), and incentive plans.
nonmonetary compensation
Includes intrinsic and extrinsic nonmonetary rewards. Includes relationship with supervisors, recognition of accomplishments, development and career opportunities, and teamwork. Also include telecommuting, childcare, and flex time.
intrinsic reward
one that encourages individual employee self esteem, such as satisfaction from challenging and exciting assignments
extrinsic reward
one where esteem is achieved from others, sch as fulfillment from working with a talented team of peers.
direct compensation
Includes payments made to employees that are associated with wages and salaries. Includes base pay, variable compensation, and pay for performance.
indirect compensation
Consists of any employee payments not associated with wages and salaries, including fringe benefits such as vacation, sick, and holiday pay; insurance premiums paid on behalf of employees; leaves of absence; 401(k) or other pension plans; and government mandated benefits such as Social Security or FMLA.
compensation and benefits philosophy or total rewards philosophy
high level mission statement used to guide the development and implementation of compensation and benefit programs that attract, motivate, and retain employees. Important to evaluate frequently to see if it continues to meet strategic requirements and result in desired outcomes. Must be based on internal conditions (willingness and ability to pay) and external (market) conditions.
equity in compensation
Ensures that what an employee brings to the job (inputs such as KSAs) and what the employee receives (outcomes such as base pay, variable pay, and benefits) are fair and equitable when compared to both the internal factors and external conditions.
procedural justice
How fair the internal process and procedures in determining pay scales are perceived to be. Considerations include how pay rates are determined, how bonuses are distributed, and who is responsible for making those decisions.
distributive justice
Relates to how closely pay reflects actual performance. If, for example, an employee with a high rate of productivity is paid the same hourly rate as an employee with a lower level of productivity, the perception of the pay system will be that it’s unfair.
pay openness
Refers to the degree of secrecy that exists around pay issues. In some states, it’s illegal to prohibit employees from disclosing their pay rates or amounts of increases. For purposes of internal equity, orgs that allow open conversations about base pay, increases, and pay for performance criteria will have a more positive degree of perceived fairness in the administration of pay systems (assuming they actually are fair).
performance-based philosophy
Use compensation to reward performance or behavior that moves the org closer to achieving the goals established by its leaders. Use line of sight.
line of sight
Occurs when employees know that their performance, good or bad, impacts their pay. Provides an increased consciousness for associating behavior with a reward. If employees are aware that their performance impacts their rewards, both monetary and nonmonetary, a high-performance culture can be created.
entitlement philosophy
Rewards seniority or employee longevity. Performance is secondary to time with the company or time in a particular job. Creates loyalty to the company; benefits such as pension plans, stock options, and vacation accrual can reinforce the importance of seniority.
compensation strategy
How to best use limited resources for rewards programs in attracting, motivating, and retaining employees.. Can be modified as the org grows to reflect changing needs.
SEC Executive Compensation Reporting Rules
Requires reporting on various aspects of executive compensation program, such as:
- description of compensation of objectives
- existence of employment contracts or severance agreements
- equity grant practices and awards
- share ownership guidelines
Must include add’l info for top 5 executives:
- cash compensation: base salary and bonuses
- long term performance awards
- deferred compensation
- executive pensions
fiduciary responsibility
HR professionals advise, manage, and/or administer total rewards programs and find themselves in a role that requires the confidence and trust of both management and employees to be effective. Must act ethically, which means not:
- acting in your own self interest
- conflicting duties
- profiting from your HR role
cost of labor
Cost to attract and retain individuals with the skills needed by the org to achieve its goals. Largely influenced by the economy.
labor market
Made up of any sources from which an organization recruits new employees. A single organization may find itself recruiting from several different labor markets depending on the availability of skills for different positions. Supply and demand for a certain skill set in the market impacts what the employers competing for those skills must pay to individuals who possess them. Vary by region and industry, can result in regional pay structures to reflect market conditions.
product market competition
The more competitive the market, the harder it is to attract and retain good employees. Increased pressure means everything must be better, faster, cheaper, but added pressures strain employees. Stronger competitions between orgs with decreased demand can cause issues with the health of an organization, and include wage freezes, freezes in incentives, etc. In a stronger economy, increased competition can mean growth, which can result in increased rewards for employees. Benefits packages should be in line with pressures.
private letter ruling
org can request a ruling from the IRS to know what the specific tax implications of a change in a compensation or benefits program will be
Davis-Bacon Act (1931)
First legislation to regulate minimum wage; required that construction contractors and subcontractors pay at least the prevailing wage for the local area if they receive contracts of $2k or more.
Walsh-Healey Public Contracts Act (1936)
Requires gov’t contractors with contracts of $10k+ to pay employees the prevailing wage for their local area as established by the Secretary of Labor.
Service Contract Act (SCA) (1965)
Requires any federal service contractor with a contract exceeding $2.5k to pay its employees the prevailing wage and finge benefits for the area, provide safe and sanitary working conditions, and notify employees of the min wage.
Fair Labor Standards Act (FLSA) (1938)
Requirements in 5 areas:
- Introduced minimum wage
- Identified the circumstances in which overtime pay was required and set the overtime rate as 1.5x the regular wage
- Identified the criteria for determining what jobs are exempt from FLSA requirements
- Created child labor limitations
- Identified the info employers must keep about employees and payroll transactions
enterprise coverage under the FLSA
Applies to businesses employing at least 2 employees with at least $500k+ in annual sales and to hospitals, schools, and government agencies
individual coverage under the FLSA
Applies to orgs whose daily work involves interstate commerce. Courts have interpreted this to mean anyone who has regular contact by telephone with out of state customers, vendors, or suppliers, so basically this means all employers in the US
FLSA Exemption Status
Positions may be exempt from 1 or all of the FLSA requirements.
exempt
those who are exempt from FLSA regulations
nonexempt
those who must be paid in accordance with FLSA regulations
duties test
determining the job responsibilities or duties of a position for purposes of defining exemption status
salary
A regular, predetermined rate of pay for a weekly or less frequent basis (biweekly, monthly, etc). With the exception of outside sales employees, teachers, practicing attorneys, and medical doctors, employees must be paid a minimum salary of $455 per week or $23,650 per year to be classified as exempt
minimum salary for exemption status
$455 per year or $23,660 per year. For computer professionals, $27.63 per hour. Known as the salary level test.
salary basis test
Requires that salaried employees receive a predetermined amount of payment on a regularly set schedule, that the employee’s compensation cannot be reduced because of variations in the quantity or quality of the work, and the employee must be paid the full salary for a week in which any work is performed.
federal minimum wage
$7.25
compensable time
The time an employee works that is suffered or permitted by an employer; meaning, the employer has to allow the employee to work over, even if implicitly. Nonexempt employees must be paid at least the minimum age for this time.
maximum work week
40 hours. Overtime is required for an compensable time that exceeds the maximum.
compensatory time off
Public employees may compensate employees with comp time instead of cash for overtime worked, but it still has to e compensated at 1.5x the rate worked.
engaged to wait
Time spent by nonexempt employees waiting for work is compensable if the employees have been asked to wait for an assignment.
on call time
FLSA doesn’t require employees who are on call to be paid for time they spend waiting to be called. However, if the employer places constraints on the employee’s activities, the time could be considered compensable. Anyone who is required to remain at the work site waiting for an assignment is entitled for pay for all hours spent at the worksite.
rest and meal periods
Not required by the FLSA, If they are 30 minutes or longer, payment is not required, unless someone is required to continue working (remain at desk to answer phones, etc.)
breaks
Last less than 20 minutes and are compensable.
training events
Pay for training is NOT required if:
- The event is outside normal working hours
- It is voluntary
- It is NOT job related.
- No other work is performed during the event.
travel time
Regular commute time isn’t compensable. However, if an employee is required to come back on site after working a full day, the employee must be compensated. If someone is given an assignment offsite, commute time beyond their normal commute is considered compensable. Travel time between job sites must be paid as well. Overnight travel is weird - travel time during regular work hours even on nonworking days must be paid, unless it’s as a passenger on a plane, train, boat, or bus.
permissible salary deductions
- Absence for personal reasons other than sickness or disability
- Absence for sickness or disability if the deduction is made in accordance with a plan, policy, or practice of providing compensation for salary lost due to illness
- to offset amounts employees receive for jury or witness fees or military pay
- Penalties for safety rule infractions
- Disciplinary suspensions of one or more full days for infractions of workplace conduct rules
- initial or terminal weeks of employment when an employee works less than a full week
- unpaid leave during FMLA
actual practice
Employers who have an actual practice of improper deductions risk the loss of exemption status for all employees in the same job classification, not just for the affected employee.
How does DOL determine actual practice of improper deductions?
- number of improper deductions vs number of employee infractions warranting deductions
- time period during which the improper deductions were made
- number of employees affected
- location of affected employees and managers responsible for deductions
safe harbor
Provision for payroll errors that could affect exemption status. Applies if:
- There is a clearly communicated policy prohibiting improper deductions that includes a complaint mechanism for employees
- Employer reimburses employees for improper deductions
- Employer makes a good-faith commitment to comply in the future
executive exemption from FLSA
Must meet the salary basis requirement and the following criteria:
- Primary duty is managing the org or a business unit
- Customarily and regularly direct the work of at least two other full-time employees
- Have the authority to hire, fire, promote, and evaluate employees or to provide input regarding these actions that carries particular weight
- Employees who own at least 20% equity in the org and who are actively engaged in management are also considered bona fide exempt executives.
administrative exemption for FLSA
Must meet the salary basis requirement and the following criteria:
- Primary duty is to perform office work directly related to management or general business operations
- Primary duty requires discretion and independent judgment on significant matters
professional exemption for FLSA
two types: learned professional and creative professional
learned professional exemption for FLSA
Must meet the salary basis requirement and the following criteria:
- Have advanced knowledge in a field of science or learning acquired through a prolonged course of intellectual instruction
- Primary duty requires the use of this advanced knowledge for work that requires the consistent use of discretion and judgment
creative professional exemption for FLSA
Must meet the salary basis requirement and meet the following criteria:
- Primary duty requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor
highly compensated employees FLSA exemption
Must make $100k or more and:
- at least $455 per week of salary
- perform office work or nonmanual labor
- perform at least one of the executive, administrative, or professional duties on a regular basis
computer employee exemption for FLSA
Must meet the salary basis requirement (can also be paid hourly) and must perform one of these jobs:
- computer systems analyst
- computer programmer
- software engineer
- other similarly skilled job in a computer field
An must perform one or more of the following primary job duties:
- Apply systems analysis techniques and procedures, including consulting with users, to determine functional specs
- Design, develop, document, analyze, create, test, or modify computer systems or programs, including prototypes, based on and related to user or system design specs
- Design, document, test, create, or modify computer programs related to machine operating systems
- A combination of the above
outside sales exemption for FLSA
No salary requirement, but must meet both of the following:
- Primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer
- Employee must be customarily and regularly engaged away from the employer’s place of business
child labor
FLSA states that a child must be 16 years old to work in nonfarm jobs and 18 to work in nonfarm jobs that are hazardous. 14-15 year old kids can work in nonfarming, nonmining, and nonhazardous jobs if they work:
- fewer than 3 hours a day or 18 hours a week while in school - 7 am - 7 pm during the school year
- fewer than 8 hours on a nonschool day or 40 hours a nonschool week - only until 9 pm during the summer
positive time keeping
Employees report all hours at work along with sick, vacation, and other time off. Best for nonexempt.
exception reporting
Employees only report changes to work schedule such as vacation, sick, or personal time. Works well for exempt.
Records Required by FLSA
- Name, home address, occupation, sex
- DOB for those under 19
- Total hours worked each day and week
- Hour and day when the work week begins
- Total daily straight-time earnings
- Regular hourly pay rate for each week including overtime
- Total overtime pay for the week
- Deductions and additions to wages
- Total wages paid each pay period
- Pay period dates and payment date
recovering back wages under FLSA
Employees with valid complaints (verified by DOL) under the FLSA can recover back wages in 1 of 4 ways:
- The Wage and Hour Division of DOL can supervise payment of back wages
- DOL can file a lawsuit for the amount of back wages and liquidated damages equal to back wages
- Employees can file private lawsuits to recover wages, plus an equal amount of liquidated damages, attorney fees, and court costs
- DOL can file an injunction preventing an employer from unlawfully wihtholding the min wage and overtime payments
2 year statute of limitations unless the employer willfully violated the FLSA.
Portal to Portal Act (1947)
Clarified compensable work time and established that employers aren’t required to pay for employee commute time. Requires employers to pay nonexempt employees who perform regular work duties before or after their regular hours or for working during their lunch period.
Equal Pay Act (EPA) (1963)
Prohibits discrimination on the basis of sex. Equal pay for equal work applies to jobs with similar working conditions, skill, effort, and responsibilities. Applies to employers and employees covered by FLSA and is enforced by EEOC. Allows differences in pay for seniority, merit, or a system that measures quantity or quality.
base pay
The amount of compensation that the employer and the employee agree will be paid for the performance of job duties. Salary.
performance-based pay
May include merit increases or promotions. Based on how well individual employees perform against the company’s process for measuring performance. Ratings determine the eligible range of increase for review period. When using performance-based compensation, it’s important to keep accurate records to justify disparity in salaries between employees in the same positions.
seniority-based compensation
Pay decisions based on lenght of time employees have been in a position and on years of related experience. Representative of an entitlement philosophy. May be based on union negotiations.
pay differentials
Used to encourage employees to perform work that is uncomfortable, out of the ordinary, inconvenient, or hazardous. Serve as incentives for employees to work on tough assignments or to be available to respond at inconvenient times. Provides additional pay for work considered beyond the minimum requirements of the job. Include shift pay, overtime, on-call pay, call-back pay, reporting pay, hazard pay, and geographic pay.
overtime
FLSA requires pay only for overtime exceeding 40 hours a week but doesn’t set limits on amounts of overtime allowed. As an incentive, it may be offered to exempt employees as well but isn’t required. It’s ideal for overtime pay to be approved in advance.
shift pay
In some cases employers pay more than required for certain shifts with 24 hour operations.
day shift
8 am - 4 pm
swing shift
4 pm - 12 am
graveyard shift
12 am - 8 am
shift premium
Additional compensation provided for employees who work other than day shift. May be a percentage of base salary or factored into hourly rate.
on-call pay
Not required unless employees are engaged to wait (constraints placed on time). Employers may pay a premium to employees who are not at work but required to respond to work-related issues on short notice.
call back pay
Nonexempt employees are paid their regular rate if they’re called back into work, but exempt employees may also be provided a premium for being called back after hours.
reporting pay
When an employee is called in to work and there is no work available, the employer may be required by state law or employment agreements to pay for a minimum number of hours.
hazard pay
Additional pay for dangerous or uncomfortable working conditions. Firefighters often receive hazard pay. FLSA doesn’t require hazard pay but requires employers who provide it to factor it into overtime calculations.
geographic pay
Ensures employees in different locations are paid competitive rates. Someone in NY paid differently than someone in SC.
variable compensation OR incentive pay OR pay for performance
Reward employees for individual or organizational results. Motivates employees to achieve business objectives by providing a line of sight between desired performance and reward. 10% increase in productivity = bonus.
individual incentive plan
Steps:
- Plan targets - 10% bonus target
- Review goals - usually annually but may be more often if there is direct revenue generation
- Communicate, Implement, Pay
organization or group incentive plans
Group incentives should be used to increase productivity, foster teamwork, and share financial rewards with employees. Benefits are increased awareness of and commitment to company goals. Include gainsharing, improshare, scanlon plan, profit sharing, and stock plans.
gainsharing
Include:
- Employees and managers work together to review org performance
- When measurable improvements are achieved, employees and managers share success
- Employees and org share financial gains
Benefits are:
- teamwork, shared knowledge, cooperation
- motivation
- focus and commitment on org goals
- perceived fairness of pay, which results in increased productivity
improshare
Developed in the 1970s by Fein. Establish a baseline for org productivity and a baseline for costs. The difference between productivity and the new output is used to calculate the group’s performance.
Scanlon Plan
1930’s. Employees receive a portion of cost savings achieved through productivity gains and cost savings. Requires disclosure of financial info and productivity meterics to employees. Administered by committees that are representative of the employee population.
profit sharing
Similar to Scanlon Plan. Incentive-based program that shares company profits. Distribute pretax dollars to eligible employees based on a percentage of employee’s base salary. Occurs annually. A form of defined contribution plan so covered by ERISA.
Employee Stock Ownership Plans (ESOPs)
A defined-contribution plan that allows employees to own company stock. An employer sets up a tax-deductible trust that accepts tax-deductible contributions made by the company. Employee eligibility can be based on salary, length of service, etc. At the time of termination, retirement, or death, employees are able to receive the vested portion of their ESOP, which becomes taxable at the time funds are distributed.
Employee Stock Purchase Plans (ESPPs)
Allow employees to use after-tax payroll deductions to purchase company stock at a discounted price. Typically there is an offering period in which the employee deductions are accumulated until the purchase date, when the money is used to purchase company stock at a discounted rate of up to 15%.
retention bonus
Paid in cases of acquisition to high level managers to make them stay and ensure a smooth transition. May also be used when a company is closing down to make sure employees stay through closure.
commission
Incentive to sales employees. Provide a percentage of the sale price for products and services sold to a customer. May provide entire compensation package or may be used in combination with a base salary.
sales bonus plan
Bonus for sales employee for exceeding target sales numbers. Ex - Jack has a target of 100 cars. For every car he sells over 100, he gets a bonus of 1% over his base salary.
bonus
Additional compensation for performance above and beyond expectations and paid in addition to an employee’s base salary or hourly rate. Bonus optionally offered and not based on objectives; a reward for going “above and beyond.”
salary administration OR pay administration OR compensation administration
The way an org develops pay structures and uses them to administer pay. Steps:
- Analyze jobs
- Evaluate jobs
- Price jobs
- Create salary structure
- Place jobs in grades
- Communicate plan to organization
- Administer plan
- Evaluate results
job evaluation
Process used to determine the value of jobs relative to each other in the org. Normally conducted when a job is developed or when duties change. Identify and define compensable factors of each job that are most relevant for the org.
compensable factors
Characteristics that define and distinguish one job from another. (Ex, degree level, experience level, duties)
ranking method of job evaluation
Requires evaluators to compare the value of jobs to one another. Evaluators can be influenced by preconceptions. Also difficult to compare unrelated jobs.