Module 4.2A: Pay Flashcards
What is a pay range?
minimum and maximum pay rate for a position that an organization sets
Internal equity: employees are fairly compensated compared with others in the organization
Generally, this means workers doing similar tasks with similar education and skill requirements are paid similarly. In the example, Rita maintained internal equity by requesting raises for the rest of the sales team to match the new hire.
External equity: employees are fairly compensated compared with others outside the organization
External equity can be tricky to determine because similar job titles or positions might not include the same tasks and responsibilities at other organizations. In this case, a lack of applicants confirmed Rita’s assessment that the initially advertised pay scale was too low.
Market factors: external factors that affect salary and hiring decisions
When the labor market is tight or a job requires a specialized skill, HR might disregard pay equity to fill a position. In our example, had the job required specialized training, Rita might have tweaked the advertised wage without changing the team’s wage.
What are job evaluations?
Determination of relative worth of each position in an organization by creating a hierarchy
When
Evaluations can happen at any time, but should be undertaken:
- when position is created
- when position is open
- when responsibilities of position need to change or have changed
What
The goal of the evaluation is to form a complete picture of the position, including the following:
- Scope of work (daily, weekly, monthly, yearly)
- Who the position reports to
- Who the position supervises
- Relationships with other departments
- Required skills and knowledge
- Required training, education, and experience
- Essential vs non-essential job functions
How
HR staff can use several methods to find out what a particular employee does, including the following:
Providing a written/online survey
Interviewing the employee
Interviewing co-workers
Observing the employee’s workday
Result
The final piece is reviewing the data to determine whether the job description still applies to what the employee actually does. If there’s a disparity:
Update the job description
Review the salary in light of the new job description: Is there internal equity? Does it match the market?
Ranking - Pros
Jobs ranked based on relationships to one another and organization, most important is paid the most
Ranking - Cons
Easy to implement, but doesn’t factor in market rates or specific requirements of positions
Grading - Pros
Jobs are grouped by skill level or characteristics within set classifications
Grading - Cons
Method is straightforward, but some jobs are difficult to classify accurately
Point factor - Pros
Points or weights are assigned to specific factors and score is tallied
Point factor - Cons
method needs extensive list of factors or specialties could be missed
Factor comparison - Pros
Job factors are given relative dollar amount to create pay rate
Factor comparison - Cons
Method is complicated but scientific
Market analysis - Pros
Compare position to others in similar markets
Market analysis - Cons
method aligns with market rates, but might be difficult to obtain data and accurately compare jobs. Many organizations have different names for similar positions
Assign points to job requirements (skills, education, experience) and tally the score
Point factor
Assign a monetary value to each job factor and add them to determine the wage.
factor comparison
Create categories or grades and use a job’s key characteristics to classify it
grading/classification
Compare and rank jobs based on their value to the organization.
ranking
What is external equity?
When employees are compensated fairly in comparison to outside organizations in similar industries and locations
What is range?
A pay range (or wage band or pay scale) encompasses the lowest, middle, and highest wages in a pay grade.
Many organizations set the minimum at 80%−90% of the midpoint and the maximum at 110−120% of the midpoint.
What is range spread?
The range spread is the difference between the minimum and maximum of a range.
To calculate the percentage, use this formula
[(range maximum − range minimum) ÷ range minimum] × 100
Different job classifications can have different spreads.
What is range penetration?
Range penetration is where an employee’s rate is within the range.
To calculate the percentage, use this formula:
[(employee’s pay − range minimum) ÷ (range maximum − wage minimum)] × 100
A penetration of 100% means the employee is at the very top of the range; 0% means the employee is getting the minimum rate.
What is compa-ratio?
The compa-ratio formula (comparison ratio) helps compare an employee’s wage or salary to external market rates.
(Employee’s pay rate ÷ midpoint market rate) * 100
Less than 100% means the rate is below the midpoint, more than 100% means it exceeds the midpoint
What is review results?
Record your calculations on a graph or matrix structure to compare data for all positions. Are there obvious inequities within or across job classes? Is there room for wages to grow? Do you need to adjust pay rates to pull outliers into the range?
When satisfied with the numbers, the last task is defining steps within the range and when/how employees move through them.
What is a single/flat rate?
The employee’s compensation is the same as everyone else’s in that job. In this system, experience and job performance are irrelevant, and the flat rate is market-based.
Elected officials, such as city council members and state legislators, might have this system.
What is time-based step rate?
Employees’ tenure determines their pay rate. Variations of this system are common for government or union workers.
Automatic step rate: Specific raises are implemented at scheduled intervals.
Step rate with performance considerations: Performance changes the amount or timing of the steps.
Combination step rate and performance: This uses the automatic system as a threshold, and then links future raises to job performance.
What is performance-based merit pay?
Also called “pay for performance,” the employee’s job performance determines raises.
This system requires performance appraisals, done annually, that rate performance based on pre-determined objectives and overall achievement. Merit guidelines state the percent increases linked to performance levels and the steps within the pay range.
What is productivity-based?
The employee’s output determines compensation above the base rate. This is usually found in manufacturing.
Straight piece rate:
Pay per product or output amount
Differential piece rate: One pay rate up to a standard and then a higher rate for output above the standard.
What is person-based?
The employee’s capabilities (skill, education, experience) determine the pay.
Knowledge-based:
Higher pay for greater knowledge in the field (for example, doctors and lawyers).
Skill-based:
Higher pay for greater numbers and level of skills (for example, master carpenters and heavy-equipment operators)
Competency-based:
Higher pay for greater competency in the field (for example, labor relations HR specialist).
What is FLSA?
1938 legislation law established recordkeeping, minimum wage, overtime pay, and child labor standards in public and private sectors
What is minimum wage?
Lowest amount employer can legally pay, can be set at federal, state or city level
What is Equal Pay Act?
Who: Employees covered under FLSA
What’s included: Equal pay for women doing the same work as a man
What is Davis-Bacon Act?
Who: Federal contractors
What’s included:
Requirement to pay the prevailing wage and rules about fringe benefits
What is the Federal Wage Garnishment Law?
Who: All employers and employees
What’s included: Employee protections when wages are directed toward paying debts
What is exempt?
Describes employees paid a salary of at least $23,660 per year with duties and responsibilities that oversee employees and effect operations of an organization; not eligible for overtime pay
What is non-exempt?
Describes employees paid at least minimum wage in non-managerial roles who can receive overtime pay for any hours over 40 during one week
Under FLSA, which of the following situations is regarded as compensable time?
A secretary delivers organization’s package to the post office on the way home
Which of the following could jeopardize FLSA-exempt status for an employee?
Docking pay when a partial day is worked
HR must handle the following:
Compliance: knowing and complying with laws and regulations
Payment obligations: collecting and paying taxes, wage garnishment, insurance deductions, union dues, etc.
Reporting: sharing required data with the IRS, unions, etc.; providing employee pay stubs
Records: keeping federally required data
Security: keeping employees’ information safe
Red Circle
Compensation above maximum salary for position
In a red-circle situation, HR typically will suggest freezing or slowing increases to base pay until the market catches up. We’ll look at specific options on the next page.
Green Circle
Compensation below minimum salary for position
A green-circle employee needs pay increases to get into range. This could be a one-time adjustment or smaller tweaks over time, such as larger raises relative to employees within the range.
Wage Compensation
Too-small wage difference between new hires and experienced workers
Wage compression occurs when pay levels don’t keep pace with market standards. HR should conduct regular wage surveys and suggest pay increases when appropriate.
Inflation
Wages don’t reflect rising consumer costs
Cost-of-living adjustments (COLA) use economic indicators to determine pay increases. These might be percentage base-pay increases for all employees or lump-sum payments.
Which of the following are appropriate ways to address red-circle position? Select all that apply.
Freezing pay rate, but awarding lump-sum bonuses for performance.
Doing nothing
Giving smaller raises relative to employees within range
Jill was hired as store’s assistant manager for $900 week. Jack performs same work requiring equal skill and effort under similar working conditions earns $500 per week. If employer decides to correct imbalance but then pays Jack $50 more per week than Jill, the employer:
may have to defend against a prima facie case of discrimination
Listen
Give the employee your time and respect. Inaction or downplaying concerns could give the impression that the organization doesn’t care. Make sure you understand exactly what the employee believes is wrong.
Inquire
Verify the employee’s statements and find out how the error occurred. For example, did a manager make a mistake inputting hours? Are holiday rates set up wrong in the system? Is this a one-time problem or on-going?
Adjust
Fix processing errors. Adjust incorrect pay rates in the computer system, make sure the employee is correctly enrolled in benefit programs, and provide training if the mistake was made by the employee, manager, or payroll specialist.
Correct
Act as quickly as possible to resolve the difference — in the next paycheck, if possible. Unions might require a specific timeline for retroactive pay, so be sure you know the rules.
In the absence of a specific, written policy, timecard abuse should be treated as:
theft
The requirement for recording of hours worked for telecommuters is:
the same as for on-site employees
