Wage and Hour

COMPENSATION ADMINISTRATION

I. Legal Considerations

  1. Federal Laws regulating wages, hours, and conditions
  2. State Laws regulating wages, hours, and conditions

II. Theoretical Considerations

  1. A theory of Equity
  2. Types of equity

III. Practical Considerations

  1. Job evaluation methods
  2. Incentive pay methods
  3. ETC.

LEGAL CONSIDERATIONS: Notes

Classes of gainfully employed persons in the United States?

Those who work for themselves - Self-employed - examples

Those who work for others - employed

Federal and State Tax Laws determine whether one is legally an employee or self- employed. What are other names for self- employed persons?

Only the wages and hours of employed persons are regulated by state and federal laws. Self- employed persons may negotiate without conditions, but they must meet the criteria of self-employed persons under the law tax law.

What are the implications of being classed as employee vs. self employed?

The Federal law regulating hours and wages is the Fair Labor Standards Act. - administered by Wage and Hour Division of Dept. of Labor.

Fair Labor Standards Act regulates:

Minimum Wage _______
Maximum Hour _______
Child Labor  _______
State Labor Code

Federal and State Law - Federal Supremacy and Preemption

Because many of you will take a test coveringfFederal law we need to be clear on some aspects of federal law.

1. FLSA (Fair Labor Standards Act)

Exempt Employees:
Executives
Administrative People
Professionals
Outside Sales (off premises)
Non Exempt employees (one class only)
Minimum Wage
Maximum hours
Overtime pay
Compensatory time - in public sector only at choice of employer.
Exceptions to Minimum Wage - severely disabled, training wage
Waivers - employees can't waive their rights
Other Federal wage laws: 2. California Labor Codes: State exempts virtually the same as federal
Most of the major working conditions are standard across industry. In general overtime must be paid for hours in excess of any of the following:
8 hours in any day- time and one-half
40 hours in a week- time and one-half
7th consecutive day- time and one-half
12 hours in any day- double time
8 hours on the 7th day- double time
State law permits comp time if:
  1. Employee requests time in place of money in writing prior to work being performed
  2. At applicable rate
  3. Time off is during the same or next pay period
  4. Time off is during the normal work week
  5. Employer keeps accurate records
Comp Time is not appropriate for exempt workers. Exempt workers work until the work is done without overtime. Accounting for comp time undermines the philosophy of the exemption and threatens the exemption. In my judgment it is assumed that exempt workers have discretion over their work. That includes discretion about when to come and go. At SSU if I am out of town for a week end, I have been told that I should not take a comp day on Monday; I should show up for work . . . for at least 10 minutes. There should be no problem if the employee arranges her work schedule. There may be a problem if the supervisor arranges a work schedule to include comp time.

Compressed work weeks are permissible without an overtime obligation if:

  1. The compressed work week is discussed and approved by a 2/3 majority.
  2. The agreement is written.
  3. Reasonable accommodations are made for those whom would experience a hardship
  4. Decision may be revisited by petition of 1/3 of employees after 1 year.
Vacation:

  1. Is considered deferred compensation
  2. Accrues at end of each working month
  3. Cannot be taken away, but employer can force employee to use it.
  4. Must be paid out on termination.
  5. A cap on maximum vacation accumulated is legal.
NOTE: CONDITIONS ARE NOT UNIFORM ACROSS ALL ORDERS OF THE IWC. Other conditions that are addressed in work orders include:

WORK ORDERS COVER THE FOLLOWING TOPICS:

  1. APPLICABILITY OF ORDER
  2. DEFINITIONS
  3. HOURS AND DAYS OF WORK
  4. MINIMUM WAGES
  5. REPORTING TIME PAY
  6. LICENSES FOR HANDICAPPED WORKERS
  7. RECORDS
  8. CASH SHORTAGE AND BREAKAGE
  9. UNIFORMS AND EQUIPMENT
  10. MEAL & LODGING
  11. MEAL PERIODS
  12. REST PERIODS
  13. CHANGING ROOMS AND RESTING FACILITIES
  14. SEATS
  15. TEMPERATURE
  16. ELEVATORS
  17. EXEMPTIONS
  18. FILING REPORTS
  19. INSPECTIONS
  20. PENALTIES
  21. SEPARABILITY
  22. POSTING OF ORDER.
II. Theoretical Considerations:

There is a theory of motivation that has direct implications for wage and salary administration. It is called equity theory. A good translation of equity is fairness. Equity theory is called a social comparison theory because notions of equity are derived from comparison that we make with each other, i.e. social comparisons.

The major tenant of equity theory is that human beings hate inequity and work to restore equity to inequitable situations. Since we have better control over our behavior than others, states of equity must be changed by our taking actions.

Let us consider equity implications for wage administration, though the implications are applicable to other situations as well.

Conditions of equity:

To make predictions let us simplify and analyze the situation

How does an individual assess equity:

This can be expressed in a ratio O/I. Now feelings of equity derive from comparisons of your ratio with the typical worker in the work group.

So what do people when they perceive inequity? They alter their work. How? Simple. They can change either the quality of their work or the quantity of their work? Those exhaust the possibilities. Which will they choose to do? It depends on whether their current pay system is on an hourly basis or based on performance; piece or production work. All of this can be summed up in a simple two by two table. Let's work through it. So is it a valid theory? Research does support the theory. The effect is especially strong with under paid workers.

An anecdote: I have a friend who has a job like mine: Dept. Chair; works at home almost every night; has computer at home networked to his one at school; supervises 35 faculty members and 4 secretaries; works in HRM. We were drinking a beer at a meeting in LA, and talking about equity theory. I said how much more do you work in a week than the professors you supervise. He responded at least 15 on average, maybe more. That's about 35% more. And what is the pay differential? His answer was about 15%.

Don't you feel underpaid in relation to your colleagues? No, he said, money is pretty important to me and this job pays $10,000 more than theirs; its the price I have to pay to earn this salary. And there's no way I can do this job in 40 hours. To me its equitable, I want the extra money, I got to put in longer hours.

You should consider equity when you are designing your pay systems. Probably the higher the requirements of the job, the more important equity is:

1. Types of Equity:

Determining pay levels - Job evaluation

Common Methods:

Classification method - Job classes with generic duties are developed as criteria for placement of job in a class. Individual jobs are compared with the job classes for best fit. In federal government the job classes are very limited GS 4-21.

In State Government the classes are endless - e.g. four classes of personnel director based on level of responsibility and size of organization. Five classes of clerical workers.

Point factor method: Comparing the ranking method with the point factor method and exercise.

2. Incentive pay methods:

3. Other

Test yourselves. You may have discovered that Chapt 13 deals with compensation issues. What went wrong with the Sears incentive plan. Describe situation and indicate problem.

  • Business 340 Syllabus

  • E-mail: Duane.Dove@sonoma.edu