1) Consider contemporary practices such as skill-competency-based plans, broad banding, market pricing, and pay-for-performance plans. Discuss how they may affect pay discrimination and why?
2) The concept of comparable worth is discussed in the textbook. Is this a current issue in today’s business environment or not and why?
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3) Research an article in the media regarding a lawsuit against an organization relative to compensation. Summarize the issue at hand and give your opinion about the issue, the law and how the organization is addressing the issue.
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Chapter 17
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Government and Legal Issues in Compensation
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Learning Objectives
Government as part of the employment relationship
Fair labor standards act of 1938
Living wage
Employee or independent contractor?
Prevailing wage laws
Pay discrimination: What is it?
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Learning Objectives
The equal pay act
Title VII of the Civil Rights Act of 1964 and related laws
Executive order 11246
Pay discrimination and dissimilar jobs
Earnings gap
Comparable worth
Compliance: A proactive approach
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Government: Part of the Employment Relationship
Government role in compensation decisions, ensures:
Fair procedures for pay determination
Safety nets for the unemployed and disadvantaged
Employees are protected from exploitation
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Effect of Government Decisions on the Labor Market
Demand – Government indirectly affects labor demand through:
Its purchases and financial policy decisions
Supply – Labor supply is affected through:
Legislation
Immigration policy and how rigorously it is enforced
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U.S. Federal Pay Regulations
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Year Legislation
1931 Davis- Bacon Act
1934 Securities Exchange Act
1936 Walsh-Healey Public Contracts Act
1938 Fair Labor Standards Act
1963 Equal Pay Act
1964 Title VII of Civil Rights Act of 1964
1965 Executive Order 11246
1967 Age Discrimination in Employment Act
1978 Pregnancy Discrimination Act
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U.S. Federal Pay Regulations
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Year Legislation
1990 Americans with Disabilities Act
1991 Civil Rights Act of 1991
1993 Family and Medical Leave Act
1997 Mental Health Act
2000 Sarbanes- Oxley Act
2004 Financial Accounting Standards Board Statement 123 R
2006 Securities and Exchange Commission (SEC) rule change on executive compensation disclosure
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U.S. Federal Pay Regulations
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Year Legislation
2009 Lilly Ledbetter Fair Pay Act
2009 Troubled Asset Relief Program (TARP), American Recovery and Reinvestment Act of 2009 (ARRA)
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act
2010 Benefits
2010 Voting on Executive Pay
2010 Nominating Directors
2010 Independent Compensation Committees
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U.S. Federal Pay Regulations
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Year Legislation
2010 Clawbacks
2010 Executive Compensation Disclosure
2010 Increased Oversight of Financial Industry
Ongoing SEC, Internal Revenue Service (IRS)/U.S.
Treasury Department, Financial Accounting Standards Board (FASB)
Ongoing
Department of Labor (DOL) Equal Employment Opportunity Commission (EEOC), and DOL Office of Federal Contract Compliance Programs (OFCCP)
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Fair Labor Standards Act (1938)
Covers all employees of companies engaged in interstate commerce
Major provisions
Minimum wage
Hours of work
Overtime pay
Employee status
Exempt
Nonexempt
Child labor
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See Exhibit 17.1 page 586 for details
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Minimum Wage
Provides an income floor for workers in society’s least productive jobs
Higher rate prevails if:
State and federal legislation cover same job
Risks of increasing minimum wage
Reduced employment opportunities for low waged workers
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Minimum Wage
Factors to be considered in evaluating the effectiveness of the minimum wage law:
Whether the gains through higher wages are greater than the losses of jobs and/or hours
Whether wage gains go primarily to workers from low income families
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Overtime and Hours of Work
Overtime provision of the FLSA requires payment at:
One-and-a-half times the standard for working more than 40 hours per week
Factors that encourage employers to pay overtime premium rates
Increasingly skilled workforce with higher training costs per employee
Higher benefits costs, the bulk of which are fixed per employee
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Exhibit 17.4 – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act
Source: Excerpts from U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, http://www.dol.gov/esa/whd/regs/compliance/fairpay/, June 20, 2009.
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Exhibit 17.4 – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act
Source: Excerpts from U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, http://www.dol.gov/esa/whd/regs/compliance/fairpay/, June 20, 2009.
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Exhibit 17.4 – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act
Source: Excerpts from U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, http://www.dol.gov/esa/whd/regs/
compliance/fairpay/, June 20, 2009.
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Exhibit 17.4 – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act
Source: Excerpts from U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, http://www.dol.gov/esa/whd/regs/compliance/fairpay/, June 20, 2009.
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Exhibit 17.4 – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act
Source: Excerpts from U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, http://www.dol.gov/esa/whd/regs/compliance/fairpay/, June 20, 2009.
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Overtime and Hours of Work
OSHA (Occupational Safety and Health Administration) legislation
Specifies the number of breaks that must be provided in an eight-hour workday
Portal-to-Portal Act
Time spent on activities before beginning the principal activity is generally not compensable
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Overtime and Hours of Work
The Worker Economic Opportunity Act
Allows stock options and bonuses to be exempt from inclusion in overtime pay calculations
Compensatory time off
Would give employees and employers the option of trading overtime pay for time off
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Child Labor
FLSA restricts hours and conditions of employment for minors
Persons under 18 cannot work in hazardous jobs
Persons under 16 cannot be employed in jobs involving interstate commerce
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Living Wage
Minimum wage tailored to living costs in an area
Amount may be twice the federal minimum wage
Intend to reduce any cost savings a municipality might receive from outsourcing
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Employee or Independent Contractor?
Regulations that help classify a worker as an employee or independent contractor
Tax law enforced by the Internal Revenue Service (IRS)
Employee Retirement Income Security Act (ERISA) enforced by the department of labor
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Employee or Independent Contractor: Internal Revenue Service Tests
Behavioral control – Whether the business has a right to control how a task is done, includes:
Instructions that the business gives to the worker
Training that the business gives to the worker
Financial control
The extent to which the worker has unreimbursed business expenses
The extent of the worker’s investment
The extent to which the worker makes his or her services available to the relevant market
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Employee or Independent Contractor: Internal Revenue Service Tests
How the business pays the worker
The extent to which the worker can realize a profit or loss
Type of relationship
Written contracts describing the relationship
Whether or not the business provides the worker with employee-type benefits
The permanency of the relationship
The extent to which services performed by the worker are a key aspect of the business
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Prevailing Wage Laws
Set pay for work done to produce goods and services contracted by the federal government
Government-defined prevailing wage
Minimum wage that must be paid for work done on covered government projects or purchases
Prevent contractors from using their size to drive down wages
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Prevailing Wage Laws
Contain prevailing-wage provisions
Davis-Bacon Act
Walsh-Healey Public Contracts Act
Service Contract Act
National Foundation for the Arts and Humanities Act
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Pay Discrimination: What is it?
Types of discrimination
Access discrimination: Denial of particular jobs, promotions, or training opportunities to qualified women or minorities
Valuation discrimination: Looks at the pay women and men receive for the jobs they perform
Pay equity
Known as gender pay equity
Equal pay for work of comparable worth
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The Equal Pay Act (1963)
Prohibits wage discrimination on the basis of gender
Differences in pay between men and women doing equal work are legal if based on:
Seniority
Merit or quality of performance
Quality or quantity of production
Some factor other than sex
Requires that jobs be equal and not identical
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Equal Pay Act (1963)
Skill – Experience, training, education, and ability as measured by the
Performance requirements of a particular job
Effort
Degree of effort (not type of effort) actually expended in the performance of a job
Can be mental or physical
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Equal Pay Act (1963)
Responsibility – Degree of accountability required in the performance of a job
Working conditions
Physical surroundings and hazards of a job, dimensions such as:
Inside versus outside work, heat, cold, and poor ventilation
To support a claim of unequal work:
The effort/skill/responsibility must be substantially greater in one of the jobs
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Equal Pay Act (1963)
Tasks involving the extra effort/ skill/ responsibility must :
Consume a significant amount of time
Have a value commensurate with the questioned pay differential
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Equal Pay Act (1963)
Factors other than sex
Shift differentials
Temporary assignments
Bona fide training programs
Differences based on ability, training, or experience
Other reasons of “business necessity”
Reverse discrimination
Discrimination against men
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Title VII of the Civil Rights Act (1964)
Prohibits discrimination on the basis of:
Sex, race, color, religion, or national origin in any employment condition
Age Discrimination in Employment Act
Prohibits discrimination on the basis of age
Americans with Disabilities Act (ADA)
Prohibits discrimination on the basis of disability
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Theories of Discrimination
Disparate treatment
Disparate or unequal treatment applies different standards to different employees
Disparate impact
Practices that have a differential effect on members of protected groups
Are illegal, unless the differences are work-related
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Executive Order 11246
Prohibits discrimination on the basis of race, color, religion, sex, or national origin
Requires covered government contractors to file affirmative action plans
Utilization analysis compares the contractor’s workforce to the available external workforce
Goals and timetables are developed for achieving affirmative action
Action steps are developed for achieving these goals and timetables
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Pay Discrimination and Dissimilar Jobs
Supreme court determined pay differences for dissimilar jobs may reflect discrimination
Proof of discrimination
Use of market data
Jobs of comparable worth
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Exhibit 17.11 – Sources of Earnings Gaps
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Comparable Worth
For jobs that require comparable skill, effort, and responsibility:
The pay must be comparable, no matter how dissimilar the job content may be
To establish a comparable worth plan:
Adopt a single job evaluation plan for all jobs within a unit
All jobs with equal job evaluation results should be paid the same
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Comparable Worth
Identify general representation (percentage male and female employees) in each job group
Wage-to-job evaluation point ratio should be:
Based on the wages paid for male-dominated jobs
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Comparable Worth
Union developments
Amount of union support for comparable worth is related to:
Its effects on the union’s membership
Tradeoffs between higher wages and fewer jobs make :
Unions in industries facing stiff international competition reluctant to aggressively support comparable worth
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Proactive Approach to Compliance
Steps to undertake the effort towards compliance:
Join professional associations to:
Stay informed on emerging issues
Act in concert to inform and influence public and legislative opinion
Review compensation practices and their results
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