Compensation and Benefits - Legislation for preparation for PHR or SPHR Certifications

1. Compensation and Benefits
legislation

2. Compensation Legislation

3. 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 “AntiKickback” 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

4. 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.

5. 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.

6. 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

7. FLSA Exemption
Exemption results when
these conditions are met
Minimum
salary
($455/wk)
Paid on
salary
basis
Exempt
duties

8. 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

9. 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.

10. 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

11. 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.

12. 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

13. 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

14. 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.

15. 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

16. 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

17. 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.

18. Child Labor
Age
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

19. 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.

20. 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.

21. 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

22. 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.

23. 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

24. Legislation Related to Benefits

25. Employee Retirement Income Security ActERISA (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.

26. 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.

27. 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

28. 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.

29. 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.

30. 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.

31. 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

32. 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

33. 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.

34. 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