17-1

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 17-2

Part Six Part Six:

Chapters
Managing the
17 - 18 System

Chapter 17: Government

and Legal Issues in
Compensation

Chapter 18: Budgets and

Administration

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 17-3

Exhibit 1.5: THE PAY MODEL

POLICIES TECHNIQUES OBJECTIVES

ALIGNMENT
EFFICIENCY
•
Performanc
COMPETITIVENESS e
• Quality
• Customers
•
CONTRIBUTORS
Stockholder
s
• Costs

MANAGEMENT Planning Budgeting Communication EVALUATION FAIRNESS

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 17-4

Chapter

17 Government
and Legal
Issues in
Compensation
Screen graphics created by:
Jana F. Kuzmicki, PhD
Troy State University-Florida and Western Region

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 Learning Objectives 17-5

After discussing Chapter 17, students

should be able to:
1. Discuss the government’s role in the employment
relationship and its interests in compensation
decisions.
2. Identify the major provisions of the Fair Labor
Standards Act and describe how this Act affects the
regulation of pay.
3. Identify the key components of the Equal Pay Act of
1963 and explain how they affect wage
discrimination.
4. Discuss how the two theories of discrimination
under Title VII of the Civil Rights Act of 1964 (as
amended) affect pay issues.
5. Explain the difficulties and issues in determining
pay discrimination for dissimilar jobs.
6. Discuss the social implications of the earnings gap
between men and women and among racial groups.

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 17-6

Chapter Topics
 Government as Part of the Employment
Relationship
 Fair Labor Standards Act of 1938

 Prevailing Wage Laws

 Pay Discrimination: What is It?

 The Equal Pay Act

 Title VII of the Civil Rights Act of 1964

 Pay Discrimination and Dissimilar Jobs

 The Earnings Gap

 Comparable Worth

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 17-7

Overview of Federal
Regulations

Legislation establishes a
minimum wage, governs
overtime pay, protects
employees from
discrimination, regulates
benefits, and determines
how compensation is taxed.

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 17-8

Government: Part of the

Employment Relationship
Government is a key stakeholder in
compensation decision making
Governments’ usual interests are
whether
 Procedures for determining pay are fair (pay
discrimination)
 Safetynets for the unemployed and
disadvantaged are sufficient (minimum
wage, unemployment insurance)
 Employees are protected from exploitation
(overtime pay, child labor)
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 17-9

Exhibit 17.1: Evolving Nature of

United States Federal Pay Laws
Davis Bacon Act (1931)
Copeland Act (1934)
Walsh-Healey Act (1936)
Fair Labor Standards Act (FLSA) (1938)
Equal Pay Act (1963)
Title VII of Civil Rights Act (1964)
Service Contract Act (1965)
Age Discrimination Act (1967)
Wage Garnishment Law (1968)

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 17-10

Exhibit 17.1: Evolving Nature of

United States Federal Pay Laws
Fair Credit Reporting Act (1970)
Pregnancy Discrimination Act (1978)
Americans with Disabilities Act (1990)
Civil Rights Act (1991)
Family and Medical Leave Act (1993)
Health Insurance Portability and
Accountability Act (HIPPA) (1996)
Small Business Job Protection Act (1996)
Mental Health Act (1997)
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 17-11

Fair Labor Standards Act

(1938)
Three Major Provisions
 Minimum wage
 Hours of work
 Overtime pay
 Employee status
 Exempt
 Nonexempt
 Child labor

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 17-12

Minimum Wage
Legislation is intended to provide an
income floor for workers in society’s
least productive jobs
 Federal minimum wage is $5.15
an hour (set in 1997)
Almost all states have their own
minimum wage to cover jobs omitted
from federal legislation
If state and federal
legislation cover same
job, the higher rate prevails
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 17-13

Effects of Minimum Wage Rate

Increases on Wage Structure
Direct and indirect effects
 Direct effect – Refers to increase in wages for
jobs at bottom of wage curve that have been
below minimum wage
 Indirect effect – Refers to changes in remainder
of the wage curve to maintain appropriate
differentials for jobs that deserve higher pay
Analysis indicates indirect effect is usually
greater than direct effect
Companies spend more money on increasing
pay of high-level jobs than they spend on
raising pay of low-level jobs to new minimum
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 17-14

Employee Status Under FLSA

When classified as an employee, an
organization must
 Withhold federal/state/local income taxes
 Match Social Security/Medicare withholding
 Include person in company benefit programs
 Pay for unemployment insurance and
workers’ compensation
 Allow up to 12 weeks of unpaid leave for
family emergencies
 Provide any other state or federally
mandated benefits
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 17-15

Contractor Status Under

FLSA
To be classified as a contractor, a
person must
 Have ability to set own hours and determine
sequence of work
 Work off-site
 Work by the project rather than have a
continuous relationship with the employer
 Be paid by the job
 Have an opportunity for profit and loss
 Furnish own tools and training
 Be self-employed or work with a leasing
company
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 17-16

Exempt and Non-Exempt

Status Under FLSA
Non-exempt employees are included in
FLSA regulations and have full protection
of law
Exempt employees are excluded from
FLSA minimum wage and overtime
provisions
Four classifications of exempt employees
 Executives
 Professionals
 Administrativeemployees
 Outside salespeople

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 17-17

FLSA Basic Overtime

Provisions
Non-exempt workers  Overtime is paid on
must be paid 1.5 time worked, not
times their regular time compensated
rate of pay for hours  A workweek is any
worked in excess of fixed, recurring
40 in any workweek period of 168
Regular rate of pay
consecutive hours
includes base pay
plus 200
 Non-discretionary 4
bonuses
 Shift premiums
 Production
bonuses
 Commissions
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 17-18

Compensatory Time Under

FLSA
Compensatory time off may sometimes
be offered instead of cash overtime
Rate is the same as for cash
Public employees can accumulate
compensatory time
In private sector, practice of allowing
compensatory time must be part of an
established plan

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 17-19

Child Labor Provisions

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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 17-20

FLSA Compliance:
Enforcement.
Wage and Hour Division of U.S.
Department of Labor enforces FLSA
minimum wage and overtime provisions

Equal Employment Opportunity

Commission (EEOC) enforces equal pay
provisions

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 17-21

When State Laws Differ

Pay frequency, minimum wage,
severance or vacation pay, or unclaimed
wages may be governed by individual
states

Rule of thumb - Whenever state and

federal laws differ, follow regulation
that most benefits employees

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 17-22

Pay Discrimination: What Is It?

Law recognizes two types of

discrimination
 Access discrimination – denies particular
jobs, promotions, or training opportunities to
qualified women or minorities
 Valuationdiscrimination – looks at pay
women and men receive for the jobs they
perform
 It is discriminatory to pay minorities or women
less than males when performing equal work -
working side-by-side, in the same plant, doing the
same work, producing the same results
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 17-23

Types of Antidiscrimination
Acts
Equal Pay Act (1963)

Civil Rights Act (1964)

Age Discrimination in Employment Act

(1967)

Wage Garnishment Act (1968)

Americans with Disabilities Act (1990)

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 17-24

Discriminatory
Compensation Practices
Types of compensation practices which
may be discriminatory

Extra pay plans

Leave policies

Maternity leave

Pension policies

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 17-25

Equal Pay Act (1963)

Prohibits wage discrimination on the

basis of gender when
Employees perform work in
the same establishment, or

Employees perform jobs

requiring equal skill, effort,
and responsibility under
similar working conditions

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 17-26

What Is Discrimination Under

EPA?

A plaintiff would have a prima facie

case if he/she received a lower wage
than members of opposite sex for
performing work that requires
substantially the same skills, effort,
and responsibilities under similar
working conditions - all performed at
the same location.

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 17-27

Provisions of Equal Pay Act

Equal work is defined in terms of
 Skill, effort, responsibility, and working conditions all
performed at the same location
Differences in pay are legal if differences are
based on any one of four criteria
 Seniority, merit or quality of performance, quality or
quantity of production, or some factor other than
sex
Not permitted are defenses such as
 Union rules or the wage is prevailing pay for market
Time of day does not constitute dissimilar
working conditions
 However, if a differential for working at night is paid,
it must be separated from base wage for job
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 17-28

Title VII of the Civil Rights

Act (1964)
Prohibits discrimination in all terms and
conditions of employment on the basis of
race, religion, ethnic group, sex, or
national origin.
Defines two theories of
discrimination behavior
 Disparate treatment
 Disparate impact
Civil Rights Act of 1991 reinforced
these two standards of discrimination
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 17-29

Theories of Discrimination

Disparate treatment

 Occurs when an employee who is a member of

a protected group is intentionally paid less

Disparate impact

 Occurs when an apparently

neutral compensation practice
results in unintentional wage
discrimination for a protected group

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 17-30

Pay Discrimination and

Dissimilar Jobs
Gunther v. County of Washington
 Supreme Court determined pay differences
for dissimilar jobs may reflect discrimination
Proof of discrimination
 Use of market data
 Spaulding v. University of Washington
 Jobs of “comparable worth”
 AFSCME v. State of Washington

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 17-31

Exh. 17.6: Possible

Determinants of Pay Differences

Differences
Differences Differences
Differences
in
in in
in
firms
firms employees
employees

Differencesin
Differences in
Differences
Differences
employee
employee Differences
Differences in
in
work
work inPay
in Pay
unions
unions
behaviors
behaviors

Differences
Differences
Differences
Differences inlabor
in labor
in
in Discrimination
Discrimination market
market
work
work conditions
conditions
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 17-32

What Is Comparable Worth?

If jobs require comparable

skill, effort, and
responsibility, the pay
must be comparable, no
matter how dissimilar the
job content may be.

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 17-33

Comparable Worth
Establishing a comparable worth plan
involves the following four basic steps
 Adopt a single job evaluation plan for all jobs
within a unit
 All jobs with equal job evaluation results should
be paid the same
 Identify general representation (percentage
male and female employees) in each job group
 The wage-to-job evaluation point ratio should
be based on the wages paid for male-
dominated jobs since they are presumed to be
free of pay discrimination

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 17-34

Age Discrimination in
Employment Act (1967)

Prohibits discrimination on basis of age for

workers at least 40 years of age in all
conditions of employment
Coverage - Act applies to all private
employers with 20 or more employees for
20 or more weeks per year
Exceptions - Seniority systems or use of
factors other than age are permissible
Beware of career stage literature assuming
a decline in productivity with older workers
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 17-35

Americans with Disabilities

Act
 Prohibits discrimination in employment against
individuals who can perform essential job
functions with reasonable proficiency
 To be protected by the ADA, an employee must
have an impairment which substantially limits
one or more major life functions
 Reasonable accommodation must be taken by
employers to accommodate employees with
disabilities
 Undue hardship - Employers are exempt from
taking action if accommodation involves
significant expense or difficulty

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 17-36

Proactive Approach to
Compliance

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