In this video, review the different types of compensation.
- We all like to get paid for our work. It's a minimum expectation of any employee. How much you're paid is mainly a function of your company's compensation philosophy. However, the Fair Labor Standards Act, or FLSA, sometimes referred to as the wage and hour law, is the federal law that guides how your employer sets minimum wages and classifies employees. The FLSA establishes a minimum wage for everyone with a job in the United States.
This wage is reviewed and adjusted periodically, but has not kept pace with changes in the federal costs of living. This has prompted many jurisdictions to establish minimum wages in their areas that are higher than the federal standard. For example, the minimum wage with benefits in San Jose, California is around $20 an hour, while the minimum wage in the U.S. Virgin Islands is around $10 an hour. The FSLA also classifies employees as exempt or non-exempt.
An exempt employee is an employee who isn't subject to the FLSA. Non-exempt employees are entitled to overtime and minimum wage provisions included in the FLSA. To figure out if an employee should be classified as exempt or non-exempt, employers should do three tests. The salary level test, salary basis test, and duties test. The salary level test states that employees earning less than $23,600 a year, regardless of duties, are non-exempt, which means they qualify for overtime pay.
The salary basis test refers to salaried employees and the fact that their salaries cannot be reduced because of lack of work or low-quality work. A common mistake employers make is that they assume that by placing someone on a salary, they are exempt. In actuality, an employee's classification depends on what their duties are. Finally, performing the duties test differentiates between exempt and non-exempt employees. Generally, executives, administrative employees, professional employees, computer-related occupations, and outside sales personnel are considered exempt.
See the Exercise File Employee Classifications for a listing of possible duties for each exempt employee type. There are several other laws that address equal pay and compensation discrimination. Review the compensation section of the Exercise File Summary of Major Laws of the U.S. Department of Labor for more info. When you think of pay, you may only think of money, however, there are several types of compensation, both monetary and non-monetary.
Some examples of monetary compensation include an employee's base pay, commissions, overtime pay, bonuses, profit sharing, merit pay, stock options, and per diems. Some examples of non-monetary compensation include medical insurance, paid time off, retirement plans, and perquisites. Perquisites include benefits such as car allowances, club memberships, and mobile devices. Overall, ensuring that your compensation program meets the federal requirements of the Fair Labor Standards Act, other relevant federal compensation laws, and the laws of your jurisdiction are critical.
Compensation is the largest part of an organization's budget, so it's important for PHR candidates to demonstrate that you can think of creative ways to leverage compensation packages to brand your employer as an employer of choice while ensuring compliance with relevant laws.
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