When it comes to designing, implementing, and administering a comprehensive compensation plan, it’s not just the employer and employee(s) who must agree that the arrangement is fair. The government – both federal and state – have a seat at the table in deciding what is equitable and it’s vital to comply with applicable laws or risk facing pricey penalties.
Federal, state, and local laws and regulations all place restrictions on how employers compensate their employees, and therefore inform how an organization’s compensation program must adhere to a broad range of restrictions and standards.
The due diligence involved with staying compliant, on top of everything else HR professionals have on their plates, can be a daunting task – which is why we’ve detailed some important considerations to keep in mind before crafting a pay policy. Here are the basics:
Labor laws and the federal government’s role
Federal wage and hour laws, pay equity laws, and state laws all have their place in compensation practices around the United States. In the case that federal and state laws differ, the U.S. Department of Labor states that employers and employees are to follow the law that provides the highest standard of protection to employees and the strictest standard for employers.
For example, if a state or city has a $15 minimum wage while the federal minimum is under $8, an employer, in that case, would be obligated to pay the $15. However, in a state where the minimum wage is lower than what the federal government requires, an employer would be obligated to follow the federal law and pay the higher wage.
Some federal labor laws to be mindful of include:
- The Fair Labor Standards Act (FLSA): the FLSA requires employers pay covered, nonexempt employees the applicable minimum wage, as well as overtime pay for hours worked in excess of 40 in a work week. It also requires that employers maintain basic payroll records for covered employees.
- The Equal Pay Act of 1963: this act prohibits pay discrimination on the basis of sex between employees that perform equal work in jobs that require equal skill, effort, and responsibility, under similar working conditions at the same establishment.
State and local labor laws: what’s the deal?
It’s not enough for employers to fully adhere to federal laws to ensure compliance. They must also be mindful of state and local laws that may exceed the requirements of federal laws.
State wage and hour laws can vary from the requirements of the FLSA. Some states and localities have adopted higher minimum wages, more expansive overtime rules, and tougher rules on independent contractor misclassification and unpaid internships.
There has been an emerging trend where states have been adopting pay equity rules that exceed the requirements of federal law. These laws vary by state, but have included measures barring rules that prohibit employees from discussing their compensation, prohibiting employers from inquiring about an applicant’s salary history, and easing the standard for establishing whether two employees perform equal work.
How to stay in compliance with the law?
There are many things employers can do to ensure compliance, here are a few suggestions to get you started:
- Consider regular internal audits to ensure compliance with the law.
- Stay current on workplace posting requirements, and regularly review and update employee handbooks.
- Implement systems that accurately record and track employee time worked, including time worked away from the workplace.
- Proceed with caution when deducting any amounts from employee pay beyond legally mandated deductions and withholdings.
*This article should not be considered legal advice. For legal advice, please consult your attorney.
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