US Employment Compensation Laws

US Employment Compensation Laws

Imagine working six or seven 12-hour days in a row. You have no breaks and your lunch allows just enough time for you to eat before you are expected to get back to work. As for your pay, you never know what you’re going to make because it varies based on the needs of the business from week to week. If you’re a woman, you will be paid less than your male colleagues. As for children, they work too. In fact, many drop out of school so that they can make a living, but sadly, their pay is even less than the adults.

These scenarios may seem far-fetched, but these situations were once a reality in the United States. Over time, several employment laws have been established to set a minimum wage, while allowing equal pay for workers carrying out the same tasks. These laws also protect children who enter the workforce, preventing them from having to choose school over work. Additionally, they protect children from unsafe work conditions. Today, we’re going to look at these and other employment compensation laws which have significantly improved the standards and practices for paying employees.

Let’s start with the FLSA, or Fair Labor and Standards Act. This law was signed by President Roosevelt in October of 1938, and was designed to set a minimum wage for pay, while offering steady pay procedures. There are five detailed guidelines outlined within the FLSA, the first covering minimum wage.

MINIMUM WAGE

As of January 2020, the federal minimum wage is currently $7.25 per hour. State minimum wage rates can differ from federal, and some even carry a higher minimum wage rate. In these cases, the FLSA states that employees who are affected by both federal and state minimum wage laws would be entitled to receive the higher rate of pay. Let’s use Illinois as an example. Their state minimum wage is currently $8.25 an hour. Since it is higher than the federal minimum wage, eligible employees would be entitled to the higher rate of $8.25 per hour.

OVERTIME PAY

The next item outlined in the FLSA is overtime pay. This requires an eligible employee to be paid time and a half of their regular rate for all hours worked beyond 40 hours in a work week. An eligible employee would be classified as a non-exempt, or an hourly employee. Exempt, or salaried employees are not eligible for overtime pay.

HOURS WORKED

Since eligible employees are required to be paid at least minimum wage and be paid for any overtime hours worked beyond 40 hours in a work week, other factors must be considered when employees are obligated to work during times that may not be as easily determined as work time. Some examples would include being on-call, traveling for work, or attending work-related seminars. This section of the FLSA addresses several scenarios to better understand whether or not an employee is to be paid. For example, an Executive Assistant attending an all-day seminar on event planning is entitled to be paid because the event is directly related to the job duties.

RECORDKEEPING

The next section of the FLSA covers recordkeeping. This requires employers to post FLSA posters in common areas for employees to reference the FLSA guidelines. These posters are updated as needed and are provided to employers free of charge. Recordkeeping also orders employers to retain non-exempt employee pay records for three years. A two-year retention period applies for timecards and schedules.

CHILD LABOR LAWS

The final section of the FLSA is where we find child labor regulations. These protect young workers by ensuring a safe work environment that will not hinder the young worker’s education. Work restrictions vary, depending on the age as follows:

  • Those under 14 are very limited in the type of work they can perform. Duties such as babysitting, delivering newspapers, or acting are allowed.
  • 14- and 15-year-olds can work but may only do so on a limited schedule which places their school attendance at a higher priority than their job. For example, they are not able to work more than 40 hours per week, even when they are out of school during spring, summer, and winter breaks.
  • 16 and 17-year-olds are allowed more flexibility and can work as many hours as they like, as long as the job does not subject them to unsafe working conditions. These determinations are made by the Secretary of Labor.
  • Once teens turn 18, work restrictions no longer apply.
  • Workers under 20 are entitled to the federal minimum wage. However, there is a period where they can be paid less, based on the Youth Minimum Wage clause that was added to the FLSA in 1996. This clause states that workers under 20 may be paid at a rate no less than $4.25 per hour for the first 90 calendar days of their employment.

One act that was a direct extension of the FLSA is the E-P-A, or Equal Pay Act. It was made effective in June of 1963. This law prohibits men from receiving higher compensation than women with similar skills and experience holding the same position. In this law, compensation does not classify as wages alone. Benefits such as health insurance and bonuses would also be considered as compensation.

The Lilly Ledbetter Fair Pay Act of 2009 amended the Equal Pay Act in January 2009. The Act is named for Lilly Ledbetter, an employee of Goodyear Tire who had sued the company for gender discrimination. While still an employee at Goodyear, Ms. Ledbetter received an anonymous note which provided the names and salaries of some of her male co-workers. Even though they performed the same duties, all were paid more money. The case made its way to the Supreme Court. Her settlement was reduced based on the Supreme Court upholding the original time period for filing a pay discrimination complaint, which was 180 days from the first pay disparity. However, the Ledbetter Fair Pay Act ordered that with each new paycheck received after pay discrimination occurs, the 180-day deadline for a claimant to file a pay discrimination case resets itself.
The Employee Retirement Income Security Act of 1974, or ERISA, sets standards for employees who participate in retirement plans and elect health insurance coverage. With health plans, ERISA mandates that employers provide plan coverages and summary descriptions to employees regarding their health plans. With retirement plans, employers have a responsibility to supply plan participants an outline of all the plans offered, and related funding. Employers appoint plan administrators to properly manage retirement plans and pay related expenses.

Since this act was put in place, there have been two modifications made. The first was the Consolidated Omnibus Budget Reconciliation Act, or COBRA. The act took effect in 1985 and offers continued health insurance coverage to employees and their families after they lose coverage. Employees who elect COBRA can receive benefits for an additional 18 months after losing coverage, and if any life events such as divorce, marriage, or the birth of a child take place within that period, individuals may be allowed COBRA coverage for up to 36 months.

The second change was the Health Insurance Portability and Accountability Act, more commonly known as HIPAA, which was passed in 1996. Among many things, including protecting the way in which medical records are handled, it also protects employees from being discriminated against based on their health condition.

Now, the last law we’re going to look at is the Federal Wage Garnishment Law. If an employee’s wages are court-ordered for garnishment, this law protects the employee from being terminated as a result. However, terminating an employee for any garnishment orders after the first would be at the employer’s discretion to decide. Additionally, this law limits the amount of disposable income that can be garnished from the employee’s check per pay period, which is around 25% for non-spousal or child support orders. Government orders, meaning a court order or wage garnishment notice that a government agency would issue to a payroll administrator to address, differ as well, and are usually taken at around 15% of disposable income. Note that by federal standards, disposable income is defined as the amount left over after an employee has paid all required local state and federal taxes, in addition to Social Security, Medicare, and unemployment tax. When garnishment orders are being processed, it is always best to review the order completely and call the party listed as the authorized contact to develop a full understanding of the terms. Once you are clear on the amounts that are to be deducted from the employee’s pay, you should inform the employee. Given the sensitive nature, it is equally important to be tactful and use discretion. Often, an email providing the amounts to be deducted along with the garnishment order attached is suitable.

As you can see, U.S. Employment Compensation laws have certainly come a long way. As the times changed, the needs and laws of the workforce followed suit. Hopefully this video has enhanced your knowledge of employment compensation laws, or perhaps sparked an interest in researching one or more of these topics in depth.

Thanks for watching, and happy studying!

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by Mometrix Test Preparation | Last Updated: September 2, 2020