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CHAPTER 11 Establishing a Pay Structure 329

L*ga[ Rmqu$r*$r]ents $*n Fay Government reguiation affects pay structure in the areas of equal eilployment opportunity, minimum rvages, pay for overtime, ar-rd prevailing wages for federal con- tractors. A11 of an organization's decisions about pay should comply rvith the appli- cable 1arvs.

EquaI Employment Opportunity Urrder the 1ar,vs governing Equal Ernployment Opportulity, described in Chapter 3, einployers may not base differences in pay on an etr-rployee'S age, sex' race' or other protected status. Any differences in pa1' rns51 instead be tied to such business'related considerations as job responsibilities or performance. The goal is for ernployers to pro-

t-iCe equalpay for equalwork. Job descriptions, job structures, and pay structures can help organizations demonstrate that they are upholding these larvs.

These laws do not guarantee equal pay for men and women, u'hites and rninoti- ties, or any other groups, because so many iegitimate factors, from education to choice of occupation, affect a person's earnings. In fact, numbers shoi.r' that \lromen ar-rd racial minorities in the United States tend to earn less than u.hite men. -\mong full-tirne workers in 2008, \4ro1t1en on average earned B0 cents for every .lollar earned by rner-r. Arnong rnale ernployees, black lvorkers earned 85 cents for e.'ery dollar earned by white \vorkets, and Hispanic \\,orkers earned iust 76 cents (the racial gap among Black and Hispanic female employees is greater, at 76 ar-rd 66 cents per dollar, respectiveiy).1 Even rvhen these figures are adjusted lo take into accolrnt education, experience, and occupation, the earnings gap does not coln- L-.letely close.4

One explanation for historical 1ou,er pay for rvornen has been that employers have undervalued rvork performed by ri,otnen-in particular, placing a lo'"r.'er value on occulrations raditionally dominated by u'omen. Some policy tnakers have proposed a remedy for this calied equal pay for comparable tuorrh. This policy uses job evalua- tion (described later in the chapter) to establish the \\'orth of an organization's jobs in terms of sr-rch crireria as their difficulty and their in-rportance to the oiganization. The employer then compares tl-re evaluation points arvarded to each job rvith the pay

L*3 Summarize legal requirements for Pa\/ policies.

fbr each job. If jobs have the same number of evaluation points, they should be paid equally. lf they are no1-, pay of the lorver- paid job is raised to meet the goal of comparable u'orth.

Comparable-\r'orth policies are controversial. From an eco- nomic standpoint, the obvious drail'back of such a policy is that ralsing pay for some jobs places the emplol's1 at an econontic disadvantage relative to empioyers that pay the rnarket rate. In addition, a free-market economy assurles people u,ill take .lifferences in pay into account lvhen they choose a career. The courts allorv organizations to defend themselves against claims of discrirnination by shou'ing that thel' pay the going rnarket rate.5 Businesses are reluctant to place thernselves at an eco- nomic disadvantage, but many state governments adjust pay to achieve equal pay for comparable *'orth. Also, at both private and governrnent organizations, policies designed to shatter rhe "glass ceiling" (discussed in Chapter 9) can help to address the problern of uneq,-ra1 pay.

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Two employees rvho do the sanre job carnot be paid different wages because of gender, race, or

age. lt would be illegal to pay these two employees differently because one is male and the other is fenrale. Only if there are tiifferences in tlreir experience, skills, seniority, orjob perforntance are there legal reasons rvhy their pay nright be different.s,

:ltt*: !i '*jl 5 )i. 5r

K

330 PART 4 Compensating Human Resources

Minimum Wage The lowest amount that employers may pay under federal or state law, stated as an amount of pay per

hour.

Fair Lebsr Slandards Act {FLSAi Federal lawthat establishes a minimum wage and requirements for overtime pay and child labor.

Minimum Wage ln the United States, employets musr pay at leasr the minimum wage established by law. (A wage is the rate of pay per hour.) At the federal level, the l93B Fair Labor Standards Act (FLSA) establishes a minimum wage rhat is $2.25 per hor,rr as of July 2009. The FLSA aiso permits a lou,er "training wage," which empioyers may pa), to q'orkers under the age o{ 20 for a period of up to 90 days. This subminiinum r.r,age is approximately 85 percent of the minimum wage. Some srates have laws specifying minimum wages; in these states, empioyers must pay whichever rate is higher.

From the standpoint of social policy, an issue related to the rninimum wage is that it tends to be lower than the earnings required for a full-time rvorker to rise above the poverty leve1. A number of cities have therefore passed laws requiring a so-called livlng {rage, essentially a minimum \\'age based on the cost of living in a particular region.

Overtime Pay Another lequirement of the FLSA is that empioyers must pay higher i.r,ages for over- time, defined as hours rvorked beyond 40 hours per week. The overtime rate under the FLSA is one and a half rimes the employee's usual hourly rate, including any bonuses and piece-rate paymenrs (amounrs paid per item produced). The overrime rate applies to the hours worked beyond 40 in one week. Time u'orked includes not only hours spent on production or sales but also time on such activities as attend- ing required ciasses, cleaning up the r'vork site, or traveling between rvork sites. Figure 1 1.2 shows how this applies to an employee rvho rvorks 50 hours to earn a base rate of $10 per hour plus a weekiy bonus of $30. The overrime pay is based on rhe base pay ($400) plus the bonus ($30), for a rate of $10.75 per hour. For each of the 10 hours of overrime, the employee rvould earn $16.13, so rhe overrime pay is $161.30 ($16-13 rimes 10). \il/hen employees are paid per unit produced or when they receiye a monthly or quarterly bonus, those payments must be converted into wages per houE so that the employer can include these amounts rvhen figuring the correcr overtime rate,

Overrime pay is required, whether or not the employer specificaliy asked or expected rhe employee to work more than 40 horrs.6 In other words, if the employer knows the

Figure '!1"2

Computing Overtime Pay

Employee's Base Pay: $10/hr. + $30/wk. (bonus) Employee's Hours: 50 (40 regular, 10 overtime)

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Pay for First 40 Hours

910/hr. x 40 hr.= $400 Bonus@$30 = 30 I otal = $430

Hourly Rate

$430*40 : $10.75lhr.

Overtime Rate

$10.75 x 1.5 = $16.13

Overtime Pay

$16.13/hr. x 10 hr. * $161,30 .t. " :

Total Pay for Week

$430,00 + $161.30 = $591.30

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j*k*st Communications recently Owest defended itself on the

$r: rn trouble when emjloyees gforllds that it had a policy for-

r:f ,.:s call center sued for unpaid OiOOing employees to work off the

::,€t;me. Employees saiO ifteV time ciock' But the judge in the

,Ex*ien't being paid for starting case said the company's actual r€iit before their shifts officially practices' notthe policy'werewhat :e;an. Why did they do that? the jurywould needto consider'

':.tI 3cme cases, they said, their Companies that don't want to

i.::*i-:3gers asked them to come in pay overtime rates for booting *r;fe the start of their shift and up computers have to build

that

trFn up their computers' ln other work into employees' scheduled "**e.. th"it daily job requirements activities' {&*r. so challenging that the only ouestions +; . :3 meet the goals was lor the ;:,:r;uterstobeupandrunningl'Whydoyouthinkthe ;er::r their shift began. managers at Owest didn't

seem to think of getting computers started as Part of

the emPloYees'work? 2. How could HR Professionals

prevent this sort of misunderstanding?

Source: Based on "Workers Coming

in Early to Fire UP Their ComPuters? You Must PaY Them." HR SPecialist:

Emolovment Law, March 2010' Business

& ComPanY Resource Center, httP://

galenet.galegrouP.com'

Exempt EmPloYees

Managers, outside

salesPeoPle, and

any other employees

not covered bY the

FLSA requirement for

overtime pav.

NonexemPt EntPloYees

Employees covered bY

the FLSA requirements for overtime PaY'

.i!-:..reeisrvorkingoverlimebutcloesnotpaytimearrdahalf,theemplo),.erlnaybe ..,,"g rh" fl-SA"(see the "HR Oops!" box for an exampie)'

l.'i everyone is eligible {or overtime pay' Under *-tt ruSA' executive' profes'

. rr,,:. administrative, and highly compensated whrte-co11ar emplol'ees are considered

a?efiPtemployees,*"".'"i'-'g'"'oployers.neednotpaYthernoneandahalftimes ._

_ .: ;tgular pay for ."J;,,;;;r" i-hur-,'+0.h"ufs per $ eek. Exenpt status depends on

.,.,: .nployee,, lor r.rpor-,.iiiliai.r, rulury lerel (ar least 3455 per rveek), and "salary

, -._ ..

meaning that ,n" "*piov"e is_paij a given adlounr regardless of the number

of

-, *.,,rked or q.alir;;rt."rr.rf..t'puyi.io" ernpl.rrec,rn a salary hasis tneans tlre

-:::]:alion expects that this person can manage his t't l-'"t o\vntime lo get the work

,. r.:. so the employer rnay deduct from the er:nployee's- PaJ'; only in certain limited

. -:.,ilstances, such as disciplinary actiol.| or tbr unpaiJ leave for personal feasons'

. ,-.lir-rI-r?l exceptiolts apply to certain occupations' ir-rcluding outside salespersons'

:,: ,.rs, ancl comput". oi"f"t.t"rals (lf thel earn at least $2?.63 p-er hotr)' Thus,

- : r:andards ur. fuirly co*plicated. For tnore details about the standards for exempt

'-.:,.-r'ees, contact th.;;b:t'Dtpu'i'o"r"'' Wage and Hour Division or refer to its

; .- .ite at wr,r'nv.dol.gs1'fwhd' . -rl

"r',ptov"" .,,h[ is not in one of the exempr categories is called a nonexempt

esvrployee. Mor, *ork"r, O.iJ ." "" f-tourl,v basis are tlonexempt and therefore sub'

:-.:.,'thelarvsgoverningovertilnepay'Hou'el'er'pat'ingasalarydoesr-rotnecessarily '- r .1 :l job is exernPt.

i*ild Labor .

:_-.c eariy years of the lndusrrial Revolution, ellployers :oYld.p,ay lor'v wages by hir'

. :hildren. The FLSA now sharpiy festticts tl-Ie use of child labor, u'ith the aim of

... :::ting children,s h;i;h, r"]",1 ""a eclucatio.al opportunitiet.s Th" restrictions

331

332 PART 4 Compensating Human Resources

i"{i3 Discuss how economic forces influence decisions about pay.

apply 16 chiidren younger than 18. Under the FLSA, children aged 16 and 1? may not be employed in hazardous occupations defined by the Departmert of Labor, such as mining, meatpacking, aud certain kinds of manufacturing using heavy rnachinery'. Children aged 14 and 15 may work only outsicle school hours, in jobs definecl as non- hazardous, antl for iirnited time peliods. A chilc'l under age 14 rnay nor be employed in any work associated rvith interstate comlnerce, except r,vork perforrned in a non- hazardous job for a bttsiness entirely oq'ned by the child's parenr or guardian. A feu, additional exemptions frorn this ban include acting, babysitting, alid delivering nerlrs- papers to consumers.

Besides the FLSA, state larvs also restrict the r-rse of child labor. Many srares have lari's recluiring working papers or n'ork permits for n'iinors, and many states restrict the nunber of hours or tines of day that rninors aged 16 and older lnayi iys1k. Before hir- ing any lvorkers under the age of iB, employers lnlrst ensllre they are cornplying u,ith the child iabor lau's of their state, as u,ell as the FLSA requirements for their indusrry.

Prevailing Wages Trvo additional federal larvs, the Da'is-Bacor-L Act of 193 1 and the Walsh-Healy Public Contracts Act of 1936, govern pay policies of federal contracrors. Under these laws, federal contractors mllst pay their employees at rates at least eqr,ral to the prer,ailing ri.'ages in the area. The calculation of prevailing rares must be based on 30 percent of the local labor force. Typically, the rates are based on relevant union contracts. Pay earned by union members tends to be higher than the pay of rronunion rvorkers in srmilar jobs, so the effect of these laws is to raise the ior.ver limit of pay an erl'rployer can offer.

These laws do nor cover all companies. Davis-Bacon covers construction contrac- tors that receive more than $2,000 in federal rnoney. !ilalsh-Healy covers all govern- ment contractors receivins $10,000 or more in federal funds.

ffi**m*mfe 3mftrrs*flrfr*s *rn Pey An organization cannot make spending decisions ir-rdependent of the econorny. Orga- nizations must keep costs lor.r' enougll that they can sell their products prrofirably, yet they rnust be able to attract u,orkers in a competitive labol market. Decisions about hor'v to respond to the econotnic forces of product rnarkets and labor markets lirnit an organization's choices abor,rt pay structure.

Product Markets The organizatiot-t's product market ir-rciudes organizations that offer cornpeting goods and services. In other lvords, the organizatior-is ir-r a product rnarket are cornpering to serve lhe same custofirers. To succeed in their proeluct markets, organizations must be able to sell theil goods and services at a quantity and price that lviil bring them a sr,rf- ficient profit. They may rry to u,in cusrorners by being superior in a number of areas, including quality, cllstolner service, and price. An irnportant influence on price is the cost to produce the goods and services for sale. As u'e mentioned earlier, the cost of labor is a significant part of an organization's costs.

If an organization's labor costs are higher than those of its cornperirors, it u'ill be r-tncler pressttre to charge more than competitors charge for sirnilar prodr-rcts. If one company spends $50 in labor costs to make a ploduct and its comperiror spencls only

)J), r a higL c0mp( U.S, C rrting ; .ales, i.ringir

l-I(1.

llpLrer rotal c L)lgani rl-rereti

pilrt ol price. ( ler-els,

iltore t)

Labor Besides

Iesourc( emplo1', labor es FrarticLll jobs rvit

Ar-r r ri.ith sin ees. For i,.r, trucl .lo their stores tl arlininisr terentl1,, business, .1ata on trative a the conl iirg so th qLralified colnparel pational

Anoth llllng-t1 such as I and gasol ,rf living i markets t L)\rer tiln€ rhe cost , clernand

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