Government Influence on Compensation Administration
In Chapter 3, we described how government policies shape and influence HRM. Some HR functions are more heavily influenced than others. For example, collective bargaining and the employee selection process are heavily constrained by government rules and regulations; employment planning and orientation are less so.
Compensation administration is also highly regulated. Government policies set minimum wages and benefits that employers must meet, and these policies provide protection for certain groups (see Exhibit 11-2). The laws and regulations we will discuss are highlights only, chosen to help make you aware that government constraints reduce HRM’s discretion on compensation decisions. An abundance of laws and regulations define the general parameters within which managers decide what fair compensation is. Let’s look at some of these.
Fair Labor Standards Act Starbucks and Walmart are among the many employers that have been found to have violated laws regulating pay. Starbucks had been distributing tip money to supervisors in addition to the baristas (coffee-making employees) who earned the tips. The supervisors could not be in the “tip pool” because their positions allowed them to hire, fire, supervise, and direct other workers. Starbucks was ordered to repay over $100 million to the baristas who had their tips diverted to managers. Walmart agreed to pay over $700 million to settle lawsuits nationwide that alleged employees were routinely underpaid. Among the alleged practices at Walmart were not allowing employees to take rest and meal breaks in violation of state laws, and discouraging employees from submitting overtime hours in violation of federal laws. Walmart and Starbucks are hardly alone. The U.S. Department of Labor estimates that seven in ten U.S. employers are violating wage and hour regulations. These costly errors are part of a trend that has caused the yearly number of wage complaints filed with the Department of Labor to double in the last ten years. How can an employer prevent being part of the 70 percent of employers that run into trouble? It’s simple—-know the law!
The Fair Labor Standards Act (FLSA) sets federal requirements for minimum wages, overtime pay, record keeping, and child labor restrictions. Nearly all organizations are covered by the F LSA, but not all employees are covered. The act identifies two primary categories of employees: exempt and nonexempt. Exempt employees would include, for instance, those in professional and managerial jobs. Under the act, jobs categorized as exempt are not required to meet FLSA standards, especially in the area of overtime pay. Workers earning less than $23,660 per year or $455 per week are guaranteed overtime protection.
On the other hand, nonexempt employees receive certain protections under the FLSA. Specifically, employees in these jobs are eligible for premium pay—typically time-and-a-half—when they work more than forty hours in a week. Moreover, these jobs must be paid at least the minimum wage, which was set at $7.25 in 2009. Some states and cities require wages higher than the federal minimum. In certain circumstances, employees may be paid less than the minimum. For example, if an employee earns tips, employers may pay a direct wage of $2.13 and consider those tips part of employees’ wages.