1. Government and Legal Issues in Compensation
Compensation Management
Prepared by: Mr. Zaheed Husein Mohammad Al-Din, Sr. Lecturer, BBS
Adapted from: Compensation, Ninth Edition
(By: George T. Milkovich, Jerry M. Newman)

2. Topics for Discussion
Government as Part of the Employment Relationship
Fair Labor Standards Act of 1938
Prevailing Wage Laws
Pay Discrimination: What is It?
The Equal Pay Act
Title VII of the Civil Rights Act of 1964
Pay Discrimination and Dissimilar Jobs
The Earnings Gap
Comparable Worth

3. Government: Part of the Employment Relationship
Government is a key stakeholder in compensation decision making
Governments’ usual interests are whether
Procedures for determining pay are fair (pay discrimination)
Safety nets for the unemployed and disadvantaged are sufficient (minimum wage, unemployment insurance)
Employees are protected from exploitation (overtime pay, child labor)

4. Effect of Government Decisions on the Labor Market
Demand
Government a big employer
Indirectly affects labor demand through its purchases
Financial policy decisions affect labor demand
Supply
Legislation
Immigration policy and how rigorously it is enforced

5. Exhibit 17.1: Evolving Nature of United States Federal Pay Regulations
See Exhibit 17.1 page 586 for details

6. Fair Labor Standards Act (1938)
Three Major Provisions
Minimum wage
Hours of work
Overtime pay
Employee status
Exempt
Nonexempt
Child labor
See Exhibit 17.1 page 586 for details

7. Minimum Wage
Legislation is intended to provide an income floor for workers in society’s least productive jobs
Federal minimum wage
$5.85 an hour July 2007
$6.55 July 2008
$7.25 July 2009
Almost all states have their own minimum wage to cover jobs omitted from federal legislation
If state and federal legislation cover same job, the higher rate prevails

8. Effects of Minimum Wage Rate Increases on Wage Structure
Direct and indirect effects
Direct effect – refers to increase in wages for jobs at bottom of wage curve that have been below minimum wage
Indirect effect – refers to changes in remainder of the wage curve to maintain appropriate differentials for jobs that deserve higher pay

9. Effects of Minimum Wage Rate Increases on Wage Structure (cont.)
Analysis indicates indirect effect is usually greater than direct effect
Companies spend more money on increasing pay of high-level jobs than they spend on raising pay of low-level jobs to new minimum

10. Drawbacks of Minimum Wage Legislation
As a public policy to reduce poverty, minimum wage legislation has become “an increasingly weak mechanism
Failure to target the working poor
Increasing the minimum wage has adverse employment effects
Alternative approach
“living wage”
Provides a minimum wage tailored to living costs in an area

11. Hours of Work
Overtime provision of the FLSA requires payment at one-and-a-half times the standard for working more than 40 hours per week
Exemptions
To be exempt, executives must
Primarily undertake management duties
Supervise two or more employees
Have control (or influence) over hiring, firing, and promotion
Exercise discretionary powers
Devote at least 80 percent of their work hours to such activities

12. Hours of Work (cont.) To be an exempt professional, employees must
Do work requiring knowledge generally acquired by prolonged, specialized study, or engage in original and creative activity in a recognized artistic field.
Consistently exercise discretion or judgment
Do work that is primarily intellectual and nonroutine
Devote at least 80 percent of their work hours to such activities
To be exempt under the administrative exemption, an employee must satisfy a
“duties” test
“salary basis” test

13. Hours of Work (cont.) What Time Is Covered? What Income Is Covered?
OSHA legislation specifies the number of breaks that must be provided in an eight-hour workday
Portal-to-Portal Act provides that time spent on activities before beginning the “principal activity” is generally not compensable
“On-call employees”
“beeper pay”
What Income Is Covered?
Compensatory Time Off

14. Child Labor Provisions
FLSA restricts hours and conditions of employment for minors
Persons under 18 cannot work in hazardous jobs
Persons under 16 cannot be employed in jobs involving interstate commerce

15. Prevailing Wage Laws
Prevailing-wage laws prevent contractors from using their size to drive down wages
Contractors must determine the “going rate”
Normally the “union rate” for labor becomes the going rate
That rate then becomes the mandated minimum wage on the government-financed project

16. Prevailing Wage Laws (cont.)
A number of laws contain prevailing-wage provisions
Davis-Bacon Act
Walsh-Healey Public Contracts Act
Service Contract Act
National Foundation for the Arts and Humanities Act
Equal Pay Act
Civil Rights Act

17. Pay Discrimination: What Is It?
Law recognizes two types of discrimination
Access discrimination – denies particular jobs, promotions, or training opportunities to qualified women or minorities
Valuation discrimination – looks at pay women and men receive for the jobs they perform
Equal pay for equal work. It is discriminatory to pay minorities or women less than males when performing equal work

18. Equal Pay Act (1963)
Prohibits wage discrimination on the basis of gender when
Employees perform work in the same establishment, or
Employees perform jobs requiring equal skill, effort, and responsibility under similar working conditions

19. Equal Pay Act (1963) (cont.)
Differences in pay between men and women doing equal work are legal if based on an affirmative defense
Seniority
Merit or quality of performance
Quality or quantity of production
Some factor other than sex

20. Equal Pay Act (1963) (cont.) Definitions Equal Skill
Equal work standard required only that jobs be substantially equal, not identical
Actual work performed must be used to decide whether jobs are substantially equal
Skill
Experience, training, education, and ability as measured by the performance requirements of a particular job

21. Equal Pay Act (1963) (cont.) Effort Responsibility Working conditions
Mental or physical—the degree of effort (not type of effort) actually expended in the performance of a job
Responsibility
The degree of accountability required in the performance of a job
Working conditions
The physical surroundings and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation

22. Equal Pay Act (1963) (cont.) Factors other than sex
shift differentials
temporary assignments
bona fide training programs
differences based on ability, training, or experience
other reasons of “business necessity
“Reverse” Discrimination

23. Title VII of the Civil Rights Act (1964)
Prohibits discrimination on the basis of sex, race, color, religion, or national origin
Defines two theories of discrimination behavior
Disparate treatment
Disparate impact

24. Theories of Discrimination
Disparate treatment
Disparate or unequal treatment applies different standards to different employees
Disparate impact
Practices that have a differential effect on members of protected groups are illegal, unless the differences are work-related

25. Pay Discrimination and Dissimilar Jobs
Gunther v. County of Washington
Supreme Court determined pay differences for dissimilar jobs may reflect discrimination
Proof of discrimination
Use of market data
Spaulding v. University of Washington
Jobs of “comparable worth”
AFSCME v. State of Washington

26. Exhibit 17.5: Sources of Earnings Gaps

27. Sources of the Earnings Gaps
Work/occupation differences
Work-related behavior
Labor market conditions
Firm/industry differences
Union differences
Discrimination

28. What Is Comparable Worth?
If jobs require comparable skill, effort, and responsibility, the pay must be comparable, no matter how dissimilar the job content may be.

29. Comparable Worth Steps to establishing a comparable worth plan:
Adopt a single job evaluation plan for all jobs within a unit
All jobs with equal job evaluation results should be paid the same
Identify general representation (percentage male and female employees) in each job group
Wage-to-job evaluation point ratio should be based on the wages paid for male-dominated jobs since they are presumed to be free of pay discrimination

30. End of Topic