government and legal issues in compensation chapter 17
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Government and Legal Issues in
Compensation
Chapter
17
Fair Labor Standards Act (FLSA) of 1938
“Independent Contractor” exclusion “Drivers Deliver Trouble to FedEx by Seeking Employee
Benefits” In reviewing classification re: independent contractor vs.
employee, regulators likely to consider worker to be Ee if s/he works set hours is required to follow instructions on how to do job receives training from Er works on Er’s premises
Estimated that 38% of Ers examined by IRS have misclassified workers as independent contractors
Source: Wall Street Journal, 1/7/05
“The Ground War at FedEx” Suits over independent contractor status have bedeviled Cos since
Microsoft lost suit over issue in 2000 and sharply curbed use of contractors
In October 2005, CA judge ruled that among ground drivers who had filed class action there, those who drive single routes should be classified as Ees
Ground drivers also recently succeeded in consolidating class actions pending in 23 other states into single case in IN federal court
Co maintains that such drivers aren’t Ees because they don’t have specific start times, can buy and sell own routes and trucks, and can hire and fire ees
~20% of ground drivers manage multiple routes Use of independent contractors (who can’t form U) has helped FedEx to
avoid labor disputes, such as 1997 Teamster strike at UPS
“The Ground War at FedEx” Outside consultant estimates that use of lower-cost
contract drivers enables FedEx Ground to deliver packages for average cost of $5.82 apiece, cf. $7.17 average for UPS to deliver both air and ground packages over its integrated network Cost differential has helped FedEx Ground’s market share to
increase from 13% to 18% since 2000, while UPS’s share has declined to 74%
Source: Business Week, 11/28/05 IRS ruled against FedEx in December 2007, finding
drivers to be employees rather than independent contractors, assessed $319m in back taxes and fines
Source: Wall Street Journal, 12/22/07
Fair Labor Standards Act (FLSA) of 1938
Minimum Wage Provision Legislated increases
Federal minimum wage increased from $5.15/hr to $5.85/hr in July 2007, $6.55/hr in July 2008, $7.25/hr in July 2009
States may also have minimum wage laws
Child Labor Provision Overtime Pay Provision
Exempt/Nonexempt
Wage and Hour Laws for Federal Contractors (“prevailing wage” laws)
Davis-Bacon Act of 1931 (best known) Walsh-Healey Public Contracts Act of 1936 and others…
Equal Pay Provision: Equal Pay Act of 1963
Amendment to FLSA Men and women in “substantially equal” jobs must
receive equal pay Allows pay differences based on
Seniority Merit Productivity Any factor other than gender
Equal Pay Provision: Equal Pay Act of 1963 To support a pay difference due to unequal work, the
employer must show Skill, effort, and responsibility requirements are
substantially different The tasks involving those differences consume a
significant amount of the employee’s time The pay differential corresponds to these criteria
The Wage and Hour Division of the Department of Labor Minimum wage Record-keeping Child labor Contractor laws Overtime pay
Equal Employment Opportunity Commission Equal pay
Wage and Hour LawsAdministration
Wage and Hour Laws &Compensation Decision Making
• Audit the pay system regularly
• Make full use of Wage and Hour Division offices for help in interpretation of the law
• Look to the courts for direction in adherence to equal pay provision
• Carry out task-oriented job analysis and subsequent job evaluation
Court Direction in Adherence to Equal Pay Provision
Pay policy should contain provision for equal pay for substantially equal work
Equal work determination must be based on content of job; skill, effort, and responsibility requirements; and working conditions
Civil Rights Act of 1964, Title VII Prohibits discrimination in employment based on
race, color, gender, religion, national origin Disparate treatment Adverse (disparate) impact
One implication is that differential cost of providing benefit (e.g., pensions by gender) can not be used to justify discrimination in pension benefit by gender
Civil Rights Act of 1964, Title VII Pay discrimination and dissimilar jobs
Unlawful under Title VII, but… Market rates are defense to paying dissimilar jobs differently
(unlike Equal Pay Act, and equal work) Comparable worth
Advocates that women performing jobs judged to be equal on some measure of worth should be paid the same as men (e.g., AFSCME v. State of Washington)
Not mandated by federal law Some states, for public employees; Ontario, public and private
The Earnings Gap (see 17.4A, 17.4B, 17.4C) Differences in Occupational Attainment
Discrimination and gender stereotyping or choice?
Differences in Personal Work-Related Characteristics Experience, seniority, education
Differences in Union Membership
Worker’s Compensation (see also ch. 13)
Worker’s Compensation Laws:Worker’s Compensation Laws: state laws intended to continue the flow of income, for a specified period, for workers whose injuries are job-related
Worker’s Compensation Laws: Common Features
Income lossfrom totaldisability
(weekly cashpayments)
Income lossfrom death
(burial allowancesurvivor benefits)
Rehabilitationexpense
payments(to return tolabor force)
Medicalexpense
payments(cost management
increasing)
Income lossfrom permanentpartial disability
(lump sumpayments)
Worker’s Compensation Laws: Additional Common Features
All job-relatedinjuries and
illnessesare covered
Co-insurance: withthis, the beneficiary
of the coverageabsorbs part of the
loss that iscovered
Payments areusually made
through insurancefinanced by
employer-paidpremiums
Coverage isprovided regardless
of whose negligence causedthe injury or illness
Workers’ CompensationAdministration
Administered by state workers’ compensation boards or courts
Company’s premium rates are based on the company’s claim experience
Workers’ Compensation& Compensation Decision Making
Recognize:
safety violations
+ high rate of injuries & illnesses
high experience ratings
higher workers’ compensation higher workers’ compensation premium paymentspremium payments
Unemployment Compensation (see also ch. 13)
Unemployment CompensationUnemployment Compensation provides income to a provides income to a subset of workers who are temporarily unemployed and subset of workers who are temporarily unemployed and searching for suitable employment.searching for suitable employment.
Based on state laws (w/federal supervision), funded by Based on state laws (w/federal supervision), funded by employers, experience ratedemployers, experience rated
Unemployment CompensationDenial of Benefits
Voluntarily quit without a good cause Discharged for misconduct (not incompetence) Discharged for fraud Failed to seek or accept suitable employment Received certain other unemployment benefits (e.g., severance
pay) Unemployment was caused by labor disputes resulting in work
stoppages (some limited exceptions, distinction between strike and lockout, between strikers and those involuntarily idled)
Unemployment Compensation& Compensation Decision-Making
Monitor the organization’s turnover rate to control experience ratings
Develop appropriate supplementary unemployment benefits (SUB) packages (maintain tax advantages via non-discrimination [income])
Social Security Act of 1935 (see also ch. 13)
Basic floor of continuing income Ill and disabled workers Dependents of disabled workers Retired workers Survivors of workers
Pay-as-you-go system Taxes employee AND employer equally through
Federal Insurance Contribution Act (FICA)
Social Security Act of 1935
Born before 1937: retire at 65 with full benefits Born after 1937: work beyond 65 to retire with full
benefits With retirement eligibility comes eligibility for
Medicare Part A Hospital coverage Part B Medical insurance component Now also Parts C (Medicare Advantage, alternative to
Medigap coverage) and D (prescription drugs)
Social Security Act of 1935
1950’s 1999 2040Ratio ofWorkers
to
SocialSecurityRecipients
10 4 2
1 1 1
Family and Medical Leave Act (see also ch. 13)
FMLA guarantees workers up to 12 weeks of unpaid leave for childbirth, adoption, foster care, personal serious illness, or serious illness of a close family member
Job protection upon return California has passed law making leave paid
(and most recently Washington state)
Employee Retirement and Income Security Act: Minimum Standards (see also ch. 13)
Who must be covered by a plan (participation requirement)
How long a person must work to be entitled to the benefits (vesting requirement)
How much money the employer must set aside each year to fund the (defined) benefit plan
Pension Benefit Guarantee Corporation (PBGC)
Pension Plans: Defined Benefit
Defined Benefit Plans:Defined Benefit Plans: either guarantee the retiree a specific amount of income or specify the method for determining the benefits the retiree will receive
Funding based on the organization’s payroll costs and employers’ contributions (based on anticipated retirement income obligations for the workforce as a whole)
Pension Plans: Defined Contribution
Defined Contribution Plans:Defined Contribution Plans: all forms of capital accumulation that do not allow withdrawal of funds until retirement
Employer’s contribution is guaranteed and plans are, by definition, fully funded
Income is a function of the fund’s investment growth
DifferencesDefined Benefit
Retirement income is guaranteed
Employer’s contribution is not guaranteed
Might not be fully fundedParticipants not
immediately vestedERISA pension provisions
apply
Defined ContributionRetirement income is not
guaranteed
Employer’s contribution is guaranteed
Fully funded by definition
Participants are immediately vested
ERISA pension provisions don’t apply
.
ERISA Additional Requirements
Plan must be handled in the best interests of the participants and their beneficiaries (fiduciary requirement)
Participants must be informed of their rights under the plan (communication requirement)
Other Legislation Age Discrimination in Employment Act
now prohibits mandatory retirement Pregnancy Discrimination Act
Pregnancy must be treated as any other disability Consolidated Omnibus Budget Reconciliation Act (COBRA)
Must offer extended group health plan participation for up to 36 months following termination
Workers Adjustment and Retraining Notification Act (WARN) Requires 60-day notice of plant closings, mass layoffs
Americans with Disabilities Act Note: disabilities not identified by listing
Health Insurance Portability and Accountability Act (HIPAA) Improves ‘portability’ of health insurance (limits exclusions for pre-existing conditions,
discrimination based on health status) Note that HIPPA impacts Er’s ability to use incentives re: health insurance and wellness
programs
Health Insurance Portability and Accountability Act (HIPAA)
Intended to address “job lock” (where Ee is “locked” into current job given health insurance considerations)
Protections for coverage under group health plans that limit exclusions for pre-existing conditions
New Er must credit Ee for previous continuous health coverage (reduces or eliminates exclusion period)
Prohibits discrimination against Ees based on health status (including charging different premiums)
Does not… Ensure that Ee who changes jobs will have access to health insurance on
new job Ensure affordability of health insurance on new job Enable individuals to maintain same group health plan on job change
Recall that under COBRA Ee provided w/ limited extension of group health insurance (premium to be paid by Ee) when coverage lost due to qualifying events (e.g., layoff)
Pension & Welfare Benefits &Compensation Decision Making
Monitor pending legislation and tax law Communicate benefit coverage and legal
requirements to employees Assure avoidance of discrimination and assure
fair treatment of all Evaluate the potential impact of plans, especially
flexible benefit plans
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