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Summary
The legal environment surrounding compensation and benefits continues to become more structured and demanding for employers.
The basic laws that cover employee compensation were developed during the Great Depression. But recent legislation is a function of the demands for social justice that have come about since the late 1960s.
Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) continues to serve as the foundation for wage legislation and sets the standards for overtime and record-keeping requirements.
Equal Pay
The Equal Pay Act of 1963 was passed as an amendment to the FLSA.
The Equal Pay Act prohibits salary differentials between men and women employed by the same establishment in jobs that require equal skill, effort, and responsibility.
The concept of equal pay was expanded further through cases involving comparable worth. Comparable worth calls for equal pay for jobs of comparable value within an organization.
Prevailing Wages
The U.S. government also requires that employers who are party to federal contracts pay prevailing rates. In addition, a set of federal regulations now governs what employers can pay immigrants.
Equal Employment Opportunity
Equal employment opportunity (EEO) rules are found in several statutes and some case law.
Equal employment opportunity programs prohibit discrimination based on race, color, gender, religion, age, or national origin in any of the terms of employment stipulated by employers, employment agencies, or labor unions.
Tax Laws
Continually revised by Congress, tax laws have an important impact on employer benefit costs. Under the present U.S. internal revenue code, certain benefits are not taxed — medical and dental insurance are examples.
However, other services or perquisites may be taxed. For example, services or perquisites provided only to executives are considered taxable. Because of this, executive compensation is continually altered to take advantage of changing tax laws.
Benefits
With respect to benefits, there’s a continuing trend toward legislation to protect employees' investment in their benefits. More than ever, it is necessary for employers and human resources professionals to know what federal law requires.
Legally required employee benefit programs include:
- Social Security
- Unemployment Insurance
- Workers' Compensation
How employers administer their health and medical programs are determined by federal acts:
- The Family and Medical Leave Act (FMLA) provides all eligible employees with leave of up to 12 weeks per year for specified family and medical reasons. Leave may be paid if the employee has earned paid time off, or unpaid if not.
- The Consolidated Omnibus Budget Reconciliation Act (COBRA) entitles all eligible employees and their spouses and dependents to extend their group health benefits for up to 36 months.
- The Health Insurance Portability and Accountability Act (HIPAA) further protects an employee’s right to health-insurance coverage. HIPAA’s purpose is to provide coverage security for small employers and those leaving employment.
- The Affordable Care Act is intended to ensure that employees are covered by health care insurance either by their employer or through individually purchased coverage.
Employee Retirement Income Security Act (ERISA)
ERISA was passed to ensure that pensions offered by private-industry employers meet certain standards and are received by employees.