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Eastablishing a Pay Structure (Legal Requirements for Pay (Equal…
Eastablishing a Pay Structure
Legal Requirements for Pay
Minimum wages
lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour.
Fair Labor Standards Act (FLSA) – federal law that establishes a minimum wage and requirements for overtime pay and child labor.
Overtime pay
Overtime pay is required, whether or not the employer specifically asked or expected the employee to work more than 40 hours.
If the employer knows the employee is working overtime but does not pay time and a half, the employer may be violating the FLSA.
Equal employment opportunity
Any differences in pay must be tied to such business-related considerations as job responsibilities or performance.
Employers must not base differences in pay on an employee’s age, sex, race, or other protected status.
The goal is for employers to provide equal pay for
equal work.
Prevailing wages for federal contractors
Two federal laws govern pay policies of federal contractors: Davis-Bacon Act of 1931, Walsh-Healy Public Contracts Act of 1936
Under these laws, federal contractors must pay their employees at rates at least equal to the prevailing wages in the area.
Developing Pay Levels
Economic Influences on Pay
Product Markets
Organization’s product market includes organizations that offer competing goods and services.
Cost of labor is a significant part of an organization’s costs.
Organizations compete on quality, service, and price.
Labor Markets
Organizations must compete to obtain human resources in labor markets.
Competing for labor establishes minimum an organization must pay to hire an employee for a particular job.
Deciding What to Pay
Pay at rate set by market
Pay at a rate above market
Pay at a rate below market
Market Pay Survey:
Benchmarking
– a procedure in which an organization compares its own practices against those of successful competitors • Pay surveys • Trade and industry groups • Professional groups
Employee Judgments About Pay Fairness
Employees compare their pay and contributions
against three yardsticks:
What they think other employees holding different jobs within the organization earn for doing work at the same or different levels
What they think other employees in the organization
earn for doing the same job as theirs.
What they think employees in other organizations earn for doing the same job.
Job structure
Relative Value of Jobs
Compensable Factors
: 5 characteristics of a job that the organization values and chooses to pay for.
Experience
Education
Complexity
Working conditions
Responsibility
Administrative procedure for measuring relative internal worth of the organization’s jobs.
Defining Key Jobs
Administrative procedure for measuring relative internal worth of the organization’s jobs.
Organizations can make the process of creating the job
and pay structures more practical by defining key jobs.
Research for creating the pay structure is limited to key
jobs that play a significant role in the organization.
Pay Rates:
Organization obtains pay survey data for its key job
Pay policy line is established.
Pay rates for non-key jobs are then determined.
Pay Ranges
Red-circle rate – pay at a rate that falls above pay range for the job.
Green-circle rate – pay at a rate that falls below pay range for the job
Pay ranges – a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade.
Pay Differentials
Many businesses in the U.S. provide pay differentials based on geographic location
The most common approach is to move an employee higher in the pay structure to compensate for higher living costs.
Pay differential – adjustment to a pay rate to reflect differences in working conditions or labor markets.
Alternatives to Job-Based Pay
Delayering
More emphasis on acquiring experience, rather than promotions.
More assignments are combined into a single layer called broad bands.
Reducing number of levels in organization’s job structure.
Skill-Based Pay Systems
Pay structures that set pay according to employees’ levels of skill or knowledge and what they are capable of doing.
Appropriate where changing technology requires employees to continually widen and deepen their knowledge.
Pay Structure
Pay structure represents organization’s policy, but what the organization actually does may be different.
HR should compare actual pay to pay structure, making sure that policies and practices match. • Compa-ratio is the common way to do this.