Compensation and Benefits Flashcards
(240 cards)
1
Q
compensation and benefits OR total rewards
A
Exchange of payment from an employer for the services provided by its employees. Often the single largest operating expense. Includes all forms of rewards, including monetary and nonmonetary compensation.
2
Q
monetary compensation
A
Includes any costs the organization inclurs for the benefit of employees, such as all forms of cash compensation, 401(k) matching, medical care premiums, pension plans, and paid time off. Other kinds of rewards include benefits that support the culture such as stock options, Employee Stock Ownership Programs (ESOPs), and incentive plans.
3
Q
nonmonetary compensation
A
Includes intrinsic and extrinsic nonmonetary rewards. Includes relationship with supervisors, recognition of accomplishments, development and career opportunities, and teamwork. Also include telecommuting, childcare, and flex time.
4
Q
intrinsic reward
A
one that encourages individual employee self esteem, such as satisfaction from challenging and exciting assignments
5
Q
extrinsic reward
A
one where esteem is achieved from others, sch as fulfillment from working with a talented team of peers.
6
Q
direct compensation
A
Includes payments made to employees that are associated with wages and salaries. Includes base pay, variable compensation, and pay for performance.
7
Q
indirect compensation
A
Consists of any employee payments not associated with wages and salaries, including fringe benefits such as vacation, sick, and holiday pay; insurance premiums paid on behalf of employees; leaves of absence; 401(k) or other pension plans; and government mandated benefits such as Social Security or FMLA.
8
Q
compensation and benefits philosophy or total rewards philosophy
A
high level mission statement used to guide the development and implementation of compensation and benefit programs that attract, motivate, and retain employees. Important to evaluate frequently to see if it continues to meet strategic requirements and result in desired outcomes. Must be based on internal conditions (willingness and ability to pay) and external (market) conditions.
9
Q
equity in compensation
A
Ensures that what an employee brings to the job (inputs such as KSAs) and what the employee receives (outcomes such as base pay, variable pay, and benefits) are fair and equitable when compared to both the internal factors and external conditions.
10
Q
procedural justice
A
How fair the internal process and procedures in determining pay scales are perceived to be. Considerations include how pay rates are determined, how bonuses are distributed, and who is responsible for making those decisions.
11
Q
distributive justice
A
Relates to how closely pay reflects actual performance. If, for example, an employee with a high rate of productivity is paid the same hourly rate as an employee with a lower level of productivity, the perception of the pay system will be that it’s unfair.
12
Q
pay openness
A
Refers to the degree of secrecy that exists around pay issues. In some states, it’s illegal to prohibit employees from disclosing their pay rates or amounts of increases. For purposes of internal equity, orgs that allow open conversations about base pay, increases, and pay for performance criteria will have a more positive degree of perceived fairness in the administration of pay systems (assuming they actually are fair).
13
Q
performance-based philosophy
A
Use compensation to reward performance or behavior that moves the org closer to achieving the goals established by its leaders. Use line of sight.
14
Q
line of sight
A
Occurs when employees know that their performance, good or bad, impacts their pay. Provides an increased consciousness for associating behavior with a reward. If employees are aware that their performance impacts their rewards, both monetary and nonmonetary, a high-performance culture can be created.
15
Q
entitlement philosophy
A
Rewards seniority or employee longevity. Performance is secondary to time with the company or time in a particular job. Creates loyalty to the company; benefits such as pension plans, stock options, and vacation accrual can reinforce the importance of seniority.
16
Q
compensation strategy
A
How to best use limited resources for rewards programs in attracting, motivating, and retaining employees.. Can be modified as the org grows to reflect changing needs.
17
Q
SEC Executive Compensation Reporting Rules
A
Requires reporting on various aspects of executive compensation program, such as:
- description of compensation of objectives
- existence of employment contracts or severance agreements
- equity grant practices and awards
- share ownership guidelines
Must include add’l info for top 5 executives:
- cash compensation: base salary and bonuses
- long term performance awards
- deferred compensation
- executive pensions
18
Q
fiduciary responsibility
A
HR professionals advise, manage, and/or administer total rewards programs and find themselves in a role that requires the confidence and trust of both management and employees to be effective. Must act ethically, which means not:
- acting in your own self interest
- conflicting duties
- profiting from your HR role
19
Q
cost of labor
A
Cost to attract and retain individuals with the skills needed by the org to achieve its goals. Largely influenced by the economy.
20
Q
labor market
A
Made up of any sources from which an organization recruits new employees. A single organization may find itself recruiting from several different labor markets depending on the availability of skills for different positions. Supply and demand for a certain skill set in the market impacts what the employers competing for those skills must pay to individuals who possess them. Vary by region and industry, can result in regional pay structures to reflect market conditions.
21
Q
product market competition
A
The more competitive the market, the harder it is to attract and retain good employees. Increased pressure means everything must be better, faster, cheaper, but added pressures strain employees. Stronger competitions between orgs with decreased demand can cause issues with the health of an organization, and include wage freezes, freezes in incentives, etc. In a stronger economy, increased competition can mean growth, which can result in increased rewards for employees. Benefits packages should be in line with pressures.
22
Q
private letter ruling
A
org can request a ruling from the IRS to know what the specific tax implications of a change in a compensation or benefits program will be
23
Q
Davis-Bacon Act (1931)
A
First legislation to regulate minimum wage; required that construction contractors and subcontractors pay at least the prevailing wage for the local area if they receive contracts of $2k or more.
24
Q
Walsh-Healey Public Contracts Act (1936)
A
Requires gov’t contractors with contracts of $10k+ to pay employees the prevailing wage for their local area as established by the Secretary of Labor.
25
Service Contract Act (SCA) (1965)
Requires any federal service contractor with a contract exceeding $2.5k to pay its employees the prevailing wage and finge benefits for the area, provide safe and sanitary working conditions, and notify employees of the min wage.
26
Fair Labor Standards Act (FLSA) (1938)
Requirements in 5 areas:
1. Introduced minimum wage
2. Identified the circumstances in which overtime pay was required and set the overtime rate as 1.5x the regular wage
3. Identified the criteria for determining what jobs are exempt from FLSA requirements
4. Created child labor limitations
5. Identified the info employers must keep about employees and payroll transactions
27
enterprise coverage under the FLSA
Applies to businesses employing at least 2 employees with at least $500k+ in annual sales and to hospitals, schools, and government agencies
28
individual coverage under the FLSA
Applies to orgs whose daily work involves interstate commerce. Courts have interpreted this to mean anyone who has regular contact by telephone with out of state customers, vendors, or suppliers, so basically this means all employers in the US
29
FLSA Exemption Status
Positions may be exempt from 1 or all of the FLSA requirements.
30
exempt
those who are exempt from FLSA regulations
31
nonexempt
those who must be paid in accordance with FLSA regulations
32
duties test
determining the job responsibilities or duties of a position for purposes of defining exemption status
33
salary
A regular, predetermined rate of pay for a weekly or less frequent basis (biweekly, monthly, etc). With the exception of outside sales employees, teachers, practicing attorneys, and medical doctors, employees must be paid a minimum salary of $455 per week or $23,650 per year to be classified as exempt
34
minimum salary for exemption status
$455 per year or $23,660 per year. For computer professionals, $27.63 per hour. Known as the salary level test.
35
salary basis test
Requires that salaried employees receive a predetermined amount of payment on a regularly set schedule, that the employee's compensation cannot be reduced because of variations in the quantity or quality of the work, and the employee must be paid the full salary for a week in which any work is performed.
36
federal minimum wage
$7.25
37
compensable time
The time an employee works that is suffered or permitted by an employer; meaning, the employer has to allow the employee to work over, even if implicitly. Nonexempt employees must be paid at least the minimum age for this time.
38
maximum work week
40 hours. Overtime is required for an compensable time that exceeds the maximum.
39
compensatory time off
Public employees may compensate employees with comp time instead of cash for overtime worked, but it still has to e compensated at 1.5x the rate worked.
40
engaged to wait
Time spent by nonexempt employees waiting for work is compensable if the employees have been asked to wait for an assignment.
41
on call time
FLSA doesn't require employees who are on call to be paid for time they spend waiting to be called. However, if the employer places constraints on the employee's activities, the time could be considered compensable. Anyone who is required to remain at the work site waiting for an assignment is entitled for pay for all hours spent at the worksite.
42
rest and meal periods
Not required by the FLSA, If they are 30 minutes or longer, payment is not required, unless someone is required to continue working (remain at desk to answer phones, etc.)
43
breaks
Last less than 20 minutes and are compensable.
44
training events
Pay for training is NOT required if:
1. The event is outside normal working hours
2. It is voluntary
3. It is NOT job related.
4. No other work is performed during the event.
45
travel time
Regular commute time isn't compensable. However, if an employee is required to come back on site after working a full day, the employee must be compensated. If someone is given an assignment offsite, commute time beyond their normal commute is considered compensable. Travel time between job sites must be paid as well. Overnight travel is weird - travel time during regular work hours even on nonworking days must be paid, unless it's as a passenger on a plane, train, boat, or bus.
46
permissible salary deductions
- Absence for personal reasons other than sickness or disability
- Absence for sickness or disability if the deduction is made in accordance with a plan, policy, or practice of providing compensation for salary lost due to illness
- to offset amounts employees receive for jury or witness fees or military pay
- Penalties for safety rule infractions
- Disciplinary suspensions of one or more full days for infractions of workplace conduct rules
- initial or terminal weeks of employment when an employee works less than a full week
- unpaid leave during FMLA
47
actual practice
Employers who have an actual practice of improper deductions risk the loss of exemption status for all employees in the same job classification, not just for the affected employee.
48
How does DOL determine actual practice of improper deductions?
- number of improper deductions vs number of employee infractions warranting deductions
- time period during which the improper deductions were made
- number of employees affected
- location of affected employees and managers responsible for deductions
49
safe harbor
Provision for payroll errors that could affect exemption status. Applies if:
- There is a clearly communicated policy prohibiting improper deductions that includes a complaint mechanism for employees
- Employer reimburses employees for improper deductions
- Employer makes a good-faith commitment to comply in the future
50
executive exemption from FLSA
Must meet the salary basis requirement and the following criteria:
- Primary duty is managing the org or a business unit
- Customarily and regularly direct the work of at least two other full-time employees
- Have the authority to hire, fire, promote, and evaluate employees or to provide input regarding these actions that carries particular weight
- Employees who own at least 20% equity in the org and who are actively engaged in management are also considered bona fide exempt executives.
51
administrative exemption for FLSA
Must meet the salary basis requirement and the following criteria:
- Primary duty is to perform office work directly related to management or general business operations
- Primary duty requires discretion and independent judgment on significant matters
52
professional exemption for FLSA
two types: learned professional and creative professional
53
learned professional exemption for FLSA
Must meet the salary basis requirement and the following criteria:
- Have advanced knowledge in a field of science or learning acquired through a prolonged course of intellectual instruction
- Primary duty requires the use of this advanced knowledge for work that requires the consistent use of discretion and judgment
54
creative professional exemption for FLSA
Must meet the salary basis requirement and meet the following criteria:
- Primary duty requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor
55
highly compensated employees FLSA exemption
Must make $100k or more and:
- at least $455 per week of salary
- perform office work or nonmanual labor
- perform at least one of the executive, administrative, or professional duties on a regular basis
56
computer employee exemption for FLSA
Must meet the salary basis requirement (can also be paid hourly) and must perform one of these jobs:
- computer systems analyst
- computer programmer
- software engineer
- other similarly skilled job in a computer field
An must perform one or more of the following primary job duties:
- Apply systems analysis techniques and procedures, including consulting with users, to determine functional specs
- Design, develop, document, analyze, create, test, or modify computer systems or programs, including prototypes, based on and related to user or system design specs
- Design, document, test, create, or modify computer programs related to machine operating systems
- A combination of the above
57
outside sales exemption for FLSA
No salary requirement, but must meet both of the following:
- Primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer
- Employee must be customarily and regularly engaged away from the employer's place of business
58
child labor
FLSA states that a child must be 16 years old to work in nonfarm jobs and 18 to work in nonfarm jobs that are hazardous. 14-15 year old kids can work in nonfarming, nonmining, and nonhazardous jobs if they work:
- fewer than 3 hours a day or 18 hours a week while in school - 7 am - 7 pm during the school year
- fewer than 8 hours on a nonschool day or 40 hours a nonschool week - only until 9 pm during the summer
59
positive time keeping
Employees report all hours at work along with sick, vacation, and other time off. Best for nonexempt.
60
exception reporting
Employees only report changes to work schedule such as vacation, sick, or personal time. Works well for exempt.
61
Records Required by FLSA
- Name, home address, occupation, sex
- DOB for those under 19
- Total hours worked each day and week
- Hour and day when the work week begins
- Total daily straight-time earnings
- Regular hourly pay rate for each week including overtime
- Total overtime pay for the week
- Deductions and additions to wages
- Total wages paid each pay period
- Pay period dates and payment date
62
recovering back wages under FLSA
Employees with valid complaints (verified by DOL) under the FLSA can recover back wages in 1 of 4 ways:
- The Wage and Hour Division of DOL can supervise payment of back wages
- DOL can file a lawsuit for the amount of back wages and liquidated damages equal to back wages
- Employees can file private lawsuits to recover wages, plus an equal amount of liquidated damages, attorney fees, and court costs
- DOL can file an injunction preventing an employer from unlawfully wihtholding the min wage and overtime payments
2 year statute of limitations unless the employer willfully violated the FLSA.
63
Portal to Portal Act (1947)
Clarified compensable work time and established that employers aren't required to pay for employee commute time. Requires employers to pay nonexempt employees who perform regular work duties before or after their regular hours or for working during their lunch period.
64
Equal Pay Act (EPA) (1963)
Prohibits discrimination on the basis of sex. Equal pay for equal work applies to jobs with similar working conditions, skill, effort, and responsibilities. Applies to employers and employees covered by FLSA and is enforced by EEOC. Allows differences in pay for seniority, merit, or a system that measures quantity or quality.
65
base pay
The amount of compensation that the employer and the employee agree will be paid for the performance of job duties. Salary.
66
performance-based pay
May include merit increases or promotions. Based on how well individual employees perform against the company's process for measuring performance. Ratings determine the eligible range of increase for review period. When using performance-based compensation, it's important to keep accurate records to justify disparity in salaries between employees in the same positions.
67
seniority-based compensation
Pay decisions based on lenght of time employees have been in a position and on years of related experience. Representative of an entitlement philosophy. May be based on union negotiations.
68
pay differentials
Used to encourage employees to perform work that is uncomfortable, out of the ordinary, inconvenient, or hazardous. Serve as incentives for employees to work on tough assignments or to be available to respond at inconvenient times. Provides additional pay for work considered beyond the minimum requirements of the job. Include shift pay, overtime, on-call pay, call-back pay, reporting pay, hazard pay, and geographic pay.
69
overtime
FLSA requires pay only for overtime exceeding 40 hours a week but doesn't set limits on amounts of overtime allowed. As an incentive, it may be offered to exempt employees as well but isn't required. It's ideal for overtime pay to be approved in advance.
70
shift pay
In some cases employers pay more than required for certain shifts with 24 hour operations.
71
day shift
8 am - 4 pm
72
swing shift
4 pm - 12 am
73
graveyard shift
12 am - 8 am
74
shift premium
Additional compensation provided for employees who work other than day shift. May be a percentage of base salary or factored into hourly rate.
75
on-call pay
Not required unless employees are engaged to wait (constraints placed on time). Employers may pay a premium to employees who are not at work but required to respond to work-related issues on short notice.
76
call back pay
Nonexempt employees are paid their regular rate if they're called back into work, but exempt employees may also be provided a premium for being called back after hours.
77
reporting pay
When an employee is called in to work and there is no work available, the employer may be required by state law or employment agreements to pay for a minimum number of hours.
78
hazard pay
Additional pay for dangerous or uncomfortable working conditions. Firefighters often receive hazard pay. FLSA doesn't require hazard pay but requires employers who provide it to factor it into overtime calculations.
79
geographic pay
Ensures employees in different locations are paid competitive rates. Someone in NY paid differently than someone in SC.
80
variable compensation OR incentive pay OR pay for performance
Reward employees for individual or organizational results. Motivates employees to achieve business objectives by providing a line of sight between desired performance and reward. 10% increase in productivity = bonus.
81
individual incentive plan
Steps:
1. Plan targets - 10% bonus target
2. Review goals - usually annually but may be more often if there is direct revenue generation
3. Communicate, Implement, Pay
82
organization or group incentive plans
Group incentives should be used to increase productivity, foster teamwork, and share financial rewards with employees. Benefits are increased awareness of and commitment to company goals. Include gainsharing, improshare, scanlon plan, profit sharing, and stock plans.
83
gainsharing
Include:
- Employees and managers work together to review org performance
- When measurable improvements are achieved, employees and managers share success
- Employees and org share financial gains
Benefits are:
- teamwork, shared knowledge, cooperation
- motivation
- focus and commitment on org goals
- perceived fairness of pay, which results in increased productivity
84
improshare
Developed in the 1970s by Fein. Establish a baseline for org productivity and a baseline for costs. The difference between productivity and the new output is used to calculate the group's performance.
85
Scanlon Plan
1930's. Employees receive a portion of cost savings achieved through productivity gains and cost savings. Requires disclosure of financial info and productivity meterics to employees. Administered by committees that are representative of the employee population.
86
profit sharing
Similar to Scanlon Plan. Incentive-based program that shares company profits. Distribute pretax dollars to eligible employees based on a percentage of employee's base salary. Occurs annually. A form of defined contribution plan so covered by ERISA.
87
Employee Stock Ownership Plans (ESOPs)
A defined-contribution plan that allows employees to own company stock. An employer sets up a tax-deductible trust that accepts tax-deductible contributions made by the company. Employee eligibility can be based on salary, length of service, etc. At the time of termination, retirement, or death, employees are able to receive the vested portion of their ESOP, which becomes taxable at the time funds are distributed.
88
Employee Stock Purchase Plans (ESPPs)
Allow employees to use after-tax payroll deductions to purchase company stock at a discounted price. Typically there is an offering period in which the employee deductions are accumulated until the purchase date, when the money is used to purchase company stock at a discounted rate of up to 15%.
89
retention bonus
Paid in cases of acquisition to high level managers to make them stay and ensure a smooth transition. May also be used when a company is closing down to make sure employees stay through closure.
90
commission
Incentive to sales employees. Provide a percentage of the sale price for products and services sold to a customer. May provide entire compensation package or may be used in combination with a base salary.
91
sales bonus plan
Bonus for sales employee for exceeding target sales numbers. Ex - Jack has a target of 100 cars. For every car he sells over 100, he gets a bonus of 1% over his base salary.
92
bonus
Additional compensation for performance above and beyond expectations and paid in addition to an employee's base salary or hourly rate. Bonus optionally offered and not based on objectives; a reward for going "above and beyond."
93
salary administration OR pay administration OR compensation administration
The way an org develops pay structures and uses them to administer pay. Steps:
1. Analyze jobs
2. Evaluate jobs
3. Price jobs
4. Create salary structure
5. Place jobs in grades
6. Communicate plan to organization
7. Administer plan
8. Evaluate results
94
job evaluation
Process used to determine the value of jobs relative to each other in the org. Normally conducted when a job is developed or when duties change. Identify and define compensable factors of each job that are most relevant for the org.
95
compensable factors
Characteristics that define and distinguish one job from another. (Ex, degree level, experience level, duties)
96
ranking method of job evaluation
Requires evaluators to compare the value of jobs to one another. Evaluators can be influenced by preconceptions. Also difficult to compare unrelated jobs.
97
classification method of job evaluation
Involves identifying key benchmark positions (AA, accountants). These jobs are the same regardless of size or industry. Once a job is matched to a benchmark, it may be classified according to value on a vertical scale. Benchmark positions are then associated with a grade on a salary structure. Similar positions are put in the same grade.
98
internal equity
the value of jobs to each other relative to their value to the organization
99
point factor method
Provides organizations with a system of points that are assigned to the position being evaluated. Based on the total number of points the position receives, a pay grade/range is assigned to the position. Each company that uses this method may have abstract or very specific factors that fall into five categories: education, skill, effort, responsibility, and working conditions
100
HAY system
Classification method using a complex point-factor system. Jobs are evaluated using three factors: knowledge, problem-solving, and accountability. Jobs are then matched to a profile.
101
job pricing
Occurs when a new job is created or an existing job has undergone changes and is a common practice when administering compensation. Many orgs, especially those growing, use job pricing to ensure pay is competitive.
102
determining appropriate pay level in job pricing
1. Review job description, and understand the level and scope of the job and its required responsibilities and skills
2. Select a salary survey.
3. Review compensation components, such as base pay, equity pay, variable pay, etc. Review as many matches as possible.
4. Recommend a salary range. Should match org philosophy.
103
salary survey
Allow orgs to gather compensation and benefits data that reflects current trends in the market. Often provided by professional services vendors or compensation consulting firms. Identify trends in labor costs and ensures compensation and benefits continue to attract, retain, and motivate employees.
104
employee salary surveys
Poll the internal workforce to guage employee satisfaction with pay structures, measure perceptions of pay equity, and identify the needs of the current workforce.
105
government salary surveys
Bureau of Labor Statistics (BLS) provides salary survey data.
106
industry salary surveys
For certain jobs, it may be important to consider industry-specific salary surveys for greater validity.
107
salary structure
Consists of a specified number of salary grades with a range of compensation attached to each. Developing a asalry structure requires an analysis fo both internal equity and external labor market conditions obtained through the job-pricing process. The market median is gnerally the data comparison point for each job.
108
midpoint progression
Difference between midpoints of consecutive grades. Generally narrow for lower grades and larger for higher grades. 12-15% at lower grades to 25% at higher grades.
109
pay range or salary range
Spread between the minimum and maximum pay for the job grade. Can be stated as hourly, monthly, weekly, or annually. Spread is narrow and varies depending on level. Ranges are smaller at the bottom.
110
comparable worth or pay equity
Minimizing pay disparities between jobs traditionally held by women and those held by men. Concept suggests that jobs with similar duties and responsibilities requiring similar KSAs should be paid similarly.
111
placement within pay ranges
```
minimum = entry level; new to org; new to position; underperformers
midpoint = fully proficient employees
maximum = highly valued employees
```
112
green circle rate of pay
pay that falls below the minimum of the salary range; caused because of changes in salary structure, performance issues, or KSAs don't meet position requirements
113
red circle rate of pay
employee pay falls above the maximum for the salary range; occurs due to transfers, demotions without changes in pay
114
wage compression
Occurs when new employees are hired at a rate of pay greater than that earned by incumbent employees for similar KSAs and education. Most often occurs when there is high demand for certain skills. Reduce by providing salary adjustments for incumbent employees.
115
compa-ratio
Calculation comparing employee's base pay to the midpoint of the pay range.
base salary / midpoint of pay range x 100
less than 100 means that pay is lower than midpoint, more than 100 means pay is above midpoint.
116
increases to base pay
usually due to cost of living adjustments, annual reviews, and promotions
117
merit increases
Increase to pay based on results of annual performance rating. Those on the low end of the salary range will get a higher bump when meeting or exceeding expectations than those on the higher end.
118
cost of living adjustments (COLAs)
Used during periods of high inflation to reduce the effects of wage compression. Happen more often in public sector jobs.
119
promotions
Occur when employees are moved into new positions with different duties and greater responsibilities. Typically accompanied by a a title change and salary level increase, and may mean a change in band. Usual increase is 10-15%.
120
competency-based compensation
Focuses on employee KSAs, tying individual pay to increased ability. Place responsibility for advancement on each employee. The greater the competence, the higher level of pay is available. Idea is that the more competent employees are, the fewer employees are needed, so the more the employer can afford to pay them. Competency profiles would replace job descriptions.Profiles would consist of 10-12 key competencies identified by those who know the requirements best. A career ladder then identifies the specific levels of competency required at various stages.
121
broadbanding
Splits positions in the company into just a few specific pay ranges. Each range includes a variety of jobs. Facilitates lateral movement and flat organizations.
122
Social Security Act of 1935 (SSA)
Created the Old Age, Survivors, and Disability Insurance (OASDI). Paid to qualified workers upon retirement or disability or to their surviving dependents in the event of a worker's death. Also established unemployment insurance (UI) for workers. Taxes are paid equally by employers and employees to support. Deductions on paychecks may be listed as SSA, FICA or OSADI.
123
Medicare
Created by Johnson in 1965 as an amendment to the SSA. Provides medical and hospital benefits for the elderly. Taxes are paid equally by employers and employees to support.
124
Federal Insurance Contributions Act (FICA)
Collects taxes for Social Security and Medicare.
125
unemployment insurance
SSA confers on the states the responseibility for UI administration and distributes federal unemployment insurance funds to them for that purpose.
126
state unemployment insurances (SUI)
Taxes, rates, and requirements vary between states. Vary between employers because states increase o decrease the amount of tax based on the number of employees terminated during the year.
127
Federal Unemployment Tax Act (FUTA)
IRS can tax for unemployment tax; set as a percentage of workers salaries. States administer but FUTA mandates minimum requirements.
128
Who is subject to FUTA?
- Employers who pay employees who aren't farm or household workers.
- Employers who paid wages of $1,500 or more in a quarter
- Employed 1 or more employees (includes part time)
129
Unemployment Insurance Benefits for Employees
- determined by state
| - paid for 26 weeks during which the recipient must be actively pursuing employment
130
Family Medical Leave Act (FMLA)
Applies to all public employers and to all employers with 50 employees in a 75 mile radius.
- Protects employees from adverse employment actions and retaliation when requesting FMLA leave
- Provides 12 weeks of unpaid leave within a 12 month period (a 26 weeks for military caregivers)
- Continuation of health benefits
- Reinstatement to the same position or an equivalent position at the end of the leave
131
Designation of FMLA Leave
Employers are responsible for designating FMLA leave based on info received from employees or their designee. If the employer doesn't receive enough info, it's up to the employer to request more info. FMLA regs don't require the employee to specifically request FMLA leave, but they must provide enough info for the employer to determine if the request is protected. If the leave is denied based on lack of info, the employee must provide more info. Leave can be designated as FMLA retroactively as long as no harm is caused to the employee.
132
Ragsdale v. Woverine Worldwide, Inc.
If an employer neglects to designate leave as FMLA, employees who are harmed may be entitled to restitution for their losses.
133
Substitution of Paid Leave for FMLA
DOL regulations permit employees to request, or employers to require, the use of all accrued vacation, sick, personal, family, medical leave concurrently with FMLA leave. Eligible employees who don't qualify to take paid leave according to policies established by their employer are still entitled to unpaid FMLA leave.
134
Light Duty and FMLA
Light duty assignments following FMLA leave are not part of the 12 week leave period.
135
Response Time for FMLA Request
Employer has 5 days to respond to a request.
136
Key Employee Exception to FMLA Leave
Key employees may be denied reinstatement to the position they held or an equivalent position if the employer demonstrates the reinstatement would cause "substantial and grievous economic injury" to operations. Key employees are defined as a salaried employee among the highest paid 10% at the worksite. Must be determined at the time leave is requested. If the employee decides to take the leave, they may still request reinstatement but the employer may deny.
137
Notice Requirement for FMLA
Foreseeable Leave - 30 days notice required prior to anticipated start date of leave (birth of child, etc). In the case of change, notice must be given as early as practical, same day or next business day.
Unforeseeable leave - if unable to notify employer in advance (accident, emergency surgery) rules require employees provide notice in accordance with usual and customary practice for calling in absence, unless unusual circumstances prevent the employee from doing so. An employee's representative, such as a spouse, may provide notice if the employee is unable to do so. In emergencies where employees are unable to contact employers, they're permitted to supply notice when they are able to use a phone.
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Reasons for FMLA Leave
- Birth of a child or caring for an infant (adoption and foster placement applicable). If both parents work for same employer, the combined total leave may not exceed 12 weeks. Leave must be completed within 12 months of child's birth.
- Adoption or foster care do not have to be for an infant, same rules apply as for birth, but leave must be completed within 12 months of placement.
- Provide care for employee's parent, spouse, or child with a serious health condition. Spouse must be recognized by the state (not partner).
- Employee is unable to perform functions of the job because of a serious health condition.
- To provide care for a covered service member with a serious injury or illness sustained while on active duty. Family members are eligible to take up to 26 weeks in a 12 month period.
- To provide leave for qualified exigencies for families of members of the National Guard.
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in loco parentis
In place of the parent - Parent person is caring for in FMLA leave is one who has legal standing as the parent; doesn't require a biological relationship, just a legal one. Foster parent, adopted parent, or grandparent with custody would count.
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"child" under FMLA
Son or daughter may be biological, adopted, or foster, stepchild, legal ward, or the child of someone acting in loco parentis. Must be younger than 18 or older than 18 and unable to care for themselves because of a physical or mental disability.
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employee's serious health condition under FMLA
An illness, injury, impairment, or a physical or mental condition that requires the following:
- inpatient care or subsequent treatment related to inpatient care
- continuing treatment by a health-care provider because of a period of incapacity of more than three consecutive calendar days. Incapacity refers to an inability to work, attend school, or perform other daily activities as a result of the condition.
- incapacity because of pregnancy or prenatal care
- treatment for a serious, chronic health condition
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National Guard Family Members and FMLA
Can take FMLA for:
- short notice deployments
- military events and related activities
- childcare and school activities
- financial and legal arrangements
- counseling
- rest and recuperation
- post-deployment activities
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continuous FMLA leave
employee is absent from work for an extended period of time
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reduced FMLA leave schedule
Employee's regular schedule is reduced for a period of time. May mean a reduction in hours worked each day or in the number of days worked each week.
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intermittent FMLA leave
One in which the employee is absent from work for multiple periods of time because of a single illness or injury. Employees must make an effort to schedule the leave to avoid disruption of regular business operations. Employer may assign an employee to a different position with equivalent pay and benefits in order to meet the employee's needs.
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FMLA year
Can be calculated as:
- a calendar year
- a fiscal year
- anniversary year
- 12 month period beginning when the FMLA leave begins
- A rolling 12 month period measured back from the date the FMLA leave is used
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fitness for duty certification
Employers may require employees returning from FMLA leave to provide these certifications from their health care provider, attesting to their ability to return to work.
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WH-380-F
FMLA certification form for serious health condition (employee or family member)
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WH-384
FMLA certification form for exigency leave for military families
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WH-385
FMLA certification form for care for a covered service member
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worker's compensation
Laws are enacted by states. Require employers to assume responsibility for injuries, illnesses, and deaths related to employment. Provide benefits to cover medical expenses, income replacement during disability, and pay survivor benefits. Most companies fund through insurance plans.
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defined-benefit plan
Pension plan in which the employer provides a specific benefit upon retirement. The funds in these plans aren't accounted for individually. Pension is provided to employees based on a formula. Formula looks at two factors: salary and length of service. Retirement benefit is usually based on salary earned during last 5-10 years of earnings, but may also be based on career average, a flat dollar amount for each year of service, or a unit benefit plan in which the benefit payment is based on a percentage of earnings multiplied by years of service. The amount the employer must pay out of operating funds depends on how well the market is doing, because most of the fund is based on investments. The employer takes the risk for paying out the promised benefit at retirement.
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defined-contribution plan
Individual plan in which the amount of funds contributed it known, but the amount of the benefit that is eventually paid out isn't know because it depends on the investment returns that are earned. The funds are accounted for in individual accounts for each participant. The risk is on the employee. Includes profit-sharing plans, money-purchase plans, target-benefit plans, and 401(k) plans.
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nonforfeitable claim
One that exists because of a participant's service. Unconditional and legally enforceable.
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party in interest
May be a fiduciary, a person or entity providing services to the plan, an employer or employee organization, a person who owns 50% or more of the business, relatives of any of the above, or corporations that are involved with the plan or its functions.
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plan administrator
Person designated by the plan sponsor to manage the plan.
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plan sponsor
Entity that establishes the plan. May be a single employer, a labor organization, or, in the case of a multiemployer plan, a group representing the parties that established the plan.
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qualified retirement plan
Meets ERISA requirements and provides tax advantages for both employees and employers. Can't provide additional benefits for officers, shareholders, executives, supervisors, or other highly compensated employees. All employees in the org must be eligible for all plan benefits.
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nonqualified retirement plan
One in which the benefits exceed the limitations of qualified plans or don't meet other IRS requirements for favorable tax treatment. Aren't required to include all employees, so may provide additional benefits to officers, shareholders, execs, supervisors, or other highly compensated employees.
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Employee Retirement Income Security Act of 1974 (ERISA)
Sets standards for private pensions and some group welfare programs such as med and life insurance. Requires orgs to file three types of reports: a summary plan description, an annual report, and reports to individual participants of plan benefits.
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Summary Plan Description (SPD) under ERISA
Provides plan participants with info about the provisions, policies, and rules established by the plan and advises them on actions they can take in using the plan. Must include the name and other identifying info about plan sponsors, administrators, and trustees, along with any info related to collective bargaining agreements for plan participants. Must describe what eligibility requirements must be met for participating in the plan and for receiving benefits, as well as what would cause disqualification or denial of benefits. Must describe claim procedures and what remedies are available when claims are denied. A new doc reflecting all changes must be distributed every 5 years.
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Annual Reports under ERISA
Reports must be filed for all employee benefit plans. Must include financial statements, number of employees in the plan, and the names and addresses of the plan fiduciaries. ERISA mandates that any persons compensated by the plan during the proceeding year be disclosed, along with the amount of compensation paid to each, description of services rendered. Annual reports must be audited by a CPA.
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Participant Benefit Rights Reports under ERISA
Participants may request a report of the total benefits accrued on their behalf along with the amount of the benefit that is nonforfeitable.
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participant per ERISA
An employee who has met the eligibility requirements for the plan. The law sets minimum requirements as follows:
- 1 year of service or the employee has reached the age of 21, which ever is later, unless the plan provides 100% vesting after 2 years.
- Employees may not be excluded on the basis of age (can't be excluded for being too old)
- When employees have met the min service and age requirements, they must become participants no later than the first day of the plan year after they meet the requirement, or 6 months after requirements are met.
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vesting
Refers to the point at which employees own the contriutions their employer has made to the pension plan, regardless of whether they remain employed by the company.
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immediate vesting
occurs when the employees are vested as soon as they meet the eligibility requirements of the plan
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delayed vesting
occurs when participants must wait for a defined period of time prior to becoming fully vested
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cliff vesting
participants become 100% vested after a specified period of time. ERISA sets the max period at 5 years for qualified plans. Employees own nothing of employer contributions until they have completed the full 5 years.
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graded vesting or graduated vesting
20% of vesting after 3 years and 20% per year after that, with participants achieving full vesting after 7 years of service.
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fiduciary
A person, corporation, or other legla entity that holds property or assets on behalf of, or in trust for the pension fund.
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prudent person standard of care
common law standard; all actions must be undertaken with care, skill, prudence, and diligence - like that a prudent man would use acting in a like capacity.
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Retirement Equity Act (REA) of 1984
Lowered age limits for participation and vesting in pension plans. Also required written approval from a spouse if the participant didn't want to provide survivor benefits and placed restrictions on the conditions that could be placed on survivor benefits.
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Older Worker Benefit Protection Act (OWBPA) of 1990
Extends ADEA protections to employee benefit plans.
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Unemployed Compensation Ammendments of 1992
Reduced rules for rolling oer lump-sum distributions of qualified retirement plans into other plans and subjected some distributions to 20% income tax withholding.
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Omnibus Budget Reconciliation Act (OBRA) of 1993
Require that health plans honor court-issued qualified medical child-support orders for dependent children of employees. Also require group health plans provide coverage for dependent adopted children when those children are placed for adoption in a covered employee's home.
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Small Business Job Protection Act of 1976
Simplified actual deferral percentage (ADP) tests for 401(k) plans and redefined highly compensated employees. In addition, it detailed minimum participation requirements and made changes to disclosure requirements for qualified plans.
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Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001
Made a number of changes to contribution limits, increasing many and allowing for catching up contributions for employees older than 50 years of age.
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Pension Protection Act (PPA) of 2006
Require employers to fully fund their pension plans to avoid cash shortfalls in the plans as employees retire. Beginning in 2008, companies have 7 years to bring their plans into compliance. For those that don't comply, the act provides a penalty of a 10& excise tax. Also specifies funding notices that must be provided by defined-benefit plans. Also allowed employers to automatically enroll employees in 401(k) plans. Employees who don't want to participate must now opt out. Employers must provide at least three alternative investment options.
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COBRA Requirements
ERISA amendment added in 1986. Requires businesses with 20 or more employees to provide health-plan continuation coverage for those who leave the company. Employers may charge COBRA participants a max of 102% of the group premium and must include them in open enrollment.
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Length of COBRA coverage when eligible for SSA benefits
18 months
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Length of COBRA coverage when terminated or reduced hours
18 months
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Length of COBRA coverage when terminated or reduced hours when disabled
29 months
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Length of COBRA coverage for dependents when family status change (employee death, divorce, child no longer dependent)
36 months
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HIPAA
Amendment to ERISA. Prohibits discrimination on the basis of health status as evidenced by an individual's medical condition, history, claims experience, utilization of health-care services, disability, or evidence of insurability. Also places limits on health insurance restrictions for preexisting conditions. Insurers may discontinue employer's group coverage only if the employer neglects to pay premiums.
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preexisting conditions
Conditions for which treatment was given within 6 months of enrollment in the plan. Past legislation says insurers may exclude these conditions from coverage for 12 months.
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protected health information (PHI)
patient information that must be kept private. includes:
- physical or mental conditions
- info about health care given
- payments that have been made.
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flexible spending accounts (FSAs)
Exempt from other HIPAA requirements, but considered group health plans for privacy reasons. Employers who sponsor FSAs must comply with privacy requirements.
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Mental Health Parity Act of 1996
Requires insurers to provide the same limits for mental health benefits in their plans as they provide for other health benefits.
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Deferred Compensation Benefits
Tax-deferred retirement plans, such as IRAs, 401(k)s, or pension plans. Qualified plans meet all ERISA requirements and protect employees from loss of benefits due to employer mismanagement of funds.
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cash-balance plans (CBPs)
Subject to regulations of defined-benefit plans. Benefits are determined by using a hypothetical personal pension account. Each month, this account is increased by a set rate (for example, 5% of the employees salary). The account also accumulates interest. The benefit for employees is that it's portable. When an employee leaves, the funds can be drawn out and converted to an annuity. The downside is that the payout is usually lower and discriminates against older workers.
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profit-sharing defined contribution plans (aka discretionary contributions)
Allow employers to contributed deferred compensation based on a percentage of company earnings each year. A maximum contribution of 25% may be made for an individual employee each year. The percentage of contributions may vary from year to year, and the company may elect to make no contributions in some years. Work well for employers with erratic profit levels.
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money-purchase plans
Uses a fixed percentage of employee earnings to defer compensation. Works well for orgs with relatively stable earnings because the percentage is fixed, and once established, contributions must be made every year.
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target-benefit plans
Instead of using a fixed percentage of employee salaries to determine annual contribution amounts, actuarial formulas calculate the contribution amount needed to reach a predetermined benefit amount at retirement. Because this takes into the current age of each employee, different amounts will be contributed for employees with equal compensation packages. Amounts are distributed to individual employee accounts.
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401(k) plans
Allows for contributions from both employees and employers. Employers may defer part of their pay before taxes up to limits established by the EGTRRA. Employers may make contributions as well. Limits for these are the same as those for profit-sharing plans. Any earnings or losses that accrue in the account impact the funds available for retirement. Employees are ultimately responsible for ensuring that funds are properly managed and available for use when they're ready for retirement.
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highly compensated employees (HCEs)
- earn $115k+
- own 5%+ of the company
- one of the top paid 20%+ employees
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actual deferral percentage (ADP) test
HCEs must not be receiving greater benefits from 401(k)s than nonHCEs.
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top-hat plans
nonqualified deferred compensation plans; aren't protected by ERISA and are generally only available to a limited number of employees at the executive level.
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grantor or rabbi trusts
Nonqualified deferred compensation plans established to provide retirement income for officers, directors, and HCEs. Unsecured and therefore subject to claims made by the org's creditors. Benefits are taxable as ordinary income at the time they're paid to beneficiaries.
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excess deferral plans
Allows the org to make contributions to nonqualified plans in order to reduce the impact of discrimination testing on HCEs. Done by making up the difference between what the executive could have contributed to the plan and what was actually allowed by limits on the qualified plan.
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Health Maintenance Organizations (HMOs)
Type of managed-care plan that focuses on preventative care and controlling health costs. HMOs generally use a gatekeeper, most often the patient's primary care physician (PCP), to determine whether patients need to be seen by a specialist.
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Preferred Provider Organizations (PPOs)
Use a network of health care providers for patient services and don't require patients to be referred by a gatekeeper. Employees who use health-care services in the network make copays and must also pay the difference between fees negotiated by the plan and those charged by the physician.
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Point of Service (POS) Plans
Include network physicians but allow for referrals outside the network. Like HMOs, these plans require employees to select a PCP from doctors in the network. The PCP generally refers employees to specialists in the network when needed, but employees may see specialists outside the network as well. When employees see physicians outside the network, they must submit reimbursement claims to the insurance company themselves. Payment is covered, but when the employee sees a care provider outside the network, the employee usually pays a higher percentage cost than for in-network physicians. (sounds like our BCBS plan)
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Exclusive Provider Organizations (EPOs)
Consist of a network and a hospital. Physicians may only see patients who are part of the EPO. Patients in an EPO may only see providers in network and receive no reimbursement for going out of network
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Physician Hospital Organizations (PHOs)
Physicians join with a hospital and together rely on the structure to develop and market their services and negotiate and sign contracts. PHOs are unique in that they contract directly with employer orgs to provide services.
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Fee-for-Service Plans (FFS)
Typically the most expensive to employers and employees because it places no restrictions on the doctors or hospitals available to the patient. Require patietns to pay for services out of pocket and submit claims to be reimbursed for expenses.
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vacation pay
Earned as employees complete time on the job. Many companies require employees to work a specific period of time (3-6 mo.) before they are eligible to use any accumulated pay. Some companies allow employees to accumulate pay year-to-year, others have a "use it or lose it" policy. Some states require a pay out if the company won't let leave roll over. Most vacation-pay policies require employees to schedule time off in advance and obtain approval from their supervisors before scheduling vacations.
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sick pay
Provided for employees to use when they're ill or need to care for a sick child or other family member
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holiday pay
Many companies provide paid time off for national holidays
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Paid Time Off (PTO)
Some companies combine all forms of time off into a single PTO bank that employees can use as they see fit to handle illnesses, personal needs, vacation, and other matters. This provides greater flexibility for employees but can add to employer costs because of the way state laws view vacation and sick pay. Vacation pay is usually viewed as earned leave, meaning that employees must be paid for the leave if they don't use it. Sick leave is usually viewed differently, and employees aren't compensated for sick time they don't use. Because PTO combines the two, it's viewed as earned leave, and employees must be compensated for all leave they have earned but not used.
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sabbaticals and leaves of absence
Mainly in educational institutions; provides educators a year with pay to pursue research or further education. Some companies have adopted this for long-term employees to pursue professional development.
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jury duty pay
Employers are required to provide time off for employees who are called to jury duty, although not required to pay for it, but many employers pay the difference between the employee's regular earnings and the amount they're paid for performing jury duty.
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bereavement leave
most companies allow employees time off with pay to attend funeral services for close relatives
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parental leave
some companies provide paid leave for parents of newborns or newly adopted children
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health and wellness programs
- must be voluntary
- includes a physical screening to assess current fitness level and needs
- may include nutritional counseling, education for weight control, smoking, and stress reduction, and physical exercise programs
- other options may include seminars on substance abuse, spinal care, and prenatal care
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Flexible Spending Accounts (FSAs)
Allow employees to set aside pretax funds for medical expenses they plan to incur during the year. Employees should be conservative in estimating expenses, because any funds left in the FSA after all expenses for the year have been paid will be forfeited and may be used by the employer to pay the administrative costs of the plan. For employers, a downside is that employees may be reimbursed for expenses before the funds have been withheld from their paychecks. If they leave before the funds have been withheld, they aren't required to reimburse the company for those expenses. A dependent-care account is also authorized. Employees may set aside $5k for dependent care.
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Employee Assistance Programs (EAP)
Sponsored by employer as a benefit. Provide a resource for not work-related problems. Provide counseling services ranging from alcohol and drug abuse to legal assistance or financial counseling.
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characteristics of a payroll system
- must accurately calculate payments that are due to employees
- must accurately calculate statutory and voluntary deductions
- must track payroll tax payments owed to federal and state agencies
- must provide accurate reports of payroll costs to management
- must secure payroll information
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payroll administration
Function in a company that is responsible for calculating employee earnings and deductions and maintaining records of those payments.
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gross pay
earnings before taxes
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statutory deductions
include:
- social security (may show up as FICA or SSA)
- Medicare
- federal income tax
- state income tax
- unemployment insurance
- disability insurance
- other state and local taxes
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voluntary deductions
Include
- health care contributions
- medical
- dental
- union dues
- 401(k) or other deferred compensation plan contributions
- contributions to charities designated by employees
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wage garnishments or involuntary deductions
Court ordered funds that can be withheld from employee paychecks. Issued to satisfy the debt of an employee. May include:
- child support
- back taxes through the IRS
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Federal Wage Garnishment Act
Found in Title III of the Consumer Credit Protection Act and applies to all employees and employers. Protects employees by:
- prohibiting employers from terminating employees whose wages are garnished for any one debt, even if the employer receives multiple garnishment orders for the same debt
- sets limits on the amount that can be garnished in a single week
- defines how disposable earnings are to be calculated for garnishment withholdings
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disposable earnings
What is left in an employee's paycheck after all legally mandated deductions have been made, such as income tax, social secuirty, disability insurance, etc. Can garnish up to 25% of wages to pay debts and up to 60% for child support.
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Personal Responsibility and Work Opportunity Reconciliation Act of 1996
Requires employers to report all new hires within 20 days of hire date to the State Dept of New Hires. Employers must forward the W-4 form to the state.
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golden parachute
Provides significant benefits to an executive whose employment is terminated, usually under specific conditions such as a change in company control. Benefits can include severance pay, bonuses, options, continued medical coverage, etc.
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golden handshake
Used when a CEO takes a position that entails a high risk of termination due to restructuring or a change in direction, or sometimes as an incentive to retire early.
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golden handcuffs
Form of retention pay designed to keep key employees from leaving. Can take the form of stock options that vest over years or a written agreement to pay back bonuses or other types of compensation if the employee resigns within a specified period of time.
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golden life jacket
Sometimes offered to execs of a company being acquired to ensure they remain with a reorganized company.
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stock option
The right to purchase an employer's stock at a certain price at a future date within a specified period of time. Options provide an employee with an opportunity to purchase shares but don't require they do so.
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incentive or qualified stock options (ISOs)
Stock options that can be offered only to employees. Consultants and external members of the BOD aren't eligible. The tax treatment is favorable to employees because they don't face taxes at the time the stock option is exercised, so they don't have to report income until the stock is sold at a later date. When a stock is sold, however, it's likely that capital gains will be due and subject to the ATM under certain conditions.
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nonqualified stock options
Can be used for consultants and external board members as well as employees. Org receives a tax deduction when options are exercised, and employees pay tax on any gain they realize from the sale. Income from the stock is treated as compensation.
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restricted stock
Common stock offered to employees. Actual shares. Usually follows a vesting schedule designed to reward retention. May require a vesting schedule to realize benefit.
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phantom stock
Used in privately held companies to provide the benefits of employee ownership without actually granting stock. Usually a vesting schedule.
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Utilization Review
A process for monitoring the use, delivery, and cost-effectiveness of services, especially those provided by medical professionals.
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Person Based Pay System
Person-based pay structures are simply payment systems whereby the employee is rewarded based on the person that he is at work and not the job that he does. In short therefore, the salaries or the wages that are paid to the employee is determined to getting the best aspect of an individual that he or she can offer to the company. Person-based pay structures generally aim at ensuring that payment is done for the knowledge that the employee has (Berger, pg. 51, 2008). It is due to this fact that the system of payment is more accurately categorized mainly into competency-based pay systems and skill-based pay systems.
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When are employers required to notify employees about unemployment insurance benefits?
upon involuntary termination
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Newborns' and Mothers' Health Protection Act
requires group health plans that offer maternity coverage to pay for at least 48-hours of hospital stay following childbirth (96-hours for a Cesarean section).
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Women's Health and Cancer Rights Act
provides protections to patients who choose to have breast reconstruction in connection with a mastectomy
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Section 125 plan
FSA plan or cafeteria plan (pick and choose health account or childcare account)
