I began my career in Compensation in the early 1990s using a combination of market pricing and job evaluation to establish pay structures. Market pricing is the ‘external’ method, collecting salary data, usually through a salary survey, for similar jobs from other organizations to establish the ‘market rate’ or ‘price’ for the job. Job evaluation is the ‘internal’ method, focusing on internal job worth, each job is rated or scored on several different factors and the total score equates to the job’s salary grade in the pay structure. Over the years, the use of the point factor system fell by the wayside. Having used both methods together, at first I was uncomfortable with relying only on market pricing and salary surveys. But over time I saw that I was arriving at the same end result, and ultimately, where I wanted to be which was remaining competitive with the market. Still I wondered if I wasn’t missing something in my analysis. I found through my informal research that most of my compensation colleagues were also relying solely on the external market and the use of compensation surveys and the prevalent thinking was that a job is worth only what the market says it is worth.
Job evaluation approaches were prominent when people stayed with the same employer, often their entire career, progressing through the internal hierarchy. Most hiring was done at the entry level, and recruiting talent from the outside, was not as dominant as it is for today’s organizations. Therefore, pay relationships between jobs inside the organization were more important than the external job market. Today the ability to attract and retain necessary talent is critical and in order to do so compensation must remain competitive with the external market.
Still the debate goes on whether it is better to use job evaluation or market pricing and salary surveys to determine employee compensation. Having an intimate and in-depth understanding of the jobs in your organization is critical to correctly matching your jobs to the external marketplace. There is no scientific single rate of pay for a job or role, and rates may vary even for the same occupation and in the same location. Experienced compensation professionals will be able to interpret the data for an organization and its jobs. Though today compensation in the private sector is largely reliant on external market pricing, in my experience both techniques provide essential data to determine fair and equitable compensation practices. Combining market data with your internal job valuations to drive decision making is ultimately the best practice.
WageWatch Compensation Professionals can provide your business with compensation surveys and salary reports, and can assist you with your market pricing, evaluation of your jobs and organizational needs to establish a salary program that is both externally competitive and internally fair and equitable. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about WageWatch compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online www.wagewatch.com.
The federal tip minimum wage was originated in 1966 and at that time was 50% of the federal minimum wage. Today it is 29.4% of the federal minimum wage. Over half the states and the District of Columbia have tip minimums that are higher than the federal. These range from $2.33 an hour in Wisconsin to $7 in Hawaii. Washington is one of seven states with no tip credit law, so employers pay the state’s full minimum wage, currently at $9.32 an hour, the highest in the nation. The other states that prohibit the tip credit are: Alaska, California, Minnesota, Montana, Nevada, and Oregon. Servers who work in these states receive the same minimum wage as all other workers.
By definition, a tipped employee customarily and regularly receives more than $30 per month in tips. Under federal law and in most states, employers may pay tipped employees a base wage of less than the minimum wage as long as it does not fall below the tip minimum wage and employees must receive enough in tips so that their hourly rate plus tips received equals at least the regular minimum wage. The difference between the regular minimum wage and the hourly rate in which the employer pays is called a “tip credit”, which is essentially a credit for the employer towards the regular minimum wage rate. If a tipped employee does not earn enough in tips to bring his/her total compensation up to at least the applicable minimum wage, the employer has to pay the difference. Tipped employees’ total earnings (base wages paid by employer + tips) must equal at least the minimum wage that governs in their jurisdiction.
Overtime must be calculated and paid on the full minimum wage for tip employees and not on the tip minimum wage or direct cash wage payment. Employers are required to provide a tip credit notice to their tip employees in advance of their pay and any pay changes. The notice informs each tipped employee about the tip credit allowance before the tip employee’s first paycheck and before any paycheck in which there is a pay change. The notice must include the amount of wage the employer will pay, the amount the employer will credit against tips as well as specific tip credit rules.
In states that allow employers to require tip pooling, certain employees such as wait staff may be required to pool their tips with bartenders and bussers for equal disbursement at the end of a shift. All employees subject to the pool have to chip in a portion of their tips, which are then divided among a group of employees. An employee can’t be required to pay more into the pool than is customary and reasonable, and the employee must be able to keep at least the full minimum wage. Only employees who regularly receive tips can be part of the pool. Employees can’t be required to share their tips with employees who don’t usually receive their own tips, like dishwashers or cooks nor can tips from a tip pool go to employers. In some states, managers or supervisors are also prohibited from receiving tips from a tip pool. There is no maximum amount or percentage of tips for a valid mandatory tip pool, according to the federal rules. But employers must notify tipped employees of any tip pool contribution requirements and are prohibited from retaining tips for any other purpose.
According to the FLSA, mandatory service charges (ie., mandatory 15% charge paid out to wait staff) are not considered tips and cannot be counted for use as a tip credit. The service charge may be counted as part of the employee’s minimum wage and overtime requirements. However, employees who receive tips in addition to a mandatory service charge are considered tipped employees by the FLSA. A well planned salary and total rewards package will motivate your employees, help your company maintain a competitive advantage and help retain key employees. Please refer to your federal and state wage and hour resources for full details regarding all tip wage regulations.
At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .
The application and rules for the federal FLSA salary basis test are often misunderstood and not administered accurately or consistently. During my human resource career I have seen mistakes made regarding this rule over and over again.
First let’s understand what the term “salary basis” means. An exempt employee that regularly receives a predetermined amount of base salary each workweek is paid on a “salary basis”. This applies to employees who are determined to be exempt under the federal FLSA exemption tests including both the minimum salary test and qualifying under one of the duties tests (ie., administrative, executive, professional, computer, outside sales, etc.). The minimum weekly salary that must be paid to ‘exempt’ employees under the federal rules is $455. Please refer to your federal and state wage and hour for exceptions to the salary requirements. The salary basis pay requirement for exempt status does not apply to some jobs (for example, doctors, lawyers and schoolteachers are exempt even if the employees are paid hourly).
Now let’s talk about the Salary Basis Test. An employee’s ‘exempt’ status can be jeopardized if the salary basis test rules are not followed. The Salary Basis test provides rules regarding what pay deductions can and cannot be made to exempt employees’ weekly base salary. Generally the predetermined weekly salary cannot be reduced because of variations in the quality or quantity of the employee’s work. Except for a few permissible deductions, an exempt employee must receive the full base salary for any work week in which the employee performs any work, regardless of the number of days or hours worked. This includes any work done remotely such as checking email and voicemail. An employer cannot make deductions from an employee’s predetermined base salary, because of a business slowdown or lack of available work.
The FLSA salary basis test applies only to reductions in monetary amounts. Requiring an employee to charge absences from work to leave accruals is not a reduction in “pay,” because the monetary amount of the employee’s paycheck remains the same.
Full Day deductions from pay are permissible when an exempt employee:
- Is absent from work for one or more full days for personal reasons other than sickness or disability;
- For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide sick leave or PTO plan, policy or practice of providing compensation for salary lost due to illness;
- To offset amounts employees receive as jury or witness fees, or for military pay;
- For partial week worked during the initial or terminal week of employment,
- For weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act,
- Deductions in pay are also permitted for intermittent FMLA leave when the weekly base salary is reduced to coincide exactly with the reduced workweek,
- When an exempt performs no work for a full workweek.
For the following 2 permissible deductions, you should have communicated formal policy(s) detailing disciplinary procedures:
- For penalties imposed in good faith for infractions of safety rules of major significance;
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
It is important that as an employer, you have a clearly communicated policy permitting or prohibiting improper deductions from exempt employees’ base salary including a complaint mechanism and reimbursement to employees when improper deductions are made. You should also have a clearly communicated policy for your exempt employees stating that under no circumstances should work be performed during unpaid time off. The exempt status of your employees will be safe as long as you have clearly communicated policies in place, make good faith efforts to comply with the salary basis test and can show that willful violations have not been made. For full details regarding federal FLSA, visit http://www.wagehour.dol.gov and links to your state labor department can be found at http://www.dol.gov/whd/contacts/state_of.htm.
At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online.