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Archive for February, 2013

Common FLSA Pitfalls

The Fair Labor Standards Act (FLSA) is a federal statute that applies to most jobs within the United States. The law regulates such things as minimum wages, overtime hours and child labor laws. In addition to following these regulations, your business should also use salary reports, compensation surveys and other market compensation data to make sure your employees are being compensated fairly.

While the FLSA is designed to protect employees, there are certain elements of the law that can be a cause of confusion for employers. The following is a list of common FLSA pitfalls that employers can and do fall into:

  • “The FLSA doesn’t apply to our business because we’re too small”. While many state and federal employment laws take the number of employees into consideration, the FLSA does not; therefore, this law does apply no matter how big or small your business may be. The FLSA covers all employees who work for a company that affects interstate commerce, which is the majority of businesses.  To save time, legal expenses and a lot of headache, it is safe to assume that your employees are covered under the laws of the FLSA.
  • “Our salaried and/or high ranking employees are exempt from overtime pay”. This is not entirely true. There are many non-exempt employees that are paid set salaries based on salary reports, compensation surveys and other market compensation data, such as secretaries or technicians. Also, even if an employee has a high ranking job title, such as manager or director, it does not necessarily mean they are exempt. The Department of Labor has designed tests regarding the nature of each employee’s job in order to qualify for exemption. Pay and job title are completely irrelevant.
  • “Overtime is not given because the fixed salary covers straight time and overtime pay”. No matter how large the salary may be, this is false. The Department of Labor requires that if an employee exceeds the maximum weekly number of hours worked, overtime must be paid because salary pay only covers straight time pay.
  • “Our employees volunteer extra time, so no overtime is paid”. Employers should never allow employees to work extra hours off the clock because this can lead to wage claims and lawsuits. At a minimum, the employee must be paid minimum wage and overtime pay for each additional hour. There are exceptions for organizations, such as governmental entities or non-profits, which may have actual volunteers. For these types of organizations, every unpaid individual must sign a volunteer agreement in order to avoid lawsuits.
  • “Our business provides employees with compensatory time in place of overtime”.  While governmental employers are allowed to use compensatory time, private employers are not; however, private employers may informally use compensatory time by adjusting the schedule of a work week to make sure that no employee works over 40 hours. Keep in mind that in most cases, overtime hours cannot be averaged over a long time period. All overtime worked within one work week must be accounted for.
  • “Contracted employees don’t receive overtime”. Independent contractors do not get paid overtime as they are not considered to be employees of the company. While this is true, problems occur when employers misinterpret what it means for an employee to be considered a contractor. For example, employers may hire temporary workers during busy months of the year to help with the workload and think of them as contract employees. In reality, these workers are not contractors and are covered under FLSA.

It is important to know the regulations of FLSA in regards to your business and employees. Additionally, you should be using compensation surveys and salary reports in order to establish a fair rate of pay for your employees. At WageWatch, our market compensation professionals can provide your business with accurate, up-to-date compensation surveys and salary reports from businesses in your industry. To learn more about our compensation surveys, salary reports and other market compensation data, please call 888-330-9243 or contact us online.

Pay Compression

Pay Compression can be defined as narrow pay differentials that create pay inequities between supervisors and subordinates or between experienced employees and newly hired employees in the same job.  Although there are many factors that contribute to pay compression, the overriding factor is poor administration.  Attention must be given by the HR professionals to on-going administration of all pay changes including hiring rates, promotional increases, merit increases, and increases resulting from minimum wage or market changes.

Proper equity analysis must be performed for possible changes to improve pay equity.  Not doing so can result in internal inequities that can range from individual to systemic issues leading to employee dissatisfaction.  Pay compression can cause employee morale issues and effect employee perceptions regarding “fair pay”.  This can lead to retention issues and even negatively impact productivity.  In addition, pay compression can even lead to legal issues if, for example, a protected class is at the wrong end of a pay compression issue. The minimal savings to an employer by not doing equity increases can lead to substantial costs in the future.

One example of pay compression is when merit increases fail to keep pace with the market changes leading to excessive turnover.  Employers in these situations often find themselves faced with having to hire new employees at rates at or above current employees.  An experienced compensation professional can review and access not only the resulting inequities and recommended increases, but also provide a comprehensive assessment of the pay structure, pay policies, and of course, any pay administration shortcomings, and recommend changes that will help avoid serious pay compression issues in the future.

One possible solution to pay compression is to introduce a merit increase matrix that clearly links merit increase percent with job performance.   A merit increase matrix may also delineate for each position a range in combination with job performance.  As you can see by the below example, the merit increase received depends both upon the employee’s performance rating and their current salary’s position in the salary range. There are four levels of performance and three levels of salary range based on longevity or experience. This method provides a systematic approach to awarding your higher performers and moving their pay at a pace that may keep more in line with the market, as well as ensuring equitable and fair pay in you organization.

Merit Increase Matrix Example

Salary Range – 1st Tercile Salary Range – 2nd Tercile Salary Range – 3rd Tercile
Performance Outstanding




Performance Above Average




Performance Average




Needs Improvement





To maintain internal equity and avoid pay compression, it is important to stay current with the market by consulting with professionals.  At WageWatch, our professionals can provide your business with compensation surveys and salary reports to help you establish a budget for your merit pay program, including bonuses and incentives. 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 our compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online.

An Introduction to Skill Based Pay

Skill based pay sometimes referred to as ‘person based pay’ is a system that places a monetary value on skills rather than the job. Business owners must always be thinking about what’s next and continuously strive to improve in a rapid changing marketplace with increasing customer demands and both global and domestic competitors. Growing in popularity is a move from traditional seniority and merit based pay to skill based pay systems which communicate to employees that financial rewards are directly related to the knowledge and skill they can bring to the workplace.

Skill based pay allows companies to review market compensation data and determine pay based on the assessed value an employee has within an organization. Rather than establishing a set salary for every job description, the employee’s skills and knowledge are taken into account.

The following are a few advantages of implementing a skill based pay system:

• Encourages the development of skills, which increases the value of a company

• Increases flexibility of skills among employees

• Rise in organizational performance levels, such as productivity and quality

• Higher employee satisfaction

When a company makes the decision to use skill based pay, they must evaluate market compensation data and evaluate three types of criteria: horizontal, depth and vertical skills. The horizontal and depth categories are those skills of a more technical nature while vertical focuses on organizational skills. A skill matrix is then designed, allowing for movement within the matrix as skill levels increase. Compensation surveys are reviewed to set the pay range for each level along the matrix. Companies need to decide how to evaluate the skills of their employees to place them within the matrix and determine on-going training needs to support the structure. Skill certifications are a way to clearly and objectively measure the skillset of each employee.

If you are interested in moving your company to a skill based pay system, consider the services of the professionals at WageWatch, specializing in innovative market compensation research. We offer compensation surveys for a variety of industries and can provide you with an accurate 2013 wage forecast. Please call WageWatch at 888-330-9243 or contact us online for more information on market compensation and compensation surveys.