Employment Law Series: Compensation

compensation employment law

Wages and benefits are probably the most important concern to a company’s employees. Companies, regardless of size, must ensure they are adequately, fairly, and properly compensating their employees. Wage and hour laws can be very complex, and it is critical for business owners to be aware of and adhere to these laws. Wage and hour lawsuits are among the most popular employment lawsuits and are among the most expensive to litigate and defend.

Minimum Wage

The Fair Labor Standards Act (FLSA) establishes the federal standard for minimum wages, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.

All employees must be paid, and stock in the company does not always adequately compensate employees under federal and state minimum wage laws. The federal minimum wage for covered employees in the United States is $7.25 per hour, and the minimum wage for states varies from state to state. Of the states and jurisdictions in the United States with a minimum wage requirement, the District of Columbia has the highest minimum wage at $10.50 per hour, and Georgia and Wyoming have the lowest minimum wage at $5.15 per hour.


An employer of an employee who received tips is only required to pay $2.13 in direct wages as long as the $2.13 plus the tips received equals at least the federal minimum wage, the employee retains all tips, and customarily and regularly receives more than $30 in tips. Where an employee, both tipped and non-tipped employees, is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.


Employees may also be paid of a commission basis. A sales commission is a sum of money paid to an employee upon completion of a task, usually to sell a certain amount of goods and services. A commission may be paid in addition to, or instead of, a salary. There is a “Section 7(i)” exemption from the FLSA to employees of retail and service establishments who are paid on a commission basis in whole or in part. If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, three conditions must be met:

1. The employee must be employed by a retail or service establishment, and
2. The employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked; and,
3. More than half the employee's total earnings in a representative period must consist of commissions.

Pay Day

In addition to minimum wages, almost every state has a payday requirement, which is a law establishing the minimum frequency for paying employees. Most states require payment either twice a month or every other week, and some states require weekly or monthly payment. Pay frequency for commissioned employees also varies from state to state, but usually, wages must be paid in accordance with the written commission agreement, but not less frequently than once in each month, and not later than the last day of the month following the month in which the wages were earned.

Exempt vs Non-Exempt

The FLSA also covers overtime laws. The FLSA requires that employees who are not exempt from the Act receive overtime pay for any time worked beyond forty hours in one workweek. The rate of overtime pay is one and a half times the employee’s regular rate of pay, and must be paid in wages, not goods or time off. Employees whose jobs are covered by the FLSA are either “exempt” or “nonexempt.” Nonexempt employees are entitled to overtime pay. With few exceptions, beginning December 1, 2016, to be exempt, an employee must be paid at least $47,476 per year ($913 per week), be paid on a salary basis, and perform exempt job duties. Typical exempt job duties include executive, professional, administrative, outside sales, and computers. Exempt employees have virtually no rights under the FLSA overtime rule. Exemption does not apply to police, firefighters, and other first responders.


Benefits covers anything an employee receives from the company other than cash wages. There are two types of employee benefits—those the employer must provide by law and those that are optional. Some of the benefits required by law require an employer to pay Social Security taxes, carry workers compensation insurance, and provide leave under the Family and Medical Leave Act (FMLA), which entitles employees to have up to 12 weeks of job-protected, unpaid leave during any 12-month period for any of the following reasons:

- Birth and care of the eligible employee's child, or placement for adoption or foster care of a child with the employee;
- Care of an immediate family member (spouse, child, parent) who has a serious health condition; and
- Care of the employee's own serious health condition

FMLA requires group health benefits to be maintained during the leave. FMLA applies to private employers with 50 or more employees, to all public employers, and to employees who worked at least 1,250 hours over the previous 12 months. Employers may also have to pay unemployment and disability insurance.

Optional benefits and incentives employers may also provide include: group health plans, Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits (which allows certain former employees and their family members to temporality continue health coverage at group rates), retirement plans and pensions, and other employee incentive programs such as flex time, workplace wellness programs, and corporate memberships. Stock options are an additional employee incentive/benefit.

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Posted - 06/23/2016