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Compensation 101:
The Regulatory Environment
Eric Knott
© 2019FinePoint HR
Housekeeping
Eric Knott
This content is for informational/educational purposes only and should not be construed as advice. If you would like advice regarding your specific situation, consult with a qualified HR consultant or an
employment attorney
Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
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Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
Minimum Wage for Nonexempts
Changing Year-to-Year• $11.00/hour as of January 1, 2019
• $12.00/hour as of January 1, 2020
Beginning 2021• Minimum wage adjusts annually based on Consumer
Price Index (i.e. cost of living)
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Minimum Wage for Nonexempts
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Tipped Employees• May earn up to $3.00 less than the minimum wage
• Employer must prove employee is earning at least minimum wage when tips are included in the earnings
Local, Higher Minimum Wages Still Permissible• Flagstaff has a higher minimum wage
• Check the localities where employees work
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Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
Fair Labor Standards Act
Key Items with FLSA• Establishes exemptions
• Governs meals and rest breaks
• Some child labor restrictions
• Minimum wage and overtime
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FLSA – Nonexempt vs. Exempt
Nonexempt• Not exempt from the provisions outlined in the Act
• Paid for time spent working
• Subject to overtime, minimum wage, etc.
Exempt• Exempt from the provisions outlined in the Act
• Meets both the duties test and the salary test
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Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
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Primary duty is management of a department or subdivision thereof
Spends a substantial amount of time leading & directing the activities of others• Hiring & firing• Performance ratings
Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
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Primary duty is the performance of office or non-manual work
Spends a substantial amount of time exercising independent judgment over matters of significance to the organization
Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
© 2019FinePoint HR
Primary duty is the performance of work in a field requiring advanced knowledge of science or learning customarily acquired through prolonged coursework• Lawyer, doctor,
architect, engineer,etc.
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Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
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Primary duties require invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor• Artist, graphic designer• Marketing, some R&D
Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
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Performs systems analyst, programmer, or software engineer duties
Does not exempt help desk, installers, and some network administrators
Various Exemptions -- Duties
Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales
© 2019FinePoint HR
Primary duty is making sales, obtaining orders or contracts, etc.
Customarily away from employer’s place of businesses (no regular in-office commitments)
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Salary Test for FLSA Exemption
Current Minimum Salary for Exempt EEs• $23,660 annually (or $455 per week)
Changes on the Horizon• 2016: Proposed increase to $47,476
• 2019: Proposed increase to $35,308• New weekly salary of $679
• DOL’s goal: establish the change well before the 2020 election
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Two Options: $23,660 → $35,308
Option 1: Move Impacted EEs to New Salary• More favorable option for employee morale
• No risk of benefit loss among employees
• Significant budgetary impact given the potential ripple effect
© 2019FinePoint HR
Two Options: $23,660 → $35,308
Option 2: Convert Impacted EEs to Nonexempt• Factor-in current overtime (by job title, not by
specific EE, per se) along with targeted wage
• May have to reduce employee pay to avoid significantly surpassing budget
• Significant loss of morale; potential for benefits loss
© 2019FinePoint HR
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Two Options: $23,660 → $35,308
Option 2
Convert Impacted EEs to Nonexempt
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Option 1
Move Impacted EEs to New Salary
Change to “Highly Compensated”
Proposed Change to Threshold• Current highly compensated employee threshold is
$100,000
• Proposed change is to $147,414, reclassifying 200k U.S. workers
Highly Compensated Employees• Qualify for exempt status based on the elevated
salary and a reduced duties test
© 2019FinePoint HR
Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
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Pay Deductions
Permissible Deductions for Exempt Employees• Full-day deductions for absences due to personal
reasons or sickness (if a sick leave policy is in place)
• Unpaid disciplinary suspension for one or more full days due to a major safety violation or a conduct violation
• Reduction of salary proportionate to time actually worked when an exempt employee takes unpaid leave under FMLA• Employers may deduct available time from vacation
and sick leave before reducing employee’s pay
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Pay Deductions
Prohibited Deductions for Exempt Employees• Partial-day absences, other than for intermittent
FMLA leave
• Partial day disciplinary suspensions
• Jury duty, witness proceedings, and temporarymilitary leave where the employee worked at anyperiod during the week
• Lack of work when the employee is ready, willing, and able to work
• Furloughs of less than a full work week
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Pay Deductions
Notes About Deductions• Deductions cannot take the hourly rate of the
employee below Arizona minimum wage
• Requiring employees to repay losses occurring during the course and scope of their work• Repay cash shortages
• Pay for vehicle or property damage
© 2019FinePoint HR
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Garnishments
Employers Must Respond Timely to Garnishments• Garnishments generally must be withheld from an
employee’s earnings
• Nonexempt employee can be charged up to $5.00per pay period for the completion of garnishmentdocuments
• Garnishments to support another person take priority for an employee with multiple garnishments
• Complex guidelines on maximum garnishment amounts per pay period
• Organization is liable for missed or delayed payments
© 2019FinePoint HR
Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
Independent Contractors
Criteria Very Difficult to Meet• IC maintains sole control over the economic aspects
of their business (i.e. no reimbursing for expenses, no office provisions or equip., etc.)
• No assessing IC’s employees
• IC maintains sole control over the manner and means in which services are performed (i.e. work hours, specific techniques, etc.)
• IC has no benefits, vacation, office space, or access to employee meetings
• DOL’s new PAID program (May 2018)
© 2018 FinePoint HR
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Independent Contractors
Company’s Story• Drivers were ICs all over the U.S.
Attractiveness of ICs• No overtime pay, vacation, benefits, etc.
• No payroll taxes, social security, retirement
• Company takes ~45% of salary in deductions (i.e. uniforms, fuel, maintenance, etc.)
• Cannot unionize, sue for discrimination
• No workers’ comp risk
© 2019FinePoint HR
Independent Contractors
History of Fighting for IC Status• 2009: DC Court of Appeals sided with FedEx Ground
• 2010: Federal district court ruled drivers can’t unionize because they’re not employees
• August 2014: 9th Circuit declared CA and OR drivers are employees
• October 2014: Kansas Supreme Court ruled drivers are, in fact, employees
• May 2015: Missouri Supreme Court ruled the drivers are, in fact, ICs
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Settlement Reached in 2015
FedEx Ground Settles Dispute with Drivers• $228m settlement with 2,300 FedEx Ground CA
drivers
• One of the largest private employment settlements in DOL history
• More than the DOL has collected in back wages in the last 7 years
• Undisclosed settlements with other states’ drivers
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DynamexRuling in CA
New Test for Independent Contractors• Court supports a simpler, more rigid three-factor test
versus the eleven-factor test from the last thirty years (in California)
• Legislation mirroring this language being considered in Arizona and other states
• Most restrictive test, most difficult to satisfy
• California, Massachusetts, and Connecticut now adhere to this guideline
© 2019 FinePoint HR
DynamexRuling in CA
New Three-Factor “ABC” TestA. Worker is free from control and direction by hiring
entity related to the performance of the worker’s role
B. Worker performs work outside of the hiring entity’s usual course of business
C. Worker is customarily engaged in their independent trade or occupation for others, performing the same work
© 2019 FinePoint HR
Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
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Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Asking Candidates Salary History
Paycheck Fairness Act (Proposed)• Passed House vote on March 27th
• Prohibits employers from asking candidates about salary history
• Requires employers prove gender-based pay disparities are job-related
• Generally, amends the Equal Pay Act
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Asking Candidates Salary History
Inquiries Already Prohibited in Some Locales
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States Other Locales
CA Cincinnati
CT New York City
DE Philadelphia
HI Puerto Rico
MA San Francisco
ME (2019)
OR
VE
Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Standardizing Offers
Benefits• Protects against decentralized decision making and
potential for inequity with offers
• Guards against potential discriminatory practices
• Equalizes candidates’ offers based solely on experience
Drawbacks• Minimizes (or eliminates) the ability to pay for
performance
• Removes hiring manager’s ability to customize offers to attract talent
© 2019FinePoint HR
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Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Providing Pay Ranges
Publicizing Pay Ranges Not Uncommon Currently• Most government positions include a pay range in the
posting
• Pay ranges available on consumer-driven sites (e.g. Glassdoor, etc.)
• Internal candidates for large organizations generally have access to pay ranges
Driving Discussions Related to Performance• Leaders more likely to have to explain pay disparity,
forcing performance conversations
© 2019FinePoint HR
Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
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EEO-1 Data
Qualifying for Reporting• At least 100 employees
• Federal contractors with at least $50,000 in federal contracts
Ongoing Regulatory Maneuvering• Previous administration added pay data to EEO-1
• Reporting on the new form was suspended in 2017
• March 18th: EEOC opened the EEO-1 submissionportal but used the old version that doesn’t include pay data
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EEO-1 Data
Component 1• Reporting employer’s headcount by race, ethnicity,
and sex
Component 2 (New)• New component that adds wage data
• Chunks employees into 1 of 12 pay bands
• Starts with 2017 and 2018 data, which is due on September 30th
• 2019 data will be reported in 2020, returning to the regular annual schedule
© 2019FinePoint HR
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Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Analyzing Comp Decisions
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Equal Pay Initiatives
Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history
2. Using an offer standards calculator to determine starting pay
3. Providing the pay range of a position when requested by a candidate
4. Publishing pay equity progress annually
5. Conducting comprehensive compensation analyses
6. Analyzing compensation decisions before they are finalized
7. Not retaliating or discriminating against EEs who ask about, or discuss, wages
© 2019FinePoint HR
Managing Workplace Chatter
Current Protections• Allow non-management employees to discuss wages
• Protections based on laws governing unionizing (i.e. “…protected concerted activity for mutual aid and comfort…”)
• No harm or retaliation can befall non-management employees engaged in discussions related to wages, benefits, etc.
Proposed Paycheck Fairness Act• Seeks to reaffirm this protection
© 2019FinePoint HR
Key Messages re: Pay Equity
Increased Regulatory Audits and Complaints• Few defenses justify inequity
• Citing old salary is no longer material
• Offer wages consistent with internal equity and candidate experience, education, etc.
© 2019 FinePoint HR
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Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
Pay Equity
© 2019 FinePoint HR
Pay Equity
Based on 2013 BLS Analysis• Median earnings of full-time female workers is 77
percent of the median earnings of full-time male workers
© 2019 FinePoint HR
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Pay Equity
Key Messages re: Pay Equity
Analysis of 2014 Earnings Data Through BLS• Evaluated 116 occupations with a minimum 50k
workers
• 109 of 116 occupations: women earn less than men
• 27 of the occupations had a gap greater than 25cents
• Average gap was ~11 cents
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Google and Pay Equity
Routine Audit by OFCCP• Claimed to have uncovered wage disparities by
gender in 2015 wage data
• “Extreme” gender pay disparity
• Company provided 2,300 hours of documentproduction• $500,000 spent on compiling documents
• Hundred of thousands of documents satisfying 18previous document requests
© 2019 FinePoint HR
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Google and Pay Equity
Google and Pay Equity
Google Stops Providing Data• Google stopped providing documents after the 18th
document request was satisfied
OFCCP Sued Google (May 2017)• Wanted contact information for employees from
2015
• Wanted 54,000 job interview documents (costing$1,000,000 to produce)
• Total contract value was $600,000
© 2019 FinePoint HR
Google and Pay Equity
© 2019 FinePoint HR
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Agenda
Minimum Wage (for Nonexempts)
Exemptions
Pay Deductions and Garnishments
Independent Contractors
Equal Pay Day and EEO-1
Pay Equity in the News
Record Retention
© 2019FinePoint HR
Pay Stubs
Pay Stubs or Statements Must Be Provided• Even for pay cards and direct deposit
• Must include the three additions from the Fair Wages and Healthy Families Act• The amount of paid sick leave (PSL) currently
available to the employee
• The amount of PSL taken by the employee year-to-date
• The amount of pay the employee has received by using PSL in the current year
© 2019FinePoint HR
Record Retention
Four Year Retention (At Least) from Separation• Wages, hours worked, earned and used paid sick
leave
• Timecards for nonexempt employees
• All payroll records (including all pay stubs, the dates covered by each paycheck, all tips and commissions, etc.) and wage tables
• Typical schedule for the exempt employee
Current Employees Can Look at Their Entire Pay History
© 2019FinePoint HR
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Compensation 101:
The Regulatory Environment
Eric Knott
© 2019FinePoint HR
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