Rewards and compensation for employees are the monetary and nonmonetary rewards that companies use in order to attract, incentivize, and retain their employees. These rewards can be both tangible and intangible; as well as affect employees directly and indirectly. Tangible rewards can be an employee’s wage or salary, bonuses, equity awards, benefits, paid time off, training and development, etc. Intangible rewards include support in the workplace, challenges to improve performance, autonomy, positive reinforcement, etc. Direct rewards are those that immediately affect the employee, whereas indirect rewards are still beneficial but are not explicit at all times. The combination of all of these is known as the total rewards approach. Determining compensation for employees is essential for employee satisfaction and productivity, and it is the responsibility of Human Resources to make sure that it also aligns with organizational goals. While achieving high employee satisfaction is a major component of rewards and compensation, it is important that such rewards do not come as a loss to the organization. Finding this balance is key.
To serve as a basis, labor laws were put in place to ensure that employees receive fair compensation from their employers. The Fair Labor Standards Act, or FLSA, ensures that employees are paid at least a minimum wage, it sets the minimum age for employment, as well as defining exempt and nonexempt employees. Minimum wage is set at a federal level, and can be higher depending on the area and the cost of living in that area. All employees must be paid this amount for their labor. Regarding child labor provisions, the national minimum age for working an unlimited number of hours is 16 years old, excluding hazardous jobs where the minimum is 18 years old. With limitations on work hours revolving school hours, 14 and 15 year olds can also work. This requires employers to verify an employee’s age and ensure the proper documents to allow them to work. Furthermore, exempt and nonexempt employees classify a person’s ability to be paid overtime depending on their job positions. The FLSA defines the characteristics a job position must have for an employee to be exempt, where they cannot be paid overtime. Such characteristics include holding an executive, administrative, professional, computer, or outside sales position, being paid a salary, being above a specific pay level per week, and their job responsibilities. Other major labor laws regarding compensation include Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963, ensuring equal pay and prohibiting discrimination based on race, color, sex, religion, or national origin. Additionally, the Lilly Ledbetter Fair Pay Act guarantees the employee 300 days after every paycheck to file a claim if equal pay laws were violated. For federal contractors, there can also be a prevailing wage for employees that is calculated using the average rates paid by a majority of employers in the geographic area. Such laws that enforce this are the Davis-Bacon Act of 1931, the Walsh-Healy Public Contracts Act, and the McNamara-O’Hara Service Contract Act. One that applies to all states is the Consumer Credit Protection Act, which is relevant to garnishment of an employee’s wage. Garnishment is when an employer is to set aside a portion of the employee’s wage to pay a debt owed to a creditor according to a court order. The Consumer Credit Protection Act defines how much of the employee’s wage can be garnished as well as restricting termination of an employee whose pay is subject to garnishment.
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Complications with compensation are further brought up regarding independent contractors and who is considered an employee of an organization. If someone is considered an independent contractor, they do not have to be treated like an employee and therefore do not receive employee benefits. The criteria for being an employee or independent contractor is set by the IRS, where a person is evaluated using these criteria. It is not decisive and they do not have to meet all of the criteria, but it sets a basis for determining employee status. They fall under three categories: behavioral control, financial control, and the type of relationship. These outline the kinds of questions to ask of the person and job position to reach a conclusion.
These laws impact organizations in finding the balance between making sure that employees are compensated properly and fairly, as well as maintaining the organization as a competitor in the market. If compensation is too costly, the organization has more losses than profits and thus the strategy is no longer effective. For example, if the minimum wage is higher in a certain city and the employer must meet sales minimums in order to pay their employees this wage, they might have to also increase prices. Generally, people believe that more rewards and compensation is better because it will lead to higher employee satisfaction, but that can be at great loss to the company.