Employee Compensation: Wages and Benefits
Created by FindLaw's team of legal writers and editors | Last reviewed December 09, 2016
Employee compensation -- payment of wages and benefits -- is one of the most important aspects of being an employer, and also one of the most litigious. Complying with federal and state wage and fair pay laws such as minimum wage requirements, overtime, and mandatory break periods can be complex.
Employers are not required to offer benefits such as health insurance or paid vacations to their employees, but many of them do in an effort to find and retain good talent. But without proper planning and legal compliance, even the most well-intentioned employers can run afoul of the law when procuring such benefits.
The following is a summary of how laws regulate employers with respect to wages and employee benefits. Find additional articles and resources in FindLaw's Wages and Benefits section.
Employee Compensation: Wages
Federal and state laws set out in detail the minimum wage every worker is entitled to receive, which varies by age or category in some instances. These laws also identify which workers are entitled to receive overtime pay for exceeding 40 hours in a week or, in some states, a certain number of hours per day. Unfortunately (and often unintentionally) some smaller businesses fail to comply with these legal requirements, perhaps because of inadequate legal review. Common violations of the law related to employee compensation (wages, in particular) include:
- Not paying the correct minimum wage (must pay state minimum wage if higher than federal rate);
- Paying the lower "training wage" or "youth minimum wage" to workers who should be paid more;
- Not paying an intern who contributes to the company's work product (there are rules for unpaid internships, which are not meant to benefit the employer);
- Not paying overtime;
- Making employees work "off-the-clock," and therefore not paying them for it;
- Deducting too much for tips, or taking tips from employees;
- Deducting for wages paid in goods, such as meals or food; or
- Not providing required breaks and meal periods.
The wage and hour laws are meant to protect employees, and to ensure that their employers treat them with fairness in terms of payment for work done. The penalties for noncompliance can be quite costly for employers. For instance, the Wage and Hour Division of the Dept. of Labor has the authority to recover back wages and assess up to $1,100 in penalties for each violation of minimum wage law.
Employee Compensation: Benefits
The term benefits is a broad one, but most often refers to health insurance coverage, paid vacation and sick days, and any other form of employee compensation other than cash wages. The right to take leave for medical or family reasons is guaranteed under federal law, but some states and municipalities offer limited paid leave. If you are an employer with workers who are covered by a law that requires certain job benefits, such as leave time for certain purposes, you must allow your employees to take advantage of those benefits at no penalty to them.
Most of what we call "benefits" are optional and a matter for employers and their employees to negotiate. Employees represented by a union will bargain for these benefits collectively, while nonunion employees typically accept what is offered by the employer. The main advantage of offering attractive benefits is in finding and keeping top-notch talent, but a healthy workforce will be more productive and have lower absenteeism.
Common benefits include medical, dental, and life insurance policies; in addition to pension plans and other perks that can be considered employee compensation. Although these benefits are optional in that employers are not required by law to provide them, those who choose to provide them must follow certain federal regulations that can be extremely complex and technical. In addition, employers must be careful not to discriminate in their offering of benefits. For example, a company that offers its female employees less in educational stipends than their male counterparts may be held liable for sex discrimination.
ERISA and Employee Benefits
Most health benefit and pension plans are regulated under a federal law called the Employee Retirement Income Security Act of 1974 (ERISA). Among other things, ERISA regulations require that employees receive notice of the terms of any employee benefit plan -- what it is, who is eligible, what the plan covers, what the plan costs, how payments are made, and how and when changes to the plan will be made. Prior to ERISA, federal law required employers to make this information available only to the government and plan participants.
One example of ERISA's reach is the requirement that employers notify plan participants about how quickly a claim must be filed after an injury in order to be covered under their plan. The law also requires the plan fiduciaries -- those who manage employees' retirement plans -- to work on behalf of the employees and not to take on too much risk.
The Consolidated Omnibus Budget Reconciliation Act (COBRA), meanwhile, guarantees employees with employer-sponsored health insurance to maintain coverage for a certain period of time (at cost) after being terminated. Since the former employee pays the full cost of his or her share of the group coverage, it places no extra financial burden on the employer.
Get Help from an Employment Lawyer
Employment law, and particularly matters involving employee compensation, can be quite complex. Make sure you speak with an employment law attorney if you have additional questions about wages and benefits.
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