Employee Compensation: Wages and Benefits

Employee compensation is one of the most important aspects of being an employer. It is 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.

In some states, some employee benefits are mandatory. Others may be optional. Employers must decide which benefits will attract and retain top talent, such as health insurance or paid time off. The legal requirements are complex, and employers must take care when offering employee perks. This article reviews some of these laws and regulations.

Find additional articles and resources in FindLaw's Wages and Benefits section.

Employee Compensation: Wages

The Wage and Hour Division of the U.S. Department of Labor sets the federal minimum wage. These laws also determine the maximum hours per day and per week before workers receive overtime pay. Small businesses often fail to comply with these requirements. Common violations include:

• Failing to pay the state minimum wage
• Failing to pay overtime
• Not following rules for unpaid internships
• Not following state break and meal period laws
• Taking tip credits when not entitled to do so

Wage and hour laws protect employees and ensure equal treatment for all workers. Violations often occur because of the differences between state and federal laws. Small-business owners should consult a business law attorney in their state for the most current law. Penalties can be expensive and can involve state and federal labor laws.

ERISA and Employee Benefits

The Employee Retirement Income Security Act of 1974 (ERISA) regulates health benefits programs and retirement plans. These are voluntary benefits for the most part, and ERISA does not require that employers provide them. However, under ERISA, if an employer does have a benefits package, the employer must:

• Notify all workers of the employee benefit plan.
• Advise them of all terms in the plan. Employees must know the eligibility requirements, any deductibles, payment of premiums, and so on.
• Retirement plan investment must always keep the employees' interests in mind. Fiduciaries can be personally liable for any losses or mismanagement.

Two important amendments to ERISA affect the health care portion of the law.

The Health Insurance Portability and Accountability Act (HIPAA) protects workers' health care information, particularly when workers transition to other jobs. HIPAA prevents a new health insurance plan from denying coverage based on preexisting conditions from an older plan.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) guarantees employees with employer-sponsored health insurance coverage after termination. COBRA coverage applies whether the employee quit or was fired for cause. The employee must receive COBRA information on their final day of employment.

With COBRA, the former employee will pay the total cost of their premiums, so the employer incurs no additional cost.

Employee Compensation: Benefits

The term "benefits" is broad. Even limiting it to health care coverage, it can include:

• Basic health insurance
• Vision insurance
• Dental insurance
• Mental health care
• Prescription drug coverage
• Wellness programs, such as gym memberships

The Affordable Care Act (ACA) requires businesses with more than 50 employees to offer medical insurance to their workers. Small businesses may qualify for special group health insurance plans on the ACA website.

Workers' compensation insurance is not considered a benefit. All states except Texas require businesses to provide workers' compensation. This coverage pays employees' medical expenses in the event of an on-the-job injury or work-related illness.

Fringe benefits and perks that may be optional depending on your state include:

• Paid vacation time
• Paid and unpaid sick days
• Disability insurance
• Flexible work schedules and remote work
• Life insurance
• Retirement benefits
• Tuition reimbursement

The Family and Medical Leave Act (FMLA) guarantees some full-time employees up to 12 weeks of unpaid leave every 12 months. Employees may use this time to recover from a serious illness or injury, to care for family members, or the birth or adoption of a child. However, no other federal laws require other vacation time or sick time.

Some states have begun mandating additional employee benefits packages. States may have additional family leave besides the FMLA. They may require employers to pay for break time, meal periods, or travel time under some circumstances.

For instance, in California, most employees are automatically covered under the state plan for short-term disability insurance. The Paid Sick Leave Law in California gives all workers at least 40 hours or five days of paid sick leave each year. Also, California's minimum wage increased to $16 per hour as of Jan. 1, 2024.

Get Help From an Employment Lawyer

Matters involving employee compensation are state-specific. Your human resources department must follow state and federal laws when offering benefits. Speak with an employment law attorney in your area if you have questions.