Managers Compensation Planning

Compensation Manual Dear Client,

The Compensation Manual has been designed to review the basic components you may wish to consider when developing a compensation and benefits plan. This manual explains the objectives of an effective compensation and benefits plan, as well as the importance of evaluating, auditing, and communicating your plan. Valuable information regarding federal laws that impact compensation and benefits have also been included in this manual. There may be additional federal, state, or local laws you must comply with as well. The Compensation Manual is divided into seven sections. Sample forms are provided throughout the manual. These forms may be used for reference when developing and implementing your company’s compensation and benefits plan. At the end of the manual is an alphabetic index, cross-referenced for your convenience. Please understand that the information presented in this manual is intended for general information purposes only, and should not be considered legal advice or a legal opinion regarding any particular facts or circumstances. You are urged to consult with legal counsel concerning your own situation and any specific questions you may have. Thank you for your continued business!

Paychex, Inc. Human Resource Services

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Compensation Manual This manual, a product of the Human Resource Services division of Paychex, Inc., is protected under copyright law. It is sold with the understanding that the publisher is not engaged in rendering legal or other professional services. This product is a reference tool and should be used as guidance and not an interpretation of the law. If legal advice or other expert assistance is required, the services of a competent legal or other professional person should be sought. ©2009. Paychex, Inc. All Rights Reserved. Revised 2/09. Remember: These materials are for general information purposes only, and are not intended as legal

advice. If you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Table of Contents TOC - i

Table of Contents Section 1: Compensation Planning Compensation Planning............................................................................................................. 1:1 Why Compensation Planning is Necessary ............................................................................... 1:1 Objectives of an Effective Compensation and Benefits Plan..................................................... 1:1 Critical Success Factors ............................................................................................................ 1:2 Section 2: Developing a Compensation Plan Why Developing a Compensation Philosophy is Necessary ..................................................... 2:1 Factors to Consider When Developing a Plan ........................................................................... 2:2

Internal Factors................................................................................................................... 2:3 External Factors ................................................................................................................. 2:4

Job Analysis............................................................................................................................... 2:7 Job Evaluation ........................................................................................................................... 2:8 Job Descriptions ...................................................................................................................... 2:10 Pay Structures ......................................................................................................................... 2:11 Section 2: Forms Job Analysis Questionnaire (Employee) Job Analysis Questionnaire (Manager/Supervisor) Job Description Sample Job Description Compensation Plan Development Checklist Position Requirements Worksheet Section 3: Types of Compensation Monetary (Direct) Compensation............................................................................................... 3:1 Variable Pay .............................................................................................................................. 3:2 Pay Adjustments ........................................................................................................................ 3:5 Pay Increases ............................................................................................................................ 3:6 Commission Plans ..................................................................................................................... 3:7 Executive Compensation ........................................................................................................... 3:9 Performance Appraisals .......................................................................................................... 3:10

Section 3: Forms Performance Planning and Appraisal

Table of Contents TOC - ii

Section 4: Benefits Benefit Planning......................................................................................................................... 4:1 Types of Benefits ....................................................................................................................... 4:4 Time Away From Work .............................................................................................................. 4:5

Vacation and Personal Days .............................................................................................. 4:5 Holidays ............................................................................................................................. 4:6 Sick Days ........................................................................................................................... 4:7 Paid-Time-Off (PTO) .......................................................................................................... 4:8 Medical and Non-Medical Leaves of Absence ................................................................... 4:9 Bereavement Leave ......................................................................................................... 4:10 Voting Leave .................................................................................................................... 4:11 Witness Leave .................................................................................................................. 4:12 School Visitation ............................................................................................................... 4:13

Medical Reimbursement Plans ................................................................................................ 4:14 Health Reimbursements Account (HRA) ......................................................................... 4:14 Health Savings Account (HSA)......................................................................................... 4:15 Medical Savings Account (MSA) ..................................................................................... 4:16 Section 125 Plans............................................................................................................. 4:17 Premium Only Plan (POP) ............................................................................................... 4:18 Flexible Spending Account (FSA)..................................................................................... 4:19 Flexible Spending Account Debit Cards .......................................................................... 4:21 Full Cafeteria Plans ......................................................................................................... 4:22

Types of Insurance .................................................................................................................. 4:23 Health Insurance............................................................................................................... 4:23 Health Maintenance Organizations (HMO)....................................................................... 4:24 Point of Service ................................................................................................................ 4:25 Indemnity Plans ................................................................................................................ 4:26 Preferred Provider Organization ...................................................................................... 4:27 Consumer Directed Health Plans ..................................................................................... 4:28 Dental Benefits ................................................................................................................. 4:29 Disability Insurance........................................................................................................... 4:30 Life Insurance ................................................................................................................... 4:31

Retirement Plans ..................................................................................................................... 4:32 401(k) Plan ....................................................................................................................... 4:33 Roth 401(k) Plan............................................................................................................... 4:34 Profit Sharing Plans .......................................................................................................... 4:36 Savings Incentive Match Plan for Employees (SIMPLE) ................................................. 4:37

Miscellaneous Benefits ............................................................................................................ 4:38 Flex Time .......................................................................................................................... 4:38 Tuition Assistance............................................................................................................. 4:39 Employee Assistance Programs (EAP) ............................................................................ 4:40 Travel and Expense.......................................................................................................... 4:41 Company Discounts.......................................................................................................... 4:42 Qualified Transportation Plans ......................................................................................... 4:43 Qualified Tuition Programs (QTP) .................................................................................... 4:44 Severance Plans............................................................................................................... 4:45

Table of Contents TOC - iii

Section 4: Forms Summary of Compensation and Benefits SAMPLE Request for Time Off Absentee Record Vacation-At-A-Glance Leave Request Form Request for Flex Time Return to Work Medical Certification Tuition Assistance and training Request Request for Cash Advance Employee Expense Report Auto Mileage Reimbursement Voucher

Section 5: Compensation Administration Implementing the Compensation Plan....................................................................................... 5:1 Communicating the Compensation Plan.................................................................................... 5:2 Evaluating the Compensation Plan............................................................................................ 5:3 Sample Compensation Plan ...................................................................................................... 5:5

Table of Contents TOC - iv

Section 6: Legal Requirements Federal Laws ............................................................................................................................. 6:1

Age Discrimination in Employment Act (ADEA) of 1967..................................................... 6:1 Americans with Disabilities Act (ADA) ................................................................................ 6:2 Title VII of the Civil Rights Act of 1964 ............................................................................... 6:5 Civil Rights Act of 1991 (CRA ’91)...................................................................................... 6:6 Consolidated Omnibus Budget Reconciliation Act (COBRA) ............................................. 6:7 Consumer Credit Protection Act ......................................................................................... 6:8 Employee Retirement Income Security Act (ERISA) .......................................................... 6:9 Equal Pay Act (EPA)......................................................................................................... 6:10 Fair Labor Standards Act (FLSA) ..................................................................................... 6:11 Family and Medical Leave Act (FMLA)............................................................................. 6:12 Federal Insurance Contributions Act (FICA) (Social Security Act).................................... 6:14 Federal Unemployment Tax Act (FUTA) (1936) ............................................................... 6:15 Health Insurance Portability and Accountability Act (HIPAA) ........................................... 6:16 Immigration Reform and Control Act (IRCA) of 1986 ....................................................... 6:17 Internal Revenue Code and Regulations.......................................................................... 6:18 Jury System Improvement Act.......................................................................................... 6:19 National Labor Relations Act (NLRA) ............................................................................... 6:20 Older Workers Benefit Protection Act (OWBPA) .............................................................. 6:21 Pregnancy Discrimination Act (PDA) ................................................................................ 6:22 Uniformed Services Employment and Reemployment Rights Act (USERRA).................. 6:23

Unemployment Insurance........................................................................................................ 6:24 Workers’ Compensation Insurance.......................................................................................... 6:26 Laws Affecting Federal Contractors and/or Recipients of Federal Grants............................... 6:29

Copeland Act .................................................................................................................... 6:30 Davis-Bacon Act of 1931 .................................................................................................. 6:31 Executive Order 11246 ..................................................................................................... 6:32 McNamara-O’Hara Service Contract Act (SCA) ............................................................... 6:33 The Vietnam Era Veterans Readjustment Assistance Act (VEVRAA).............................. 6:34 The Vocational Rehabilitation Act of 1973........................................................................ 6:35 Walsh-Healey Public Contracts Act (PCA) ....................................................................... 6:36

Section 7: Index ................................................................................................. Section 7

Compensation Planning

Section 1 This section will explain:

why compensation planning is necessary

objectives of an effective compensation and benefits plan

and critical success factors.

Remember: These materials are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances, you

should consult an attorney.


Compensation Manual COMPENSATION PLANNING 1:1

Compensation Planning Why Compensation Planning is Necessary For the purposes of this manual, total compensation includes wages and benefits, both current and deferred, both monetary and non-monetary, provided by an employer to its employees. Employee compensation is a major component of your business. Your business compensation costs, however, are more than simply an expense. An employee’s salary incentives and benefits may significantly affect the quality of your workforce and your company’s competitive advantage. A poorly designed plan may lead to an unmotivated, less productive workforce, which may result in a high turnover rate. A well developed compensation plan can be important in attracting and retaining high quality employees. Determining the correct formula of direct and indirect compensation and benefits plans will partly depend on the type of employer and its competition. Objectives of an Effective Compensation and Benefits Plan A comprehensive compensation and benefits plan requires adequate time to research and develop. The following components should be considered before implementing a plan: • What market are you competing in for employees? Is it local or regional? Is it the same or a similar

industry? Do you desire to meet or exceed the market rate? Is it desired or necessary for your plan to be competitive?

• In regards to monetary compensation, how will base pay be administered? Should pay increases be earned through performance or should they be based on seniority? How often do you want to review monetary compensation?

• Always keep in mind that you want your plan to be both internally fair and externally competitive. • You will need to determine how performance is to be measured and how performance is linked to

compensation. • Any plans should support the company mission and its strategy. They must be compatible with the

culture of the organization and should reflect the workforce composition in terms of work experience, education, skills, etc.

• It is essential that your plan be cost effective, affordable, and perceived as fair by your employees. If possible, your plan should share company success, as your employees are the people who help the organization succeed.

• Remember that you need a plan that is simple to communicate and administer. It should be one that can easily be updated as circumstances change. The plan must be compliant with federal, state, and local laws and regulations.

A company may also wish to develop separate sales and executive compensation plans. These involve a specialized area of expertise and are therefore outside the realm of what is discussed in this manual.

Compensation Manual COMPENSATION PLANNING 1:2

Critical Success Factors A well developed compensation plan enables the employer to attract and maintain quality employees. A poorly designed compensation plan may yield little benefit and could expose the employer to violations of federal, state, or local laws. The following is a brief description of the necessary components that are critical for a successful compensation plan. • Management Support and Involvement

A successful compensation plan requires full support from upper management. Management should review the compensation philosophy to ensure it aligns with the company’s mission and values.

• Objectivity Criteria used to determine compensation level must be based on the job rather than the person completing the job.

• Training Management and Human Resources personnel should be trained in the development and administration of compensation plans.

• Evaluation The compensation plan should be audited periodically to determine if updates are needed to ensure the plan continues to meet the organization’s objectives.

Developing a Compensation Plan


why developing a compensation philosophy is necessary

factors to consider when developing a plan

job analysis

job evaluation

job descriptions

and

pay structures.

Remember: These materials are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Compensation Manual DEVELOPING A COMPENSATION PLAN 2:1

Why Developing a Compensation Philosophy is Necessary An organization's compensation philosophy reflects the employer's ideals and values. Generally, a compensation philosophy includes the goal of attracting, motivating, and retaining the best employees. A compensation philosophy should explain the company's values and objectives along with an explanation of how the plan will be implemented. The philosophy should support the company’s overall mission, vision, corporate culture, and strategy. In developing a compensation philosophy, the employer should determine whether the company will set salaries at, above, or below market values and the degree to which employee benefits should complement those salaries. A company should also be aware of external equity (comparison of your pay practices within an industry) and internal equity (how you pay your existing employees versus each other and as compared to new employees). Refer to the Compensation Philosophy located in Section 5, Compensation Administration, Sample Compensation Plan.


Factors to Consider When Developing a Plan Once a compensation philosophy has been determined, a compensation plan can be developed. Compensation plans must ensure compliance with applicable state, federal, and local laws while striving to achieve internal fairness among similarly situated employees. Finding the right compensation mix can be critical to determining business success. The size, age, type of business, management structure, and philosophy all influence the compensation plan. Generally, a company will use internal or external comparisons, or a combination of both, to determine the plan that’s best for their company. Internal factors that may impact compensation include: • compensation strategy • job worth • employee worth • employee views

and • ability of the company to fund the plan. External factors that may impact compensation include: • labor market • area wage rate • market rate • target market rate

and • union environment.


Internal Factors There is no “perfect" compensation program. Each is unique to the conditions of the particular business. It is important for companies to evaluate internal factors when developing a compensation plan. • Compensation Strategy

The effectiveness of a company's compensation plan can be measured by the extent to which pay rates are competitive with others in the labor market. Companies may choose to pay above market, lower than market, or at the market rate. This type of compensation strategy is chosen based on the goals of the company for attracting, motivating, and retaining employees and the company’s financial position. Companies that choose to pay above market rate may be able to attract and retain the most qualified employees. Companies that choose to pay lower than market rate may have a higher turnover rate and may need to constantly recruit new employees. Such a compensation strategy may be chosen for areas with large numbers of qualified workers. Companies that choose to pay at market rate typically hope to attract and retain employees while staying competitive in the market.

• Job Worth

Internal equity is an important issue to consider when determining job worth. Internal equity compares a job’s salary range with the salary ranges of similar jobs within the organization. Each job must be evaluated to determine its value to the company. Using job analysis and evaluation, an employer can determine the internal value of individual jobs. The salary range for a job may be considered internally equitable if it corresponds with the responsibility and duties of the position as compared to other similar positions.

• Employee Worth

Employers who give merit increases or grant pay for performance plans need to set the guidelines for such awards. Based on their performance, some employees are more valuable to the company than others. In this instance, employees may be compensated based on employee worth.

• Employee Views

Employees who view the compensation plan as fair and reasonable may be more productive and more satisfied with their jobs.

• Ability of the Company to Fund the Plan

Employers must evaluate their budget before implementing a compensation plan. Pay levels which exceed the company’s ability to pay cannot be supported. The plan must base the rates in accordance with the availability of funds. Employers should also recognize that the cost associated with compensation usually increases over time, therefore, the plan should be created with cost maintenance in mind.


External Factors Having reviewed the internal factors that should be considered when developing a compensation plan, we now turn to an overview of external factors. This includes an introduction to the Labor Market, Area Wage Rate, Market Rate, Target Market Rate, and Union Environment. • Labor Market

The labor market refers to a geographic area where new employees for a job may be located. The market may differ for each job. The labor market for certain positions such as Vice President of Marketing or Certified Public Accountant generally is larger than that for a Customer Service Representative or Outside Salesperson. The labor market influences the wage and salary structure through the supply of labor. Companies also differ greatly on how many of their jobs are filled from the outside market. There are many companies in which the labor supply is mostly provided from within the company.

• Area Wage Rate

Employers may be concerned that their compensation practices are competitive with similar industries within their region. If employees believe they can receive better pay for performing the same work, they may leave to work for a competitor. High turnover may be a sign that the compensation plan is too far below market rate.

• Market Rate

The market pricing method measures the worth of selected jobs against the current market. These evaluations typically create brief descriptions of benchmark jobs and compare the descriptions to customized market data or published compensation surveys. Employers then set salaries for their own organizations based on these comparisons. The market pricing method can help employers maintain competitive salaries; those that use it essentially allow the market to establish their compensation philosophy.

• Target Market Rate

Employers need to look at their compensation strategy in relation to the market rate to determine their target market rate, or the level at which employers wish to pay their employees.

• Union Environment

Employers who have union environments need to bargain regarding compensation issues. This is a strong external factor for compensation planning. Employers who do not have a union, but are faced with the possibility of their workforce becoming unionized, may attempt to meet or exceed their competitor’s compensation rates.


Compensation Survey A compensation survey can assist employers in developing a pay plan by showing what competitors are paying employees for similar jobs. Compensation surveys generally provide information regarding average salary ranges for positions based on job title, geographical area, company size, and industry. Many private companies and consultants offer compensation surveys based on current salary specific information for a fee. Employers may wish to get compensation surveys for all positions or some positions to ensure that their compensation plan is meeting their goals. Some companies may choose to conduct their own compensation surveys. Conducting a survey consists of collecting and analyzing salary and benefits data from other organizations in the geographic area that you are attempting to evaluate. Such an undertaking may be costly and time consuming, and it may be difficult to gather this information from other organizations, particularly if they are competitors. Sample Compensation Survey: Position: Market Research Director, FLSA Status: Exempt


Sample Compensation Survey: Position: Receptionist, FLSA Status: Non-exempt

Reports provided by ERI Economic Research Institute, Inc. from ERI’s Salary Assessor® software. ERI’s Salary Assessor® software is licensed to users as an annual subscription. For more information, visit www.erieri.com or call Trish Springer at 1-800.627.3697. The Department of Labor's Bureau of Labor Statistics (BLS) is an agency within the Department of Labor that collects, processes, analyzes, and disseminates essential statistical data in the broad field of labor economics and statistics. The BLS develops the National Compensation Survey (NCS) which provides comprehensive measures of occupational earnings, compensation cost trends, benefit incidence, and detailed plan provisions. Detailed occupational earnings are available for metropolitan and non-metropolitan areas, broad geographic regions, and on a national basis. The NCS and other compensation resources from the BLS can be found on the following web sites: • U.S. Department of Labor Bureau of Labor Statistics National Compensation Survey: Guide for

Evaluating Your Firm's Jobs and Pay: http://www.bls.gov/ncs/ocs/sp/ncbr0004.pdf

• U.S. Department of Labor Bureau of Labor Statistics Glossary of Compensation Terms: http://www.bls.gov/ncs/ocs/sp/ncbl0062.pdf

• U.S. Department of Labor Bureau of Labor Statistics National Compensation Survey: http://www.bls.gov/ncs/home.htm

• U.S. Department of Labor Bureau of Labor Statistics: http://www.bls.gov


Job Analysis Job Analysis Job analysis and evaluation help employers determine appropriate wages and salaries. A job analysis includes assessing the duties, tasks, and activities involved in performing the job. There are many ways in which an employer can perform a job analysis, including interviews, observation, and questionnaires. Using information from the analysis, the employer can more easily evaluate the position. Interviews Interviews can be formal or informal and may be used in conjunction with other job analysis methods. Generally, this method is used to analyze professional positions. Employees currently performing the job are interviewed either individually or in a group setting. Questions are asked to gather information regarding the knowledge, skills, and abilities necessary to successfully perform the job. These interviews assist employers in distinguishing what duties and skills are essential to complete a particular job. Observation Observation allows you to evaluate the work setting, the tools and equipment used, relationships among employees, and difficulty of the job. Remember, the job analysis is to assess the job. It is important to remember that it is not a specific employee who is being assessed. Some jobs are easier to observe than others due to the nature of the work. Generally, this method is used to analyze production type jobs. Questionnaires A questionnaire is a written series of questions completed by an employee that relate to the specific duties of the job, the tasks the employee performs, and the skills the employee will need to complete the particular job. Questionnaires can allow an employer to obtain a clear and comprehensive understanding of the duties and responsibilities of each position. Questions are commonly open ended to elicit specific details related to the job. Questionnaires are generally given to the employees currently in the position and their supervisors or managers. A sample Job Analysis Questionnaire is located at the end of this section.


Job Evaluation Job Evaluation Once a job analysis has been completed, job evaluations are used to compare all of the jobs in the organization to one another and determine the relative economic value of each. It is a process where jobs are ranked based on the demands placed upon the employee performing the particular job and in considering the knowledge, skills, and abilities required by the job. The goal is to provide a basis for a fair and orderly grading structure. Job evaluations give employers a measure of the internal worth of work performed within the company. A well designed and executed job evaluation program establishes uniform standards to determine the value of work which can help avoid unfair pay practices. Job evaluations measure the economic value of work employees perform. To derive an accurate measure of a position's worth, it is important that: • evaluations are conducted for the job rather than the person performing the job • only assigned and approved job duties are considered • evaluations are based on average requirements needed to succeed in the job rather than those

exhibited by high or low performers and

• job descriptions are accurate. Basic factors often used in designing job evaluations are: • skills, which encompasses education, training, experience, and ability • responsibility, which includes the amount of judgment exercised during decision making and

supervisory duties • effort, which includes both physical and mental components

and • working conditions, which includes workplace hazards and other dangerous or unpleasant factors

employees must deal with. There are a variety of job evaluation methods employers can use. The most frequently used methods for job evaluation are job ranking, job classification, factor comparison, and point factor plans. To determine which method will best serve the needs of the company, employers should evaluate if the method is both reliable and credible. Some methods may be too complex for a small employer, or the results might not justify the time and expense required. You may want to consider whether you have the expertise to undertake the job evaluation process. Companies may wish to obtain advice before undertaking such a process. Many employer associations and compensation consultants are trained and can assist with the job evaluation process.


Job Ranking Job ranking is one of the easiest job evaluation systems to use. Jobs are arranged based on their importance to the company or on their level of difficulty. Job ranking is effective when an employer only has a few jobs to evaluate. Generally, ranking is based on subjective factors rather than objective factors. This may make job ranking less defensible than other job evaluation techniques. Job Classification Job classification is a job evaluation method that uses a series of classes to organize jobs. Classes are based on factors such as the degree of skill and responsibility required by various jobs throughout the company. Once classes are established, each job under evaluation is compared to the class descriptions and placed at the appropriate level within the structure. The duties and responsibilities of the job are analyzed to determine the different kinds of work and the level of difficulty of the job. Job classification tends to narrowly define the scope and value of the job. Factor Comparison Factor comparison plans compare jobs on a factor-by-factor basis and then rate them according to the results. Benchmark jobs are jobs that can be matched by title and description to a comparable job in a compensation survey. They are ranked from highest to lowest degree for each factor and the proportion of pay is dependent on the established factor. Sample factors include skill, mental effort, and responsibility. Using the proportions, factors are weighted and the position is determined. Other jobs in the company can then be compared to the benchmarked job and placed on the rating scale. Point Factor Point factor plans are a type of factor comparison plan that break down each job into a series of factors that help distinguish a particular job from all other jobs. Employers choose the factors based on job content and/or qualifications needed to perform the particular job. Factors used for point factor plans should reflect the basic job evaluation factors and may include: • innovation/creativity • problem solving skills • internal and external contacts • concentration

and • manual dexterity.

Once the job factors are selected, they are assigned a point value based on their relative importance to the job requirements. Each factor is divided into degrees, representing varying amounts of the element or attribute. The final step in the point factor process is to assign point values for each degree for each job factor. The total point value for each job is represented by the total points assigned. The wage scale for jobs should reflect their overall point value. Point factor plans that are based on clearly defined factors, degrees of factors, and comprehensive job analyses produce rational results that may be more objective than those determined using other methods. Once definitions are developed, they can be used to verify that the compensation program stays on track.


Job Descriptions Job descriptions should be developed using the information gathered from the job analysis. A well-written job description is the foundation for hiring and retaining good employees. A job description outlines the necessary skills, duties, responsibilities, training, and education required for each position. The format should be designed after all the necessary job information has been collected, reviewed, and documented. The format will be determined by variables such as job type, company, and industry. To eliminate errors and streamline your data, it is advised to be consistent with the format used for all job descriptions within your company. Typically, job descriptions contain: • job title and grade • identify the positions FLSA status: exempt or non-exempt • organization information and relationships • job summary • essentials functions (principal duties and responsibilities) • non-essential functions (additional duties and responsibilities) • required education and training • required experience • required skills • working conditions (necessary travel, working hours, unusual working conditions, etc.) • supervisory responsibilities (if applicable)

and • latest revision date. There is no ideal strategy to format job descriptions. The best is the one that works for your company. Job requirements must be accurate and proven to be necessary for job performance. Job criteria should not in any way discriminate against women, minorities, or other protected classes. Job descriptions are only valuable when they are accurate and current. They should be reviewed on a continual basis for accuracy. A sample Job Description is located at the end of this section.


Pay Structures Once an employer determines the internal and external worth of jobs, they can place the jobs into pay structures. Internal worth was determined using information from the job analysis and job evaluation. External worth was determined using compensation survey data on jobs in the external market and union environment information. A pay structure consists of a series of pay ranges. There is a minimum and maximum pay rate that an employer is willing to pay for work within that range. Jobs are placed within the pay structure according to their internal and external worth. The number of ranges to include in a pay structure is dependent on the number of different job levels an employer wants to recognize and the size of the company. Pay Grades Jobs with similar skill, effort, and responsibility are grouped together in a series of levels or pay grades. Each pay grade should include a pay range allowing employers to recognize employees who demonstrate outstanding performance in a position or variations in length of service. A pay range is composed of minimum, midpoint, and maximum pay rates. The minimum pay rate is frequently used for new hires or newly promoted employees with minimal job qualifications. An employer should set the minimum pay rate for a particular job at or near the minimum pay rate based on their target market rate. The midpoint or middle-pay value for the range is the rate an employee adequately performing the assigned duties should receive. Employers set the midpoints for their pay ranges based on their target market midpoint for similar jobs at other companies. They will determine the maximum and minimum pay rates based on these standards. The maximum pay rate in a range is the most that a company is willing to pay individuals for jobs that fall in that particular range. Pay rates between the midpoint and the maximum are generally paid only to employees who demonstrate exceptional work performance or employees with a high level of seniority. Pay ranges usually overlap, so that the highest rates paid in one range are the same as the lowest rates paid in the next higher grade. However, extensive overlap occurs when there are too few differences between the pay rates for jobs in different grades. Extensive overlap may indicate that separate grades should be collapsed into one grade. Pay Grades Example

GRADE MINIMUM MIDPOINT MAXIMUM

20 $22,500 $27,750 $33,000

21 $32,500 $39,250 $46,000

22 $45,500 $56,250 $67,000

23 $66,500 $77,250 $88,000


Broad Banding Broad banding is a type of pay structure that uses only a few, large salary ranges that span levels within the organization. Occupations which are similar in nature are generally placed in the same band. As a result, jobs that were previously separated by one or more pay grades under a traditional pay grade system are placed in the same band under a broad banding system. Broad banding has several advantages that include: • supporting a flatter organizational hierarchy • fostering superior teamwork among employees • encouraging workforce interchangeability

and • allowing employers to easily reward extraordinary performance because pay is no longer

determined by rigid pay grades. An employer that adopts a broad banding structure might have one band for upper management, one band for middle management, one band for professionals, and one band for staff employees. Jobs are grouped together in terms of difficulty, responsibility, and importance. Market conditions are also considered in determining a job’s placement in the pay bands. Broad banding makes determining pay grades easy. Bands are often broken down into different job levels. Jobs are placed into the level within the band based on the requirements and responsibilities of the job. Broad Banding Example

POSITION MINIMUM MIDPOINT MAXIMUM

Administrative $22,500 $33,750 $45,000

Operations $28,000 $51,500 $75,000

Technical $35,000 $62,500 $90,000

Professional $50,000 $100,000 $150,000

Management $50,000 $125,000 $200,000

Upper Management $100,000 $175,000 $250,000 Pay rates below the minimum for a particular grade or band are often referred to as green circle rates. Employees who are paid at green circle rates typically do not possess the required skills for the job. Pay rates paid higher than the maximum for a particular grade or band are often referred to as red circle rates. Red circle rates typically occur due to adjustments to the pay structure, a pay increase granted to a deserving employee who has reached the top of the pay scale, or the restructuring of a position.

Developing a Compensation Plan Forms

Section 2 Forms located in this section include:

Job Analysis Questionnaire (Employee)

Job Analysis Questionnaire (Manager/Supervisor)

Job Description

Sample Job Description

Compensation Plan Development Checklist

Position Requirements Worksheet

Remember: These forms are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Job Analysis Questionnaire (Employee to Complete)

List your duties and responsibilities for the job you are performing. Specify any frequencies, quantities, and production quotas such as calls answered each month, weekly production, etc. 1. 2. 3. What are the essential job-related skills required to perform the job successfully? 1. 2. Are there special physical or mental skills required? If so, what are they? What are the working conditions under which the job is performed?


Job Analysis Questionnaire (Supervisor/Manager to Complete)

1. What is the job title? 2. To whom does this position report? 3. What are the essential functions of the job? State any frequencies, quantities, production quotas,

etc in order of priority. You may state occasional duties for information; however, they will not be included in the final job description.

4. What are the essential job-related skills required to perform the job successfully? 5. Are there special physical or mental skills required? If so, what are they? 6. What training and educational job-related skills are required for satisfactory job performance?

7. What are the working conditions under which the job is performed? 8. Does the position require problem-solving skills? If so, how often are they required? 9. Will decision-making be a part of the job? If so, how frequently is it required? 10. How much supervision by another employee does the position require? Minimal Maximum 11. Does this position require any supervision of others? If so, how many? 12. Is there advancement potential? If so, list the potential position(s).

Job Description Job Title Department Reports To FLSA Status

Prepared By Approved By

Date / /

Basic Function

Responsibilities 1.

2.

3.

4.

5.

Skills

Education and Training

Experience


Sample Job Description Job Title Receptionist Department Reports To FLSA Status

Prepared By Approved By

Date / /

Basic Function Responsible for relaying incoming telephone calls and greeting visitors in a professional manner while performing various clerical duties.

Responsibilities 1. Answer multi-line telephone system, take accurate messages, and transfer telephone calls

to the appropriate person in an efficient manner.

2. Greet and screen incoming visitors in a professional manner and promptly notify appropriate person of their arrival.

3. Open and distribute incoming mail on a daily basis and prepare outgoing mail using postage meter.

4. Receive and sign for packages, and deliver to the appropriate person promptly.

5. Operate standard office equipment including:

- multi-line telephone system

- facsimile machine

- photocopy machine

- postage meter

- calculator

- computer/printer

6. Monitor facsimile machine, direct incoming documents, and send documents through facsimile as requested.

7. Type correspondence and memorandums in proper format and proofread and mail as assigned.

8. Maintain an adequate office supply inventory and requisition additional items as needed.

9. Contact appropriate company for necessary preventive maintenance/service on office equipment and maintain related files.

10. Perform other related duties as assigned.

Skills Oral Communication Skills Written Communication Skills Telephone Etiquette Proofreading Skills Customer Service

Diplomacy Professionalism Filing Math Aptitude Organization

Time Management Computer Literacy Keyboard Skills

Education and Training Degree: High School Diploma or Equivalent Experience Prior general office experience helpful


Compensation Plan Development Checklist

□ Develop Compensation Philosophy

□ Review Internal Compensation Factors

Choose types of job analysis to be performed:

□ Review External Compensation Factors

• Compensation surveys

□ Determine Company Target Rates

□ Determine Grades/Bands

• Place jobs into grades/bands based on job analysis results

• Determine pay ranges for grades/bands based on compensation surveys/company target rates

□ Determine Mix of Base Pay and Variable Pay

Choose types of variable pay that will be offered:

□ Determine Benefits to be Offered

□ Communicate Plan to Employees Determine how plan will be communicated:


Position Requirements Worksheet Position Title

Technical Skills (Ranked)

Level Necessary

Performance Skills (Ranked)

Level Necessary

Experience Level Education Salary Range Industry Experience Hours of the Job Other Conditions Environment Other Notes


Types of Compensation


monetary compensation

variable pay

pay adjustments

pay increases

commission plans

executive compensation

and

performance appraisals. Remember: These materials are for general information purposes only, and are not intended as legal advice. If

you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Compensation Manual TYPES OF COMPENSATION 3:1

Monetary (Direct) Compensation Once a job structure has been created, you will need to decide how your employees’ compensation will be determined. Compensation assists in creating a motivated and efficient workforce. Compensation should adhere to the company’s goals, vision, and align with human resource goals and objectives. If a highly skilled workforce is needed, salaries may need to be above industry or regional averages in order to attract quality personnel. Paying less than other employers may result in attracting less-skilled employees, resulting in mediocre performance. If, on the other hand, the strategy is to obtain inexpensive labor with little regard for turnover, lower salaries may be sufficient. Compensation may include base pay, variable pay, or a combination of both. Requirements regarding base pay may be dependent on the classification of the position under federal, state, and local wage and hour laws. Base pay is a fixed compensation paid to an employee for performing specific job responsibilities. It can be paid as a salary, hourly, piece rate, or commissioned amount. • Salary is a fixed amount that may be paid on a weekly, biweekly, semimonthly, or monthly basis. • Hourly rate is a fixed amount paid for each hour worked. • Piece rate is a fixed amount paid for each piece or completed task. • Commission pay is generally made to sales employees based on the amount or percentage of the

employee’s sales. Pay For Performance For many companies, base pay is the only form of compensation that an employee receives. Other companies wishing to reward productivity may add variable pay into the compensation equation. Base pay is sometimes viewed as an entitlement whereas pay for performance plans or variable pay normally depends on employee or company performance.


Variable Pay Variable pay includes a variety of pay programs that reward employees based on an increase in productivity, profits, or some other measure of business success. Variable pay allows employees to impact their direct compensation since a portion of their pay is based on performance. Sales representatives may heavily favor variable pay, while other employees may prefer base pay. Common types of variable pay plans include: • Profit Sharing Plan

Profit sharing plans is when compensation is based on company performance.

• Gain Sharing Plan Gain sharing plans which promote positive behavior among groups of employees to increase productivity, expense savings, and quality. Example: A manufacturer needs to cut labor costs to achieve lower unit costs. The company sets certain realistic labor cost goals for the next month. If direct labor costs can be reduced by five percent, they will split the amount saved with all employees. The employer shares with employees the fact that such lower unit costs would not only help the company but would also add to employees' take-home pay and make their jobs more secure.

• Skill Based Pay Plan Skill based pay plans are determined by the number of tasks employees are capable of handling. The purpose of these plans is to reward employees as they attain several different job skills.

• Cash Bonus Plan Cash bonus plans offers lump-sum awards to employees for meeting specific goals or specific performance.

• Retention Bonus Retention bonus is an incentive that is promised on a fixed future date provided that the employee stays with the company until that date.

• Employee Recognition Award An employee recognition award is given to employees to recognize special performance.

• Production Payments Production payments are payments linked to an employee’s or a group of employees’ production or output. Payments are generally based on a set formula and linked to production or to completing work in a certain amount of time.

• Incentive Payments Incentive payments reward the accomplishment of specific results. Awards usually are tied to expected results identified at the beginning of the performance cycle.


• Group Incentive Payments Group incentive payments are based on the formula output of a group, team, or department of workers rather than on the output of the individual worker.

• Cash Profit Sharing Plan Cash profit sharing plans are payments to employees in recognition of their contribution to company profitability.

• Performance Bonus A performance bonus is a payment based on the individual’s performance. Payments may be made in cash, shares, share options, or other items of value. This is based on past performance instead of an incentive plan.

• Holiday or Year-End Bonus

A holiday or year-end bonus is a payment to employees at a holiday or near the end of the year as a sign of appreciation for working hard throughout the year.

• Attendance Bonus

An attendance bonus is a payment to employees who achieve specific attendance goals. • Suggestion Bonus

A suggestion bonus is a payment to employees whose innovative suggestions to create better work processes or improve establishment efficiencies have been considered or implemented.

• Referral Bonus

A referral bonus is a payment for referring an individual to the company for employment. Generally, the new employee must work for the company for a designated time (for example, six months) before the current employee receives the bonus.

• Safety Bonus

A safety bonus is a payment to employees for maintaining a high level of safety in the workplace. • On the Spot Award

On the spot award is a bonus paid to employees as an instant award for desired behavior or performance.


There are also non-monetary benefits that a company can offer such as: • flexible work hours • alternative workweeks • leave time • merchandise • tickets to local theater, lottery, movie, or team event (for example, lunch) • gift certificates • gas cards

and • office items or supplies. Many variable pay options do not add to long term payroll costs as they are not a permanent change to base pay. Factors to Consider When Developing a Variable Pay Plan Specific factors to consider when designing a variable pay plan include: • type of variable plan • budget constraints • eligibility requirements • time frame for award

and • performance criteria. A variable pay plan should have defined goals that can be easily communicated to employees. Employers should consider whether the desired goals of the variable plan will be long-term or short-term. If factors contributing to job results are beyond the worker's control, or if the worker's contribution is too difficult to measure, a variable pay plan may not be effective. Variable pay plans can assist in measuring employee performance. In addition, performance measures should relate to the employer's overall business strategy. For example, if an employer is attempting to increase market share, its variable pay plan might stress sales volume over cost control. A downside to pay for performance or variable pay plans is that such plans may be difficult to design and monitor. As a job increases in complexity, so does the way in which it must be analyzed. If productivity goals are too high and unattainable, the plan may have a negative impact on employee satisfaction. Employers need to consider who will be included in the plan, amounts which will be allocated for increases, and the method and timing of the payment. An on-going assessment should be done to determine the size of such payments and whether they continue to be perceived as having value to employees.


Pay Adjustments Pay adjustments are changes, generally increases, in base pay that do not involve a change in the duties of the position. • Market Adjustment

A market adjustment increase is made to correct internal or external market inequities. These adjustments typically occur when market conditions change, requiring the company to increase its rates of pay to remain competitive. Such adjustments help keep the company's salary program flexible and equitable with labor market conditions.

• Hazard pay

Hazard pay is an additional payment for working under dangerous or undesirable conditions. • Geographic Differential

Geographic differential is an additional payment based on cost of living in the area or for working in an undesirable area.

• Shift Pay

Shift pay is an additional payment for working less desirable hours. Examples include second and third shifts.

• Reporting Pay

Reporting pay is given to employees who show up to work but are sent home because there is no work available.

• On-call Pay

On-call pay is when the employee must be available to return to work on short notice if the need arises.

• Emergency Call Back Pay

Emergency call back pay is when an employee is called back because of an emergency. • Premium Pay

Premium pay is additional payment for working holidays or vacation days. • Cost-Of-Living Adjustment (COLA)

COLA is a salary increase or additional payment designed to balance with the cost of living. COLAs generally are tied to one of the Consumer Price Indexes (CPIs) published by the Bureau of Labor Statistics.


Pay Increases Pay increases are raises to base pay which may or may not involve a change in the duties of the position. • Merit Increase

A merit increase is an increase of an employee's salary to a higher rate in his/her same salary group. To receive a merit increase, the employee must typically demonstrate job performance and productivity that are consistently above what is normally expected or required. Merit increases demonstrate that improvement in performance and proficiency should be taken into account and rewarded.

• Promotion

A promotion is a change in job assignment of an employee from one job class to another with a higher minimum salary. Increased skills, experience, and responsibility are expected upon a promotion granted to an employee.

• Length of Service Increase

A length of service increase is an increase in base pay dependent upon the employees’ length of service. Generally, this type of increase is given yearly.

Many employers use a combination of merit increases and length of service increases.


Commission Plans

Commissions are payments usually made to salespeople based on the amount or percentage of sales they make. The main reason for providing commissions is to provide an incentive for the salesperson to sell more.

There may be three types of plans used to compensate salespeople:

1. Straight Salary Plans Straight salary plans pay only a salary to salespeople. They may be used when the main job requirement is providing service to the client rather then selling.

2. Straight Commission Plans Straight commission plans pay the salesperson only a commission. There is no base salary. In some organizations, they may be allowed a draw. A “draw” is a specific dollar amount advanced on future commissions.

3. Salary Plus Commission Salary plus commission pays salespeople a base salary in addition to a commission.


A basic commission plan should reflect the following:

• How commission fits into your organization’s mission and vision as well as the organization’s total compensation strategy.

• Determine salesperson’s territories. Make sure they can generate the revenue necessary for your salespeople to earn their commissions. Sales expectations should be realistic.

• Review applicable state laws on sales and commissions prior to setting up the plan. For example, under New York State law, commission salespeople must be paid their commissions no later than the last day of the month following the month in which these commissions are earned. If a commission plan provides that a commission is earned in March the commission must be paid by the end of April.

• Consult a labor attorney to draw up a written commission plan. In some states, commissioned salespeople must have a detailed explanation of the parameters surrounding their commission plan.

• Decide if perquisites (“perks”) are to be included. Perks can include company cars, car allowances, expense allowances, entertainment allowances, club memberships, etc.

• Specify deductions to be made from commission plans. States such as New York generally prohibit an employer from deducting any sum from an employee's wages, except for deductions required by law and those authorized in writing by the employee and for the benefit of the employee (for example, pension and health benefits). Examples of prohibited deductions may include deductions for spoilage or breakage, cash shortages or losses, and fines or penalties for lateness, or misconduct.

• Specify that all commissions earned on or before the date of termination will be paid when the final base salary payment is made, in accordance with applicable state law.

• Draft the payment formula to be clear that the payments are "commissions" under the applicable state law.

• Specify when and how a commission is earned, and when the commission will be paid, in accordance with applicable state law.

• Determine how much you want to pay the salesperson. This can include a base salary plus commission. For example, if you want your salespeople to earn $100,000, $60,000 could be in the form of salary and the other $40,000 in the form of commission. The plan can also be setup as straight commission.


Executive Compensation Executive compensation is usually reserved for top executives in a company and may include the following: • Base Salary • Bonus • Perquisites (perks) • Golden Parachutes • Stock Option Plans • Stock Purchase Plans • Phantom Stock Plans • Restricted Stock Grants • Restricted Stock Units • Performance Grants • Employee Benefits • Retirement Plans • Company Paid Life Insurance • Post employment benefits and salary

Federal securities laws require clear, concise, and understandable disclosure regarding the compensation paid to CEOs, CFOs and certain other high-ranking executive officers of public companies.

Consult a labor attorney and/or an executive compensation specialist to discuss executive compensation.


Performance Appraisals Performance appraisals are the basis for many compensation decisions. When conducted properly, performance appraisals can provide managers with a guideline to make effective employment decisions. Employers should administer performance appraisals fairly and consistently using objective, job-related criteria. Such criteria should be based on the job rather than the person completing the job. Refer to the information on job descriptions and job analysis to achieve the best results. Objective, job-related criteria might include "operating within a budget," "meeting deadlines," or "complying with company absenteeism policies." A sample Performance Appraisal Form is located at the end of this section. Performance is only one contributing factor when determining an employee’s pay rate. Other variables that may influence pay are: • pay history • present position and experience • the date and amount of the last pay increase • pay relationship within the work area and other parts of the company • labor-market conditions • the financial condition of the company

and • the previous decisions regarding wage level and structure. These combined factors may influence an individual’s pay rate.

Types of Compensation Forms

Section 3 Forms located in this section include:

Performance Planning and Appraisal Form

Remember: These forms are for general information purposes only, and are not intended as legal advice. If

you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Performance Planning and Appraisal EMPLOYEE INFORMATION Employee Name Date / / _________ Department ________________________________________________________________________________ Position PURPOSE OF REVIEW

3 Months

6 Months

Annual

Other Date / / _________

PROCEDURE SECTION 1: PERFORMANCE APPRAISAL - describes eight professional criteria associated with job success or failure. Write the corresponding numerical value in the last column for each criterion. Add the numbers to obtain a total value. Check the rating that most closely indicates the level at which the individual has performed. Transfer the total to the appropriate space at the bottom of the page. This will indicate and support your overall evaluation of the individual’s performance. SECTION 2: STRENGTHS AND DEVELOPMENT NEEDS - provides space for discussing overall job performance. Refer to Section 1 when completing this section. SECTION 3: WORK PLAN FOR COMING REVIEW PERIOD - should reflect a mutually agreed-upon work plan for the coming review period. This section enables the supervisor and employee to develop a work plan for accomplishing the future objectives. SECTION 4: EMPLOYEE COMMENTS AND SIGNATURES - is reserved for the individual’s comments and signatures.

SECTION 1: PERFORMANCE APPRAISAL

Below Job Requirements Achieved Job Requirements Performance was below job requirements in one or more important areas and immediate improvement will be required.

Performance met job requirements in all important areas with extra effort evident in one or more of the following: quality, quantity, timeliness, or other important dimensions of performance.

PROFESSIONAL CRITERIA

0 1 KNOWLEDGE Consider knowledge of skills, procedures, methods, equipment, and materials required to do the job.

Inadequate job knowledge. Understanding of the skills, procedures, and methods required for job is insufficient.

Understands and effectively completes normal job routine. Needs little additional instruction.

PRODUCTIVITY Consider the amount of work the individual produces during an extended period of time.

Works at extremely slow pace. Rarely meets deadlines. Needs constant follow up.

Works at a steady pace. Output definitely meets requirements. Occasionally completes work ahead of deadlines.

QUALITY Consider the accuracy and thoroughness of employee’s work. Assess work results in terms of rejections, errors, and overall neatness.

Excessive errors and mistakes. Requires constant checking and rework.

Meets standards for accuracy and neatness. Makes some mistakes, but of a tolerable level. Needs normal supervision.

INITIATIVE Consider the degree to which employee is a self-starter, can work with minimum supervision, and seeks new and better methods to do the job.

Shows little initiative. Never volunteers. Must be told to do everything.

Voluntarily solves non-routine job problems when necessary. Effective worker.

COOPERATION Consider the effectiveness of the employee in accomplishing duties by working with others (for example, peers, supervisors, and customers).

Frequently is hostile and uncooperative when working with others to complete an assigned task. Attitude is unacceptable.

Generally cooperative. Willing to accept suggestions and direction. Acceptable relations with others.

DEPENDABILITY Consider the extent to which the employee can be relied upon to be available for work and to complete work properly.

Frequently undependable. Often fails to deliver a complete job. Leaves routine tasks incomplete.

Dependable. Can be relied on to complete all aspects of job. Needs normal supervision.

ORDERLINESS Consider the employee’s ability to organize work and the work area.

Frequently disorganized with work area in disarray. Results in high degree of lost time and inefficiency.

Work is sufficiently organized to efficiently perform job.

ATTENDANCE Consider the employee’s record of being at work regularly and on time.

Unacceptable attendance record. Continual lateness or absences from work.

Occasionally is absent or tardy. Reports absence or tardiness in advance.

COMMUNICATION Consider the employee’s ability to effectively present ideas and information orally and/or in written form.

Unacceptable communication skills. Does not communicate message in a timely manner.

Generally communicates effective with coworkers, management, and clients.

JUDGMENT Consider the extent to which the employee makes good decisions.

Frequently exercises poor judgment. Usually exercises good judgment.

Exceeded Job Requirements Performance exceeded the requirements of the job in several important areas.

Performance exceeded the requirements of the job in all major areas. Significant work above and beyond the responsibilities was achieved.

INSERT NUMERIC

VALUE

2 3 0-3 Well informed. Completely understands all aspects of this job and related jobs.

An authority on own responsibilities. Knows why job functions are performed and how they relate with other jobs.

Works fast. Produces more than most. Often work is completed ahead of deadlines.

Exceptional producer. Consistently completes work ahead of deadlines.

Consistently high degree of accuracy and neatness. Work can be relied upon. Seldom needs supervision.

Consistently highest level of quality. Final output is virtually perfect.

Seeks new tasks and responsibilities. Resourceful in familiar situations. Self-starter.

Goes out of way to accept responsibility. Highly resourceful and constructive in new situations. Creative and independent worker.

Very cooperative. Usually shows consideration of others’ viewpoints. Often offers assistance. Can be counted on to help.

Always works effectively with others. Shows a keen insight into people. Constantly offers and always is available to help others.

Very dependable and persistent despite possible difficulties. Completes normal work and occasional special projects with little supervision.

Highly motivated and trustworthy. Can be counted on to go beyond limits of duties with little or no supervision when needed.

Highly organized and efficient worker. Exceptionally precise in organization of work. Has immediate access to anything needed. Extremely efficient.

Seldom absent or tardy. Always reports absence or tardiness in advance.

Excellent attendance record. Always at work and on time.

Effectively verbalizes thoughts to coworkers, management, and clients.

Excellent communicator. Effectively expresses thoughts in a verbal and written format.

Regularly exercises good judgment. Able to think quickly and logically under normal situations.

Excellent judgment. Can be counted on to think quickly and logically under pressure.

OVERALL RATING DETERMINATION: Check appropriate box on basis of total points.

TOTAL POINTS

Exceeded Job Requirements in all major areas 27–30 Points Exceeded Job Requirements in several important areas 17–26 Points Achieved Job Requirements 9-16 Points Below Job Requirements 0-8 Points

SECTION 2: STRENGTHS AND DEVELOPMENT NEEDS Cite outstanding accomplishments and describe employee’s specific strong points. __________________________________________________________________________________ __________________________________________________________________________________ Describe areas where the employee must improve or training is needed. __________________________________________________________________________________ __________________________________________________________________________________ SECTION 3: WORK PLAN FOR COMING REVIEW PERIOD (if appropriate) A. List objectives or special projects (in priority) that have been assigned to the employee for the

coming review period. State results or standards of performance and target dates mutually agreed upon. (Attach additional page if necessary.)

_____________________________________________________________________________ _____________________________________________________________________________ B. Describe the action plan which will be used to achieve the objectives listed above (For example,

what staff member, supervisor, or others will do and within what time frame). _____________________________________________________________________________ _____________________________________________________________________________ SECTION 4: EMPLOYEE COMMENTS AND SIGNATURES Employee Comments __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ Employee Signature_________________________________________ Date _________ /_______ / ______ (Signature does not imply agreement with contents) Supervisor Signature ________________________________________ Date _________ /_______ / ______ Management Signature ______________________________________ Date _________ /_______ / ______

Benefits


benefit planning

and types of benefits.

Remember: These materials are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances,

you should consult an attorney.


Compensation Manual BENEFITS 4:1

Benefit Planning Employer benefits are a significant component of an employee’s overall compensation plan. A well planned and administered benefits plan can assist you in attracting and retaining the best employees. Before you design a benefit plan, you may need to conduct a benefit needs assessment to determine the following: • What is the budget for company benefits? • How much is the company willing to contribute on behalf of the employees? • What benefits do the employees want or need? • Do you want employees to determine the benefits offered? • What are your goals for the benefit plan? • Do you want to administer your benefits plan or outsource the administration? • Conduct a gap analysis to compare the company’s benefit needs, the employees’ needs, and the

current benefits offered. A gap analysis can assist you in the identification of what the company’s overall benefit package will and will not include.

• What will be the communication method(s) used to educate the employees on their benefit package?

Initially, the company should determine what their budget allows them to contribute toward benefit plans. Depending on the budget available, an employer may seek to meet or exceed the market or it may provide minimal benefits. The company should then consider whether they will pay for the benefits, share the cost with the employees, or have the employees pay the entire amount. If the company decides to share the cost, the percentage the company will cover needs to be determined. Several state laws have a minimum employer contribution level with respect to insurance plans. Check with your carrier to determine and verify your required contribution. A company may consider the preferences of its workforce when determining what benefits to offer. For example, employees frequently desire basic health insurance. Beyond that, benefits that maximize perceived value for employees may depend on the demographic of the employee base. Younger employees may value flexible hours and increased vacation time more highly than a 401(k) plan. Employees who have children may value flexibility, increased vacation time, and enhanced medical coverage. Employees closer to retirement age may value their 401(k) or enhanced medical coverage. Some companies can easily administer all of their benefits, while others may require outside support. This determination may involve a budgetary assessment and a realistic look at the company’s internal resources.


Employers may offer several or few benefits to their employees. The following list provides the types of employee benefits that employers may offer. As a reminder, employers need to determine what benefits meet the needs of both the employees and the company. Employee Benefits (this list is not all inclusive) • Health, dental, vision, and prescription coverage • Cafeteria and flexible benefit options • Life, accidental death, and travel insurance • Short-term and long-term disability insurance • Sick, vacation, personal, and holiday leave (some states may require) • Pension and retirement savings plans • Stock purchase plans or stock options • Training and education programs • Membership in associations or clubs • Wellness programs, smoking cessation, and weight loss programs • Recreation, fitness centers, and special events • Employee assistance program • Legal and financial services • Credit union, financial planning, and retirement planning • Transportation subsidies and parking • Housing subsidies and relocation benefits • Flexible work environments and flexible schedules • Casual dress • Dependent care subsidies, referrals, and services • Elder care and long-term care • Food service and concierge service • Discounts on company services and products


Employee Benefit Statements Employers may also choose to implement a process of creating and distributing employee benefit statements. When creating employee benefit statements, the following should be considered and included to the extent possible. • List all benefits provided by the company. • Compute actual or inferred cost or value of each benefit. • Calculate specific cost based on individual employee's use of the benefit. • Calculate actual or projected value of each benefit for each employee. • Prepare customized statements for each individual employee. Include total benefit cost and

annualized salary and reflect total compensation provided. • Use positive language in any accompanying documents and encourage employees to ask

questions. • Distribute statements annually. A Sample Summary of Compensation and Benefits is located at the end of this section.


Types of Benefits Benefits are valuable resources that are provided to employees. Some benefits are necessary and mandated by federal and state laws. Fringe benefits may include, but are not limited to, medical insurance, life insurance, dental insurance, section 125 and 401(k) plans, vacation pay, holiday pay, and tuition assistance. Designing the right benefit plan for your company and employees is a comprehensive task as tax and legal implications need to be considered. Since some benefits provide favorable tax treatment under the Internal Revenue Code, employers may wish to discuss tax treatment of specific benefits with their accountant or attorney.


Time Away From Work Vacation and Personal Days

Vacation and personal days provide time for employees to relax away from work and take care of personal business. Most vacation and personal day benefits are based on an employee’s length of service with the company, and are paid at 100% of the employee’s current regular pay rate. When developing a vacation and/or personal day policy, it is important to determine the following: • Who is eligible for the benefit? • When are employees eligible to use vacation and personal days? • What is the number of vacation and personal days offered? • How are vacation and personal days earned? • May employees carry over earned but unused days to the next year? • May employees be paid in lieu of using vacation and/or personal days? • Is there a “use-it or lose-it” policy in place? (state law may dictate) • Are employees required to request vacation and personal days in advance? • Are there any restrictions on use of vacation or personal days? • Are vacation or personal days paid out at termination? (state law may dictate)

Vacation and personal days are fringe benefits that are not generally required by federal or state laws. However, state laws may dictate the use of paid time off when offered. For example, state law may dictate whether an employer may impose a “use-it or lose-it” policy or whether unused time must be paid upon termination of employment. Employers may choose a vacation and/or personal day policy that works best for them as long as it is applied consistently and complies with state laws. Employers offering paid vacation and personal days may face problems with vacation or leave “hoarding.” This occurs when employees save up their available time, rather than using it throughout the year. Leave hoarding may increase financial liability for employers who offer or are required to pay out vacation time at year end or termination. Financial liability can also increase because the employer must pay out vacation at the employee’s current rate, rather than the rate at which it was earned. Decreased employee productivity may result when employees do not take time off from work. Using vacation days, rather than being paid in lieu of taking the time off gives employees a rest and time to rejuvenate. Without such time, productivity may decrease as the employee becomes “burned out.” To eliminate the problems associated with leave hoarding, employers should establish a culture where employees are expected to take vacation at least once or twice each year. Stress the need for regular vacations during new employee orientation and promote taking regular vacations so it becomes part of the company’s culture. Instruct employees not to call in or check e-mail while out of the office. Employees should take time off to relax. The Request for Time Off, Absentee Record, and Vacation-At-A Glance forms are located at the end of this section.


Holidays Many employers choose to offer paid holidays as another fringe benefit. Employers may determine which days they offer as paid holidays. Many employers offer the nationally recognized holidays. To avoid claims of religious favoritism, employers may wish to offer floating holidays instead of specific religious holidays, with the exception of the nationally recognized holidays. When creating your holiday policy, it will be important to determine the following: • When will employees be eligible to be paid for holidays (such as, after the completion of the

company’s introductory period)? • Will part-time employees be eligible for paid holidays? • How will holidays that fall on the weekend be handled? • Will the company offer any additional floating holidays, for holidays observed by the employee, but

not recognized by the company?


Sick Days Many employers choose to offer employees paid sick time when they are absent from work due to an illness or injury. Some companies may allow employees to use earned sick days to care for a sick family member. Employers are not obligated by law to offer paid sick days, as sick days are considered a fringe benefit. Employers may choose a sick day policy that works best for them as long as it is applied consistently and complies with state laws. Employers offering paid sick days should develop a written policy to inform employees of the eligibility requirements. The policy should include the number of paid sick days available, whether or not earned but unused sick days may be carried over to the next year, or if employees may be paid in lieu of using the days. Employers should indicate whether employees will be paid for earned but unused sick days upon termination. In accordance with federal wage and hour laws, employers that have a bona fide sick day plan may make deductions from an exempt employee's salary for full day absences due to illness or injury if the exempt employee is either not yet eligible for time off under the plan or has exhausted all their available time under the plan. In the absence of a bona fide sick day plan, an employer would not be able to make a deduction from an exempt employee's salary for absences of less than a full week due to illness or injury. Partial day deductions are never permitted from an exempt employee’s salary except for certain leaves under FMLA. Depending on the circumstances and eligibility requirements, employees who are absent from work due to a non-occupational illness, injury, or pregnancy-related disability may be eligible for state-mandated or company sponsored disability insurance benefits depending on the circumstances and eligibility requirements. Employers are cautioned against requiring doctor's certificates for regular sick leave. There are many issues to be considered and potential exposures for the employer when implementing such a policy, including but not limited to privacy concerns, responsibility for the cost of obtaining the note may fall on the employer (because they may be causing the employee to incur an expense they otherwise wouldn’t have), discrimination claims if the policy is not consistently enforced, and possible accommodations under state or federal disability or discrimination laws. Further, requiring a note for every illness may not be fair to employees who do not inappropriately use the time available. Employers may require medical certification when employees are requesting a disability leave or FMLA leave.


Paid-Time-Off (PTO) Some employers choose to combine all paid-time-off benefits such as vacation, personal, holidays and sick days into one benefit, paid-time-off. Employers need to evaluate their company operations to determine if this type of benefit is appropriate for their workforce and employee population.


Medical and Non-Medical Leaves of Absence A medical leave of absence is designed to provide time off from work due to a non-occupational illness, injury, or pregnancy-related disability to eligible employees in accordance with federal and state laws. If no applicable law exists, employers may wish to develop a company policy for medical leaves to promote consistent implementation and possibly reduce exposure to discrimination claims. A non-medical leave of absence is designed to provide time off from work for reasons as required by state law or permitted by company policy. Qualifying reasons may include, but not limited to, personal issues or to care for a sick family members. Employers should verify the eligibility requirements for the federal Family Medical Leave Act and state mandated leaves with the U.S. Department of Labor or their state Department of Labor. The Leave Request Form and Return to Work Medical Certification forms are located at the end of this section.


Bereavement Leave The company may provide eligible employees with bereavement leave for the death of a family member. Such leave is a fringe benefit and is not mandated by federal or state laws. Bereavement policies should specify which employees are eligible for paid time off, who is considered a family member for purposes of taking leave, the number of days allowed for bereavement, and whether or not written verification of an employee’s family relationship to the deceased and attendance at the funeral service is required as a condition of bereavement pay. Employees should request bereavement leave as soon as possible after learning of the need for leave. If the employee is eligible for the leave, approve and document the days on the employee’s absentee record. All bereavement days should be reported to the payroll department in accordance with company policy.


Voting Leave Many states require employers to provide employees with time off to vote. In some instances, this time may be unpaid and may only apply to general elections. However, some state laws require employers to grant employees paid time off to vote. Employees should inform their employer of the need for voting leave as soon as possible. Employers are allowed to request employees to present a voter’s receipt upon returning to work, where permitted by state law. All voting leave days for non-exempt employees should be reported to the payroll department in accordance with company policy and/or state law. Under the Fair Labor Standards Act (FLSA), exempt employees cannot have their salary reduced for partial day absences, including for voting leave. Contact your local Board of Elections or state Department of Labor for state voting leave requirements.


Witness Leave If an employee is summoned as a witness in a court proceeding, some state laws mandate that they must be allowed the necessary time off. Some state and local laws prohibit discrimination against an employee for serving as a witness, and others require employees be paid for time away from work while serving as a witness. Contact your local Department of Labor or legal counsel for state requirements.


School Visitation A company may offer, and some states require, employers to provide employees who are parents or guardians paid time off to attend school conferences or activities at their child’s school. Employees should inform their employer of the need for school visitation leave as soon as possible. Non-exempt employees may use available paid time off, if applicable. Such time should be reported to the payroll department in accordance with company policy. Under the Fair Labor Standards Act (FLSA), employers may not make deductions from exempt employees’ salaries for partial day absences due to school visitation leave. For more information about state school visitation laws, contact your local Department of Labor.


Medical Reimbursement Plans Health Reimbursement Account (HRA)

A Health Reimbursement Account is a solely employer funded medical reimbursement plan where employees can utilize the money (on a tax free basis) to pay for out-of-pocket medical expenses and insurance premiums. It is not necessary to have an insurance plan to participate in an HRA. However, if an insurance plan is offered, it must be a high deductible health insurance plan. If the plan is qualified under the Employee Retirement Income Security Act (ERISA), certain eligibility, participation, and reporting requirements will apply. HIPAA and COBRA may also apply. Consult with your tax advisor and legal counsel prior to establishing any benefit plan.


Health Savings Account (HSA) A Health Savings Account (HSA) is a tax sheltered savings account similar to an Individual Retirement Account (IRA), but designated for qualified medical expenses. An HSA allows an account holder to pay for qualified medical expenses and save for future qualified medical expenses on a tax-free basis. Contributions, earnings, and qualified distributions are exempt from federal income tax, social security taxes, and state taxes (based on state tax regulations). HSAs are similar to medical savings accounts, but do not have as many restrictions or limitations. Individuals must be covered by a HSA-qualified, high-deductible health plan (HDHP) to set up an HSA, however there is no requirement that this must be an employer sponsored HDHP. IRS and Treasury regulations allow the option for employee contributions to HSAs to be made through a salary reduction on a pretax basis under a Section 125 plan or directly to the HSA Custodian outside of the plan. There are specific requirements when offering this option as part of a Section 125 plan. In addition, contributions may be made by an HSA Account Holder, or on his or her behalf, by any other person including an employer or family member. Unlike other benefits offered under a Section 125 plan, employees may make changes prospectively to their Section 125 HSA plan elections at any time during the year. Employees making changes to their elections must be aware of the IRS annual plan limits for HSA contributions. Beginning in 2007, an account holder can contribute up to the statutory maximum contribution (plus the catch-up contribution if applicable) for the calendar year, even if they first become eligible or enroll in the middle of the year. However, if the account holder contributes a full year’s contribution but is eligible only part of the year, they will be subject to taxes and penalties if they do not remain eligible for a full 12 months after the year in which they first become eligible. Employers should consider how these changes to Section 125 plan elections will be administered. Enrollment in a HDHP in conjunction with an HSA may impact other benefits offered under a Section 125 plan, such as the Health Flexible Spending Account (FSA). IRS regulations prohibit any changes to the Health FSA as a result of changes in insurance benefits. In addition, participation in a Health FSA may impact an employee’s eligibility to participate in an HSA and vice versa. If an employee has a FSA in conjunction with a HSA, they may only submit medical expenses under the unreimbursed medical portion of the FSA for dental, vision, and preventive care. Employees’ HSAs may be used to pay for any remaining HSA qualified expenses. Consult with your CPA or labor attorney regarding these plans.


Medical Savings Account (MSA) A Medical Savings Account (typically referred to as an “Archer MSA”) is a tax free savings account established outside of a cafeteria plan that can be used by employees of a “small employer” or “self-employed” individuals who are covered under a high deductible health plan. The Archer MSA can be used to pay for the deductible amounts and out-of-pocket expenses associated with the accompanying high deductible plan. MSAs are more restrictive than a health savings account, however, they are not subject to the requirements of cafeteria or section 125 plans, such as third party substantiation and the “use-it or lose-it” rule. Consult with your tax advisor and legal counsel prior to establishing any benefit plan.


Section 125 Plans Section 125 plans are employer sponsored plans which allow eligible employees to make pretax contributions toward a number of qualified fringe benefit plans. These plans are often referred to as “cafeteria plans.” Section 125 of the Internal Revenue Code gives employees the opportunity to shelter money, tax-free, to pay for the out-of-pocket cost of their medical, dental and dependent care expenses as well as paying for insurance premiums through a salary deduction prior to being taxed. Section 125 plans can benefit both the employee and the employer in several ways. Savings for Employees • Contributions are automatically deducted from employees’ salaries before taxes are calculated.

This saves employees on federal withholding, FICA, and state withholding taxes (based on state tax regulations). Consult your tax advisor regarding specific state requirements.

• Because employees’ taxable incomes are reduced by the amounts contributed, employees may pay less taxes on the money earned, meaning more take home pay.

• Employees can also use their Section 125 plan as a budgeting tool for out-of-pocket medical, dental, and dependent care expenses.

Savings for Employers • A Section 125 plan allows businesses to save social security, Medicare (FICA), federal

unemployment taxes (FUTA), and state unemployment taxes on the funds participants contribute. • When employers sponsor a Section 125 plan, employees feel appreciative of the commitment on

the part of management towards their welfare. This feeling of appreciation can help increase employee morale and foster a positive attitude toward the employer.

The three most common benefits offered under a Section 125 plan include: • Premium Only Plan (POP) • Flexible Spending Account (FSA) • Full Cafeteria Plan


Premium Only Plan (POP) A Section 125 Premium Only Plan (POP) is a pretax benefit contribution option for employees. This benefit offers participants a non-taxable benefit when paying a portion of an insurance premium through payroll deduction. Some benefits that may be included on a pretax basis are group health/accident insurance, group term life insurance up to a $50,000 face value, and disability benefits*. Employee contributions are deducted from gross pay before federal income tax and FICA are calculated. In most states, employee contributions are also deducted before state income tax is calculated. This means tax savings for both the employer and the employee. Consult with your CPA for state specific guidelines. *Disability premiums may be taken on a pretax basis. However, the benefit may be taxable once received.


Flexible Spending Account (FSA) A Section 125 Flexible Spending Account (FSA) allows employees to set aside monies on a pretax basis from their payroll for eligible health and/or dependent care expenses that are not reimbursed by any other employer provided benefit plan. The employer selects a maximum contribution for unreimbursed medical expenses for the plan year and participants may elect to contribute an amount each plan year up to that maximum. For dependent care expenses, the IRS sets the maximum. Participants are reimbursed for expenses with pretax dollars from the FSA. An FSA offers a budgeting tool that helps pay for out-of-pocket medical, dental, and dependant care expenses not covered by any other employer benefit plan. Like a POP, an FSA helps pay for itself by increasing employee take-home pay while decreasing employer payroll taxes.

• An employee decides how much of his salary should be set aside before taxes are calculated. • This amount is automatically deducted from the employee’s paycheck every pay period, just like

any other payroll deduction, and is credited to his FSA account.

The employees pay their out-of-pocket expenses upfront. They then submit claims and documentation and reimbursements are made from their accounts. Recent IRS guidance and regulations have addressed the use of FSA debit card programs. The use of such programs allows the participant to pay for an FSA eligible expense directly out of their flexible spending account rather than first out of their pocket and then receiving reimbursement from the account. In addition, with the newest guidance, this option significantly reduces the need for participant to submit substantiation documentation after the purchase as many items are substantiated right at the point-of-sale. Some common out-of-pocket medical expenses include: eyeglasses and contact lenses, medical insurance deductibles, prescriptions, co-payments, orthodontia, chiropractic services, dental treatments, x-ray and laboratory services, and certain over-the-counter medications.

Dependent care expenses include: custodial care for a child under the age of 13, custodial care for a disabled spouse or dependent incapable of self care, or household-related services that may be associated with the care of a qualifying individual. Effective for plan years beginning 2005, employees can incur expenses for an additional 2 ½ months immediately following the end of the plan year, for reimbursement from remaining balances from the prior year’s account. This is known as the “Grace Period.” This is an option, not a requirement, and must be included in the plan documentation if it is offered.


Important Notes: • FSA health and dependent care funds cannot be co-mingled. • FSA health participants are able to receive their full annual election at any time during their plan

year. This is referred to as Uniform Coverage, but service still has to incur prior to reimbursement. • FSA dependent care participants are able to receive reimbursement only as it is deducted from their

pay and after the service has incurred. • Both FSA health and dependent care funds have the “use it or lose it” principle, in which any

unclaimed funds revert to the plan at the close of the plan year (and grace period if applicable). • Reimbursements under the dependent care benefit are subject to IRS code Sections 129 and 21. If the plan is qualified under the Employee Retirement Income Security Act (ERISA), certain eligibility, participation, and reporting requirements will apply. The IRS has detailed requirements established under Sections 125 and 129 of the Internal Revenue Code (Code). Based on plan design, requirements under Health Insurance Portability and Accountability Act (HIPAA) and Consolidated Omnibus Budget Reconciliation Act (COBRA) may also apply to medical FSAs. FSAs are subject to all Section 125 regulations plus additional guidelines specific to these plans. Consult with your tax advisor and legal counsel prior to establishing any benefit plan.


Flexible Spending Account Debit Cards An alternative method for employees to access their flexible spending account funds is through the use of a FSA debit card linked to their FSA account that is offered by some service providers. This helps eliminate the need to pay for an expense first out of pocket and then wait for reimbursement. Depending on how an employer decides to set up their FSA Debit Card program will dictate how a participant may use their card. The following purchases do not usually require receipt submission: Prescription co-payments, over-the-counter items at pharmacies, grocery or discount stores, wholesale clubs, or mail/Web-based vendors with an inventory information approval system (IIAS) installed. An IIAS is point-of-sale technology for retailers who accept debit cards for use with medical FSAs. Each point-of-sale terminal contains an embedded code confirming the merchant as selling FSA eligible items. Depending on the items purchased, participants may be required to submit documentation to validate the expense as eligible under the plan.


Full Cafeteria Plans In a full cafeteria plan, an employer provides a menu of benefit options for employees to choose from. The employer also provides a fixed dollar amount with which the employee purchases benefits. A full cafeteria plan usually includes POP and FSA features.


Types of Insurance Health Insurance

Health insurance is a broad term that can mean almost any type of insurance that pays for health-related services. There is no existing law that requires employers to offer medical or other health insurance benefits to employees or to pay any portion of the premium. That decision is left to company policy, but must be implemented consistently to avoid discrimination claims. Some states, however, do have insurance laws which require employers who offer group health insurance plans to offer the benefit to all employees who work a minimum number of hours. Check with their insurance carrier or state department of insurance for state-specific laws.


Health Maintenance Organization (HMO) A Health Maintenance Organization (HMO) is a form of health insurance in which a group of doctors and other medical professionals offer care for a flat monthly rate with no deductibles. However, only visits to professionals within the HMO network are covered by the policy. All visits, prescriptions, and other care must generally be cleared by the HMO in order to be covered. A primary physician within the HMO handles referrals.


Point of Service Point of service plans are similar to an HMO format, but allow outside network services that are generally reimbursed by the provider from the basis of a fee schedule on usual, customary, and reasonable charges.


Indemnity Plans An indemnity plan partially reimburses the patient and/or provider as expenses are incurred. Such a plan generally allows the participant the choice of any provider without effect on reimbursement.


Preferred Provider Organization A Preferred Provider Organization is an indemnity plan where coverage is provided to participants through a network of selected health care providers, such as hospitals and physicians.


Consumer Directed Health Plans Over the last several years, due to the rising health care costs for both employees and employers, Consumer Directed Health Care Plans have become increasingly popular. They are designed to control employer costs while allowing employees direct control over their healthcare. These plans typically include Health Reimbursement Accounts (HRA’s) or Health Savings Accounts (HSA’s), as well as a high deductible medical plan as determined by IRS guidelines.


Dental Benefits Medical insurance may include dental plans, which can cover all or portions of the cost for the following services: • Cleaning, x-rays, and oral examinations • Fillings • Crowns and dentures • Root canals • Oral surgery • Orthodontia


Disability Insurance The company may offer, and/or state law may mandate disability insurance programs which provide payment to employees who are absent from work due to non-work related injuries, illnesses, or pregnancy-related disabilities. • Short-term disability is usually defined as an employee's inability to perform the duties of the

employee’s current occupation. Benefits may begin on the first or the eighth day of disability and are usually paid for a maximum of 26 weeks. The employee's salary may determine the benefit level, ranging from 60 to 80 percent of pay.

• Long-term disability (LTD) benefits usually begin after short-term benefits are exhausted. LTD benefits continue for the length of the disability or until normal retirement. Benefit levels are a percentage of the employee's pay, usually between 60 to 80 percent. Social security disability frequently offsets employer provided LTD benefits. Thus, if an employee qualifies for Social Security disability benefits, these are deducted from benefits paid by the employer.


Life Insurance Traditionally, employer sponsored life insurance plans pay death benefits to beneficiaries of employees who die during their working years. There are two main types of life insurance: • Survivor income plans, which make regular payments to survivors • Group life insurance plans, which normally make lump-sum payments to specified beneficiaries.


Retirement Plans Retirement plans are designed to be used in combination with social security benefits and personal resources to provide supplemental income upon retirement. Employees are eligible to participate on dates as designated by the plan. The Pension Protection Act (PPA) as well as the Economic Growth and Tax Reconciliation Act (EGTRRA) updated many regulations that pertain to retirement plans. These include adding the option for individuals age 50 or older to contribute “catch-up contributions” and the enhancement of the automatic enrollment provisions to include a permissible withdrawal option as well as the availability of safe harbor provisions. Automatic enrollment requires employees to provide an affirmative election if they do not want to participate in the plan.


401(k) Plan A 401(k) plan is a company sponsored retirement plan that allows employees to set aside tax-deferred contributions for long-term savings. This benefit is primarily funded by employee contributions. The employer’s contribution, if any, may be determined on a year-to-year basis. Most 401(k) plans provide greater flexibility in funding choices by permitting employees to direct the investment of their contributions and offer enhanced accessibility to monies through 401(k) loans. 401(k) contributions are protected from creditors. The term 401(k) comes from a section in the Internal Revenue Code. This section explains the requirements and regulations necessary to implement this type of a plan. • A qualified plan is a plan that meets the requirements established by the IRS and the Department of

Labor. A 401(k) plan must be qualified in order to receive favorable tax treatment. • Contributions and earnings allocated to an employee’s account are not taxed for federal income tax

(all states except Pennsylvania) until they receive a distribution (benefit payment) from the plan. Therefore, contributions are not included in the employee’s current income.

• The tax savings continue with the growth of your contributions. Participants do not pay taxes on the growth until a distribution is taken, usually upon retirement.

Another advantage of a 401(k) plan is the option for an employer-matching contribution. This contribution is a great way to get employees to participate in the plan. Participation is important as it affects how much the principals of the business may defer. Employee Retirement Income Security Act of 1974 (ERISA) requires qualified plans to meet certain minimum standards for eligibility, participation, vesting, and reporting.


Roth 401(k) Plan A Roth 401(k) is a different way to contribute to a 401(k) plan. It is an after-tax salary deferral contribution. Roth elective deferrals greatly enhance existing 401(k) plan flexibility by providing post-tax contributions and tax-free plan distributions (if certain requirements are met). A Roth 401(k) is a new 401(k) plan feature. The 401(k) plan document must be amended to allow for Roth elective deferrals. If an employer includes Roth elective deferrals in the plan document, the contribution option must be available to all plan participants. An employer cannot offer the Roth option only to a select group of employees, such as salaried or exempt employees. Employers are not required to offer the Roth 401(k) option in their plans. 401(k) plan participants have the opportunity to make pre- or post-tax contributions. • Roth elective deferrals are made post-tax and are included in a participant’s taxable wages. The

participant pays taxes now and may receive tax-free distributions (similar to a Roth IRA). • Pre-tax elective deferrals are excluded from a participant’s taxable income. The participant does

not pay taxes until the money is withdrawn. • Employer-matching contributions are based on total salary deferrals, not to exceed the plan limit. • Matching contributions are taxable upon distribution, regardless of whether they were based upon

post- or pretax deferrals. Participants must meet certain distributable events as well as satisfy the five year participation rule in order for the distribution to be considered qualified, permitting the earnings associated with their distribution to be tax-free. A distribution of Roth money is considered nonqualified if: 1) distribution is made prior to the end of the applicable five-tax-year period and 2) distribution is not made after attainment of age 59 1/2, death or disability. A nonqualified lump sum distribution would only have the earnings component taxed. Any amount that is rolled over to another qualified plan that accepts Roth contributions or a Roth IRA would not be taxed. Also a nonqualified lump sum contribution would be subject to the 10 percent early withdrawal penalty if the participant is under age 59 1/2 Roth elective deferrals can be rolled into another 401(k) plan that accepts rollovers and permits Roth contributions. Roth elective deferrals can also be rolled into a Roth IRA. A Roth IRA does not require minimum distributions at age 70 1/2, so this type of rollover may be preferable to certain participants. Employers allowing Roth elective deferrals must follow stringent accounting requirements for plan participants’ pre- and post-tax contributions: Employers must account for Roth 401(k) contributions separately from all other contributions made to the 401(k) plan; gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to the designated Roth 401(k) contribution account under the plan; forfeitures may not be allocated to the designated Roth 401(k) contribution account.


Roth 401(k) contribution considerations for employers: • Roth 401(k) contributions are an excellent employee recruiting and retention tool. Roth 401(k)

contributions have received exposure in the national news media. Some job candidates and employees will ask if a company offers Roth 401(k) contributions. The companies that do may have a competitive advantage in the marketplace.

• Roth 401(k) contributions encourage business owner and key employee participation. As mentioned earlier, Roth 401(k) contributions do not have an income restriction (as the Roth IRA does) and are an excellent retirement-savings tool for key and highly-compensated employees.

• Roth 401(k) contributions provide participants with a more flexible retirement planning tool. It gives participants more options. The Roth 401(k) contribution option must be clearly presented to avoid confusion.

If the plan is qualified under the Employee Retirement Income Security Act of 1974 (ERISA), certain eligibility, participation, vesting, and reporting requirements will apply.


Profit Sharing Plans Profit sharing plans are designed to recognize and reward employee efforts. The amount of the company's contribution to the plan is normally based on the company's profits. However, profits are not required to make a contribution. An employee’s share of the company's contribution is most often based on that employee’s earnings in proportion to total earnings of all participants. Details of the plan are located in the Summary Plan Description and should be distributed to employees when they become eligible. The Employee Retirement Income Security Act of 1974 (ERISA) requires qualified plans to meet certain minimum standards for eligibility, participation, vesting, and reporting.


Savings Incentive Match Plan for Employees (SIMPLE) The Savings Incentive Match Plan for Employees (SIMPLE) is relatively easy and inexpensive to establish and maintain. A SIMPLE is a simplified retirement plan for businesses with 100 or fewer employees who earned at least $5,000 in the previous year. SIMPLE retirement plans can be structured as either an IRA or as a 401(k) plan, but the IRA version is somewhat more popular. The employer cannot maintain any other qualified plans to which contributions are made or benefits accrued during the same plan year that a SIMPLE plan is maintained. ADP/ACP and Top heavy rules are not applicable to SIMPLE plans. All contributions must be 100 percent vested and nonforfeitable. Employers are required to match the employee’s elective deferrals up to three percent of total compensation, or make a two percent non-elective contribution to all eligible employees.


Miscellaneous Benefits Flex Time

Employees often have childcare or elder care obligations that can only be met during typical working hours. Employees try to coordinate work schedules with bus, train, or car pool schedules, avoid rush hour traffic, or coordinate work hours with a spouse’s schedule. For many workers, especially in office settings, the exact starting and stopping time of their workday isn't as important as the time and attention given to their work. As long as the employee’s work is completed, the hours that make up their workday are not as critical. Flex time schedules, which allow employees to adjust their arrival and departure times within specified ranges may be an attractive benefit that helps meet the changing needs of workers, thereby aiding employers with recruitment and retention efforts. Allowing workers to adjust their schedules may reduce the occurrences of employees calling in sick or having other unscheduled absences. Staggered workdays can provide greater employee coverage for employers while allowing employees to better balance work and family life. It has been found that employees allowed to arrive during off hours spend less time in traffic and are more productive. When establishing flex time policies, it is important for employers to remain within the confines of federal and state wage and hour laws and apply the policy in a fair and consistent manner to avoid discrimination claims. Not all positions are suitable for flex time options. Management must identify which positions are eligible and clearly establish any boundaries. Once the policy has been established, it should be clearly communicated to all employees. Since flex time schedules are not practical for all positions, supervisors should be prepared to explain why some positions are not eligible for this program. For example, due to customer service needs, production schedules, etc. It is imperative for management to continuously monitor the flex time policy and make adjustments as necessary. In some cases, the program may not work because of company culture, job duty requirements, or behavior styles. Supervisors should try to work with employees and adjust flex time policies as necessary to make them work. Once the flex time benefit is offered, it is difficult to take away. Such practice can be very detrimental to employee morale. The Request for Flex Time form is located at the end of this section.


Tuition Assistance Employers may wish to offer financial assistance to eligible employees for courses that are related to the employee's current position. Company policy may specify that only those courses that improve current job skills will be considered for approval. Certain criteria should be set when implementing a tuition assistance program. To receive reimbursement, employees should:

• Successfully finish the course with a minimum grade as determined by company policy. • Be on the active payroll upon completion of the course. Supervisors should exercise caution when implementing tuition assistance policies which require employees to remain with the company for a specified period of time following reimbursement. Such policies may potentially jeopardize the employment-at-will relationship and can be difficult to enforce. The Tuition Assistance and Training Request form is located at the end of this section.


Employee Assistance Programs (EAP) An Employee Assistance Program (EAP) helps employees and their immediate family members with a wide range of issues. Situations addressed by an EAP may include, but are not limited to, marriage and family problems, emotional problems, alcoholism and alcohol abuse, drug abuse and dependency, financial problems, compulsive gambling, and eating disorders. Employers should educate employees regarding the service and its availability. Conversations and records should be kept in strict confidence.


Travel and Expense Travel and expense reimbursements are generally left up to company policy. Reimbursement should be made to employees for reasonable expenses incurred through business travel. All cash advances should be accounted for and expense receipts are required. Supervisors should inform employees of expenses that will be reimbursed and instruct employees on how to submit for reimbursement. State law may mandate reimbursement of business expenses, including travel, lodging, and meals required for work. Check with your state Department of Labor for additional information. The Request for Cash Advance, Employee Expense Report, and Auto Mileage Reimbursement Voucher form is located at the end of this section.


Company Discounts Providing company discounts on products and services is an inexpensive way to offer your employees an additional benefit. Company discount policies should include eligibility requirements and terms of payment. Supervisors should inform eligible employees of goods and services that may be purchased at a discount. Supervisors should explain any other restrictions regarding the company discount policy such as whether it is for personal or family use and the acceptable methods of payment. Purchases using the company’s discount program should be approved in advance by a supervisor. Purchases under the company discount program should be paid for at the time the purchase is made or the service is received. Allowing employees to charge the purchase or service to a company account, with the intent of deducting the money from future paychecks, may not be permissible under state wage and hour laws. Federal law allows for such deductions, provided the deduction does not reduce the employee’s wages below the federal minimum wage and all overtime is compensated. Employers should have written authorization from the employee prior to making any payroll deductions. Contact your local Department of Labor for state-specific guidelines pertaining to deductions from wages.


Qualified Transportation Plans (Transit and Parking Section 132 Plans)

Section 132 of the Internal Revenue Code allows employees to take a pre-tax salary deduction to help pay for parking and transit fares. Qualified transportation costs such as mass transit, van pooling, and parking can be paid by the employee with pre-tax payroll deductions. Section 132(f) also allows employers to pay for transit and parking as a tax-free employee benefit. Employees who commute to work in larger cities tackle costs associated with transit and parking on a daily basis. Many of these employees and their employers take advantage of Section 132 to save money. Commuter tax incentives may be available at the state and local levels as well.


Qualified Tuition Program (QTP) A qualified tuition program is also known as a 529 Plan. They allow families to save money for college free from federal taxes. States allow College Savings Plans, Prepaid Tuition Plans, or both.


Severance Plans Companies may adopt a standard policy whereby payment in the form of a lump sum or salary continuation is made to an employee who has been laid off. A typical severance package is two weeks of pay for each year a person has worked at the company, although severance packages vary substantially from company to company. Severance payments usually are voluntary payments and are not required by law. Some exceptions occur if a union contract guarantees a certain amount of severance or if other requirements are spelled out in a contract. Severance payments may be made in a lump sum or may be paid out in the regular payroll process.


Benefits Forms

Section 4 Forms located in this section include: Sample Summary of Compensation and Benefits

Request for Time Off

Absentee Record

Vacation-At-A-Glance

Leave Request Form

Request for Flex Time

Return to Work Medical Certification

Tuition Assistance and Training Request

Request for Cash Advance

Employee Expense Report

Auto Mileage Reimbursement Voucher Remember: These forms are for general information purposes only, and are not intended as legal advice.

If you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.


Summary of Current Compensation and Benefits SAMPLE

ABC COMPANY

EMPLOYEE NAME EFFECTIVE DATE

Compensation You are currently employed at ABC COMPANY as a (full-time/part-time) INSERT POSITION TITLE. Please refer to your current job description for an outline of job duties and responsibilities. You are expected to work at least INSERT NUMBER hours each week; your work schedule is (MONDAY THROUGH FRIDAY, 8:00 a.m. to 5:00 p.m., with a one-hour meal break). Your current compensation is $___.__ per hour. Benefits Our company has developed a comprehensive set of employee benefit programs to supplement our employees’ regular wages. Our benefits represent valuable additional income to our employees. This summary reviews the current benefit plans offered by the company. Please refer to the actual plan documents and summary plan description if you have specific questions regarding levels of coverage regarding the benefit plan. Those documents are controlling. The company reserves the right to modify its benefit at any time. We will keep you informed of any changes. Medical Insurance Eligible full-time employees may enroll after completing three months of employment. To assist you in the cost of coverage, the company contributes a portion of the premium on your behalf. Employees are responsible for paying the balance through payroll deduction. A prescription drug plan is covered under the medical insurance plan. Dental Insurance Eligible full-time employees may enroll after completing three months of employment. Employees are responsible for the full cost of this insurance through payroll deduction. Section 125 Plan This plan allows employees to make contributions toward premiums for medical insurance, dental insurance, and out-of-pocket medical expenses on a “pre-tax,” rather than “post-tax” basis. Your qualified expenses are deducted from your gross pay before income taxes and Social Security are calculated. Holiday Our company will be closed on the following holidays: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Employees will not be paid for the above holidays. Employees may use their vacation and/or personal time available to be paid for the above unpaid holidays. Full and part-time employees will receive two paid floating holidays that are designated by management each year after completing 90 days of employment. Part-time employees are eligible for floating holiday pay in proportion to the number of hours they normally are scheduled to work. Non-exempt employees must work their scheduled workday before and after the floating holiday in order to be paid for the floating holiday, unless they are absent with prior permission from their supervisor.

Personal Days Full and part-time employees are eligible for paid personal days after completing 90 days of employment. Full-time employees are eligible for one week (five days) of paid personal time per calendar year. Part-time employees are eligible for paid personal time in proportion to the number of hours they normally are schedule to work, up to eight hours each day. Acknowledgment of Receipt: __________EMPLOYEE NAME______ ________DATE___________ Our company adheres to a policy of employment-at-will which allows either party to terminate the employment relationship at any time, for any reason, with or without cause or notice. The provisions of this summary are not intended to create contractual obligations with respect to any matters it covers. Nor is this summary intended to create a contract guaranteeing that you will be employed for any specific time period.

Request for Time Off Employee to Complete Employee Name __________________________________________________________________________ Department _________________________________ Supervisor __________________________________

Reason Dates Number of Days Number of Hours

Vacation

Sick

Floating Holiday

Jury Duty

Bereavement

Other (explain)

Employee Signature _______________________________________________ Date ______ /______ /______ Employer to Complete

Approved Denied

Paid Unpaid

Authorized Signature ______________________________________________ Date ______ /______ /______

Title ___________________________________________________________ Comments ______________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________


Absentee Record Employee Name Employee Number Current Year Job Title Date of Hire / / Eligible Sick Days Eligible Vacation Days D = DISCIPLINE J = JURY DUTY O = OTHER V = VACATION F = FUNERAL L = LEAVE OF ABSENCE P = PERSONAL (paid) U = UNEXCUSED H = HOLIDAY (medical/personal) S = SICK W = WORKERS' COMPENSATION

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

JANUARY

FEBRUARY

MARCH

APRIL

MAY

JUNE

JULY

AUGUST

SEPTEMBER

OCTOBER

NOVEMBER

DECEMBER

Use reverse side of card for clarification of "other" absences and management notes.

MONTH DAY REASON FOR OTHER

Management Notes

Vacation-At-A-Glance

EMPLOYEES

VACATION DAYS

Year

AVAILABLE January February March April Name Dates Name Dates Name Dates Name Dates May June July August Name Dates Name Dates Name Dates Name Dates September October November December Name Dates Name Dates Name Dates Name Dates


Leave Request Form This form should NOT be used for FMLA Leave

Employee to Complete Employee Name Employee Number

Address Department Position Supervisor/Manager Status (select one) Full-time Part-time Date of Hire / / I hereby request a leave of absence effective on / / (date you are requesting leave to commence). I expect to return to work on ________ / _______ / _________ Reason for Requested Leave Refer to your employee handbook for state and federal leave policies. For questions regarding your company’s leave policies, consult with your Human Resources department.

Medical Leave Non-occupational Illness, Injury, or Pregnancy-related Disability Workers’ Compensation

Non-Medical Leave

Reason ________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________ Employee Signature ______________________________________ Date _________ / _______ / _______ Employer to Complete If request for leave is for an FMLA-qualifying reason, employee should also complete the Request for Family/Medical Leave Under the FMLA.

Leave Approved

Leave Denied

Reason ________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________ Leave (select one) Paid Unpaid Employee is is not required to exhaust all accrued Vacation Personal Time PTO Sick Days in accordance with company policy and where permitted by state/federal law, before taking leave. Supervisor/Manager Signature _____________________________ Date _________ / _______ / _______


Request for Flex Time Employee Name Date / / Department Position Proposed Flex Time Schedule Starting Time Ending Time Employee Acknowledgement I have read and understand the company’s flex time policy and agree to abide by its terms and conditions. I understand that management reserves the right to modify this schedule based on changing business conditions or staffing needs. I understand that the company reserves the right to cancel this arrangement at any time, for any reason, or no reason. If such policy is revised or cancelled, I agree to return to my standard work schedule. Employee Name Date / / Supervisor Name Recommendation Approved Denied If approved, supervisor should complete the following: Effective Date / /

Ending Date (if applicable) / / If approved, add any comments or stipulations Supervisor Signature Date / /


Return to Work Medical Certification PART I: Employee to Complete

Employee Name Position Date Leave Anticipated Commenced / / Return to Work Date / / Employee Signature________________________________________ Date / / PART II: Employee's Health Care Provider to Complete I certify that is able to resume work Employee Name on / / .

I have received and reviewed a list of the essential functions of ___________________________’s Employee Name position and certify that ______________________ is able to perform these functions. Employee Name Health Care Provider Name Address Telephone Number ( _______) _________ - _______________ Health Care Provider Signature_______________________________ Date / /


Tuition Assistance and Training Request Employee Name Employee Number Department Position Course/Seminar Cost of Course/Seminar Tuition Assistance Yes No Date(s) of Course/Seminar Time(s)

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

Completion Date / / Location of Course/Seminar Relevance to current job Skills to be developed/improved Employee Signature Date / /

Approved Denied Supervisor/Manager Signature Date / / Grade Received ____________________________________ Date of Disbursement / /


Request for Cash Advance Employee Name Employee Number Department Travel Date(s) Time(s)

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

_______/ _______ / _______ ___________________

Purpose of Travel Dollar Amount $ Employee Signature Date / /

Approved Denied Supervisor/Manager Signature Date / /


Employee Expense Report

Employee Name ______________________________________ Date _______ /_______ /________

Date

Mileage Airfare Car Rental

Parking/ Tolls

Hotel Meals Other Destination/Purpose Total

Miles Rate Amount

Totals Employee Signature Date / / Manager/Supervisor Signature Date / /


Auto Mileage Reimbursement Voucher Employee Name ________________________________________________________ Employee Number ______________________________ Department _____________________________________________________________ Date (M/YY) /

ODOMETER READING DATE PURPOSE OF TRIP/DESTINATION BEGIN END

MILES TRAVELED

MILEAGE AT $ _____ RATE

PARKING/ TOLLS

TOTAL

TOTAL REIMBURSEMENT Employee Signature Date / / Manager/Supervisor Signature Date / /


Compensation Administration


implementing

communicating

and evaluating the compensation plan.

Remember: These materials are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances, you

should consult an attorney.


Compensation Manual COMPENSATION ADMINISTRATION 5:1

Implementing the Compensation Plan Once your company has developed a compensation and benefits plan, the plan will need to implemented, communicated, and evaluated. Implementing the Compensation and Benefits Plan The company should determine who will be responsible for implementation of the new plan. Will the Human Resource department, company managers, a task committee, or a third party implement the plan? The timeframe for implementing the compensation plan also needs to be determined. Implementation may occur all at once or pieces (i.e. variable pay) may be added at a later date. The plan may be executed one department at a time, or on a company wide level. If the compensation plan is based on performance, the performance appraisal system may need to be evaluated to determine which performance measures will be used. Performance measures may be related to profit, customer satisfaction or by team and/or individual goals. Remember, whatever the factors are, they should be specific, measurable, attainable, realistic, and time-bound.


Communicating the Compensation Plan The plan may be communicated in a variety of ways, including newsletters, handouts, and group or individual employee meetings. Communication should contain general information about the compensation plan and should not include individual employee pay information. You may wish to consider providing employees with a statement of their wages and benefits which will show the true value of the employee’s total compensation. New employees should receive information on the plan at the time of hire or during the orientation process. Effective communication will assist employees in understanding the role that benefits play in their total compensation. Communication to employees about the compensation plan generally includes: • wage level determination • information on salary grades or bands • pay structure determination • pay increase determination • incentive pay plans • total value of employee benefits

and • compliance with legal requirements.


Evaluating the Compensation Plan Compensation plans need to be reviewed periodically to ensure they continue to meet the objectives of the company and comply with state and federal laws. A compensation evaluation should ensure that the plan is achieving the following goals: • Meeting the company's compensation philosophy and goals. • Ensuring compliance with state and federal laws. • Not discriminating. • Assisting with recruitment and retention. • Effectively and consistently communicating to employees. • Properly administered. Generally, a pay structure is only effective for a certain time period. The pay structure should be evaluated annually to respond to any changes that may take place. For example, if market conditions change, the company should re-evaluate the pay structures. An evaluation of the compensation plan can determine both success and failure of the plan. This can assist the company in determining if the plan is meeting company objectives, and if updating the plan is necessary.



Sample Compensation Plan The policies summarized in the Sample Compensation Plan are not intended as contractual rights or obligations. The ABC Company may, at any time, adjust the compensation program. The following components are addressed in this Sample Compensation Plan: • compensation philosophy • compensation objectives • salary surveys • determining compensation • job banding and slotting • job levels within bands • target rates of pay • pay adjustments • lump-sum increases • timing of pay increases or adjustments

and • total compensation. Compensation Philosophy We consider our employees to be the company’s most vital resource. We seek to attract and retain well-qualified, productive employees through a total compensation philosophy. Within economic and legal boundaries, our goal is to provide compensation that is competitive with similar positions in our industry and geographic area. The following principles outline the ABC Company’s compensation philosophy: • The missions needs, and values of the ABC Company guide the compensation plans and related

practices. • Total compensation includes pay and benefits that are used to determine market competitiveness. • The compensation plan reflects the relevant labor markets in which the company competes for

positions and may vary depending on the job. • The compensation plan and pay delivery methods will respond and relate to ABC Company

priorities and needs, while maintaining fairness and consistency. • To achieve these goals, the ABC Company compensation plans must be clearly communicated to

all employees. • Individual employee salaries may recognize exceptional performance based on such factors as;

documented performance reviews, professional development and qualifications, and the value of individual contributions.

• The compensation plans will be reviewed periodically to assess market competitiveness, company needs, and effectiveness for attracting and retaining employees.


Compensation Objectives The following are the company’s compensation program objectives: • Maintain internal equity by objectively evaluating jobs to assure that a position's responsibilities are

valued fairly as compared to others within the organization. • Ensure external competitiveness by developing and maintaining compensation levels that reflect

current market rates of pay. • Promote a pay-for-performance philosophy by providing incremental pay increases that distinguish

between levels of performance. • Ensure that compensation actions comply with federal, state, and local legal requirements. • Provide employees with information on the compensation process, the overall pay structure, and

target rates of pay. • Provide flexibility so the system remains responsive to changes in the market, organization, and

economic conditions within the industry. Salary Surveys As a further guide to establishing equitable pay, the company periodically conducts comparable compensation surveys. Such studies are used with the goal of ensuring that our rates of pay compare favorably with rates for work of a similar nature within the company and in similar job situations in the area. The company compares salaries for benchmark positions on a local basis and may extend this comparison for certain positions to a regional and national market. Benchmark positions are comparable jobs found in other organizations requiring similar knowledge, skills, and abilities as jobs within the company. Determining Compensation Individual salaries are determined by a performance program designed to be competitive within the job market, impartial across the company, and in line with the company’s financial position. In order to communicate the company’s pay structures, we will explain how each job is valued within the company’s compensation structure, how jobs are slotted into job bands, and how the actual delivery of employee compensation is accomplished through the establishment of target rates of pay.


Job Banding and Slotting Job banding is the process of grouping many jobs from various departments throughout the company in a logical manner. Job banding clusters company jobs around occupations that are similar in their nature of work. Each job is assessed to determine specific requirements, expectations, and performance standards at a target market (competent) level. The placement of a job into the banding structure is based on what the person in this position should be doing, rather than what the person in this position could be doing, or is actually doing. Job band slotting is the placement of a job into a band based on its type of work and then at a particular level within the band according to its requirements and responsibilities. Each band has a unique definition, and there are specific levels defined for each band. The table below summarizes the company’s five bands. Job Bands Example

Band Definition

Management Operational oversight of a work unit or team. Managing and supervising, rather than performing work is the focus of the position.

Professional Application of knowledge in a professional field, where professional judgment is required.

Technical Application of technical skills (specially trained, paraprofessional) and judgment to produce work of greater complexity.

Operations Application of general operations and maintenance skills to produce work within a well-defined direction.

Administrative Application of general administrative and office skills to produce work within a well-defined direction.

Job Levels within Bands Each of the five bands has a range of jobs with varying levels of required qualifications and specific responsibilities. These "job levels" begin at "one" and range upward. Individual bands can vary in their actual number of levels. Target Rates of Pay Target rates of pay were established by the company for each level within the respective bands. They reflect the competitive job market from which the company hires employees. The previously mentioned salary surveys, which include positions comparable to those with the company, are closely analyzed to obtain the competitive data and establish benchmarks and target rates of pay. Each level within every band has a target rate of pay set at approximately five percent above the average rates of pay for benchmarked jobs within that level.


Each band will be adjusted according to the specific market analysis. Individual bands will not necessarily adjust at the same rate. It is expected that all levels within a given band move at the same rate of adjustment, unless a multi-year trend indicates there should be pay adjustments within the band.

Target Rates of Pay Example (monthly gross salary)

Although no formal salary minimum or maximum is listed for each job, the company works within a range of 20 percent below to 20 percent above each target rate of pay. Twenty percent below the target rate is the usual minimum hiring rate; and 20 percent above the target rate is the usual maximum rate of pay. For example, if the target rate for a job is $3,500 each month, the minimum is 80 percent of the target rate, or $2,800. The maximum rate of pay is 120 percent of the target rate, or $4,200. Refer to the Target Rates of Pay Example chart above. Pay Adjustments Most employees achieving a satisfactory or better performance rating are eligible for pay adjustments. Pay increases for company employees consist of two components: • Market Adjustment • Performance Increase Market Adjustment The market adjustment portion of your compensation is based on your salary and its relationship to the target rate of pay for your job. The purpose behind a market adjustment is to accelerate your movement up to the target rate of pay for your job to assure that you receive a competitive rate of pay. The target rate of pay for your job represents an approximate five percent premium adjustment above the average market rate. Percentages are reviewed annually; performance must be satisfactory to be eligible for a market adjustment.

Band Level I Level II Level III Level IV Level V Management $4,000 $5,250 $6,750 $7,500

Professional $3,750 $4,500 $5,500 $6,000 $6,500

Technical $3,000 $3,500 $4,000 $4,500

Operations $2,500 $3,000 $3,250 $3,500 $3,750

Administrative $2,250 $2,800 $3,000 $3,500 $3,800


Performance Increase The company's pay-for-performance philosophy is designed to award performance increases based on a three-rating system.

Rating Description Exceptional Performer

Consistently performs beyond expectations and has demonstrated outstanding skill, knowledge, and initiative in the job. This rating recognizes outstanding contributions to the organization, within the scope of the position. Accomplishments have made a significant impact on the mission of the department and consistently exceed those of other employees in the same job family or work group.

Performs Well Consistently performs the duties of the position; meets and occasionally exceeds all expected criteria for quality, quantity, and timeliness of work. Consistently meets goals and objectives.

Improvement Required

Performance marginally meets requirements of the position and periodically falls below them.

Working under the guidelines of the three-rating descriptions, an employee’s performance is evaluated against the organization’s values and other job-related factors. An employee receives an overall rating in both areas and a combined score of those evaluations determines a percentage of performance increase. Although the percentages are reviewed annually, the following Performance Increase Chart Example below shows how this pay component works. Performance Increase Chart Example

Exceptional Performer 0.0% to 2.0% 3.75% to 4.25% 4.25% to 4.75% Performs Well 0.0% 2.5% to 3.5% 3.75% to 4.25%

Organizational Values

Improvement Required 0.0% 0.0% 0.0% to 2.0% Improvement

Required Performs Well Exceptional Performer

Job Related Factors Our compensation system makes the assumption that most employees are performing well. For example, if an employee receives a rating of "Performs Well" for organizational values and a "Performs Well" for job-related factors, then the employee is eligible for a 2.5 percent to 3.5 percent performance increase.


Lump-Sum Increase An employee's salary cannot exceed the target rate by more than 20 percent. If an employee's salary reaches this level of pay, no further increase can be made to the employee’s base salary. An employee whose current salary is close to or at 20 percent above their target rate may be eligible to receive a one-time, lump-sum payment. The one-time, lump-sum payment cannot be added to the employee’s base salary, or performance increase. For an employee to be eligible for this lump-sum payment, he must: • be close to, or at, 20 percent above his market target rate • receive a performance rating of either "Performs Well" or "Exceptional Performer"

and • be approved for the one-time, lump-sum payment by his supervisor. Timing of Pay Increases or Adjustments Performance reviews are conducted based on the employee’s anniversary date. Awarded salary increases begin on or about the first pay period following the employee’s anniversary date.


Total Compensation Our total compensation package represents a significant investment by the company in its employees. The company values its employees as its most valuable resource. The company must protect and support its employees by offering competitive pay and benefits. Our total compensation package is a comprehensive reward and recognition program that includes cash payments, benefit programs, and services. Although a particular benefit plan or program may not have the same value to every employee, together, they are intended to provide a comprehensive set of balanced offerings which satisfy the overall needs of the employees. The compensation package contains two distinct forms of compensation: direct and indirect. Direct compensation consists of cash payments made to employees in exchange for their contributions to the company. Indirect compensation is made in the form of non-cash benefits. Direct compensation consists of actual cash payments such as: • base salary • shift differential • performance increases • bonuses • promotions

and • overtime. Other forms of cash payments include: • paid time off for sick leave • paid personal holidays • paid vacation • paid military leave • paid bereavement

and • paid holidays.


Indirect compensation includes a number of important benefits that are not necessarily itemized on employees' paychecks or paycheck vouchers. They are intended to provide a broad foundation in which employees can provide for their needs and for the well-being of their families. These benefits are either fully or partially funded by the company and fall into the following categories: • Health and Welfare Benefits • Government-Mandated Benefits • Retirement Benefits • Miscellaneous Benefits

Health and Welfare Benefits Government-Mandated Benefits

Retirement Benefits

Miscellaneous Benefits

• Health Insurance • Dental Insurance • Long-term Care Insurance • Life Insurance • Disability Coverage • Flexible Spending Accounts • Wellness Program • Employee Assistance Program

• Social Security • Unemployment Insurance

Tax • Workers' Compensation

Insurance

• 401(k) • Parking • Company

Discounts • Educational

Reimbursement

Legal Requirements

Section 6 The following is a limited list of applicable federal laws, executive orders, and guidelines. This is not all-inclusive and the following summaries should not be used as a sole source of information regarding compliance with such laws. Additional information regarding compliance with specific laws may be obtained from the enforcing agencies listed. State laws may vary. Federal Laws (this list is not all inclusive)

Age Discrimination in Employment Act (ADEA) of 1967

Americans with Disabilities Act (ADA)

Title VII of the Civil Rights Act of 1964

Civil Rights Act of 1991 (CRA ’91)

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Consumer Credit Protection Act

Employee Retirement Income Security Act (ERISA)

Equal Pay Act (EPA)

Fair Labor Standards Act (FLSA)

Family and Medical Leave Act (FMLA)

Federal Insurance Contributions Act (FICA) (Social Security Act)

Federal Unemployment Tax Act (FUTA) (1936)

Health Insurance Portability and Accountability Act (HIPAA)

Immigration Reform and Control Act (IRCA) of 1986

Internal Revenue Code and Regulations

Jury System Improvement Act

National Labor Relations Act (NLRA)

Older Workers Benefit Protection Act (OWBPA)

Pregnancy Discrimination Act (PDA)

Uniformed Services Employment and Reemployment Rights Act (USERRA)

Unemployment Insurance

Workers’ Compensation Insurance

Laws Affecting Federal Contractors and/or Recipients of Federal Grants

Copeland Act

Davis-Bacon Act of 1931

Executive Order 11246

McNamara-O’Hara Service Contract Act (SCA)

Vietnam Era Veterans Readjustment Assistance Act (VEVRAA)

Vocational Rehabilitation Act of 1973

Walsh-Healey Public Contracts Act (PCA)

Remember: These materials are for general information purposes only, and are not intended as legal advice. If you have questions or need legal guidance regarding particular facts and circumstances, you should consult an attorney.

Compensation Manual LEGAL REQUIREMENTS 6:1

Age Discrimination in Employment Act (ADEA) of 1967 Coverage An employer is subject to ADEA requirements if they employed at least 20 employees in each of 20 or more calendar weeks in the current or preceding calendar year and they are engaged in an industry affecting commerce. The act covers employment agencies, labor organizations, and most federal, state, and local governments. Overview This Act generally prohibits employers from engaging in age-based discrimination against workers or applicants who are 40 years of age or older. State laws may be more restrictive. Covered employers must maintain the following documents for at least one year: applications, résumés and other responses to job advertisements, documentation of promotions or discharges, job advertisements, job orders submitted to employment agencies or labor organizations for recruitment purposes, results of physical examinations used in making personnel decisions, and pre-employment aptitude or other employment tests. Records containing each employee’s name, address, date of birth, occupation, rate of pay, and weekly compensation must be retained for at least three years. Employee benefit plans and seniority and merit systems must be retained during the time they are in effect and for one year following a termination. Posting Requirement Covered employers must post the Equal Employment Opportunity is The Law poster describing the provisions of the Act. Governing Agency The EEOC is responsible for enforcing the provisions of the ADEA.

Note: Individual states may have more stringent age discrimination and record retention policies.


Americans with Disabilities Act (ADA) Coverage This Act applies to employers who have employed 15 or more employees for 20 or more calendar weeks in the current or preceding calendar year. Covered employers include employment agencies, labor organizations, and joint labor-management committees. Overview The ADA protects qualified individuals with disabilities from discrimination with respect to employment, public services, public accommodations and telecommunications. Although the Act is divided into five titles, this summary focuses on Title I – Employment. Title I of the ADA prohibits discrimination in employment against individuals on the basis of a disability and it requires covered employers to provide a reasonable accommodation to otherwise qualified individuals with disabilities, unless such accommodation causes an undue hardship on the company. Under the Act, “disability” means, with respect to an individual, a physical or mental impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having such an impairment. Under the ADA Amendments Act of 2008, “disability” should be construed in favor of broad coverage of individuals under the Act. An impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active. The determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of specified mitigating measures. The ADA Amendments Act includes two non-exhaustive lists with examples of major life activities. An individual meets the requirement of “being regarded as having such an impairment” if the individual establishes that he or she has been subjected to an action prohibited under the ADA because of an actual or perceived physical or mental impairment whether or not the impairment limits or is perceived to limit a major life activity. The “being regarded as” impairment does not apply to transitory and minor impairments. A qualified individual with a disability is an individual with a disability who, with or without a reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires. Reasonable Accommodation A reasonable accommodation may be a modification or adjustment to a job or the work environment that will allow an individual with a disability to participate in the application process or to perform the essential functions of the position. Inquire what accommodations the candidate would need to make it possible for him to perform the essential functions. The employer is not under an obligation to provide the best accommodations possible, only to provide that which will allow the job to be performed satisfactorily. The ADA requires consideration of the following areas: • Making the workplace and interviewing locations accessible and usable. • Restructuring the job so that nonessential functions will be fulfilled by other individuals. • Modifying employment exams, training, and policies. • Acquiring or modifying equipment or devices.


Individuals covered only under the “regarded as” definition of disability are not entitled to a reasonable accommodation. Essential Functions Essential functions are the fundamental job duties of the position the individual holds or desires. The first consideration in determining whether a job function is essential is to ask, “Are employees in this job performing this function?” If the answer is yes, then ask, “Would removing this function fundamentally change the job?” The EEOC has issued guidance to assist in determining which functions are essential. According to the EEOC, a function may be considered essential if: • The job exists to perform the function. • There are a limited number of other employees available to perform the function or only a few

workers among whom the function can be distributed. • The function is highly specialized and the person in the position is hired for special expertise or

ability to perform the function. The EEOC guidance identifies types of evidence considered in determining whether a job function is essential. Such evidence includes, but is not limited to: • The employer’s judgment. • A written job description prepared before advertising or interviewing applicants for a job. • The amount of time spent performing the function. • The consequence of not performing the function. • The terms of a collective bargaining agreement. • The work experience of individuals who have performed the job in the past and are currently

performing a similar job. The ADA requires covered employers to provide a reasonable accommodation to otherwise qualified individuals with disabilities, unless such accommodation causes an undue hardship on the company. Undue Hardship The following factors will be considered: • The nature and net cost of accommodation. • The overall financial resources of the business. • The impact of the accommodation on the operation of the business. The ADA set forth guidelines regarding medical exams and pre-employment testing. Pre-employment medical exams are prohibited under the ADA. Pre-employment/post-offer medical examinations are permissible provided all entering employees in the same job category are required to take the examination. Employers may not conduct pre-employment tests or impose other qualification standards that tend to screen out individuals with a disability unless the employer can show the test or standard is job-related and consistent with business necessity.


Posting Requirements Covered entities must post notices that describe the applicable provisions of the ADA. Posters must be available in an accessible format to individuals with disabilities. Governing Agency The EEOC is responsible for enforcing the provisions of the ADA.


Title VII of the Civil Rights Act of 1964 Coverage This Act applies to employers with 15 or more employees for each working day in each of 20 or more calendar workweeks in the current or preceding year. Employment agencies, educational institutions, unions, and government agencies are covered by the Act. Overview This law bans all employment discrimination, including harassment, based on race, color, religion, sex, or national origin. Applicants and employees are protected by Title VII. Employers are held accountable for any work-related discriminatory actions or decisions made by managers or supervisors. Posting Requirement Covered employers must post the Equal Employment Opportunity is The Law poster describing the provisions of the Act. Governing Agency The EEOC is responsible for enforcing the provisions of this Act. In addition to the protected classes listed under Title VII of the Civil Rights Act, there are state anti-discrimination laws which may be referred to as Fair Employment Practice (FEP) laws or Human Rights laws. These laws may prohibit discrimination against additional protected classes. For more information, contact the appropriate agency in your state or refer to your state’s human rights or anti-discrimination posting. FEP laws prohibit employers from refusing to hire, employ, or discharge any individual or to discriminate against any individual in employment privileges on the basis of a protected characteristic. State mandated protected classes may include sexual orientation, arrest or conviction records, sickle cell trait, status with regard to public assistance, AIDS, or those who test positive for HIV, and family status, among others.


Civil Rights Act of 1991 (CRA’91) Coverage This Act applies to employers with 15 or more employees for each working day in each of 20 or more calendar workweeks in the current or preceding year. Employment agencies, educational institutions, unions, and government agencies are covered by the Act. Overview CRA ’91 made major changes in the federal laws enforced by the EEOC that prohibit discrimination in employment. It was enacted in part to reverse several Supreme Court decisions that limited the rights of individuals protected by these laws. The Act also provides additional protections. CRA ’91 provides for compensatory and punitive damages in cases of intentional discrimination, attorney fees, and the possibility of jury trials. The Act directs the EEOC to expand its technical assistance and outreach activities. Posting Requirement Covered employers must post the Equal Employment Opportunity is The Law poster describing the provisions of the Act. Governing Agency The EEOC is responsible for enforcing the provisions of this Act.


Consolidated Omnibus Budget Reconciliation Act (COBRA) Coverage COBRA generally covers group health plans maintained by employers with 20 or more employees during 50 percent of the working days in the preceding calendar year. Overview COBRA’s health benefit provision amended the Employee Retirement Income Security Act, the Internal Revenue Code, and the Public Health Service Act to provide continuation of group health coverage that would otherwise be terminated. Under COBRA, eligible employees and their qualified beneficiaries are entitled to continuation of their health insurance coverage for up to 36 months, depending on the qualifying event. A qualifying event is an event that would otherwise result in loss of coverage to a qualified beneficiary. Qualifying events include: death of the covered employee; termination or reduction in hours of the covered employee; divorce or legal separation; covered employee’s eligibility for Medicare; loss of dependent child status, and bankruptcy (for covered retirees and their dependents). Eligible employees and qualified beneficiaries include those individuals covered under a group health plan on the day before a qualifying event. Under the law, the employee or qualified beneficiary may be required to pay the full premium for the contribution period, plus up to two percent for administration costs. For individuals receiving the 11-month disability extension coverage, the premium for the additional months may be increased to 150 percent. A General Notice of COBRA rights must be provided to eligible employees and their qualified beneficiaries within 90 days of the date the employee or qualified beneficiary becomes covered under the plan, or 90 days after the date the plan first becomes subject to COBRA requirements. Plan Administrators must notify employees and their qualified beneficiaries of eligibility to enroll in COBRA coverage upon the occurrence of a qualifying event. If it has been determined that the individual is not eligible for COBRA coverage, then notification must be provided indicating the reason why COBRA coverage is unavailable. If COBRA coverage is terminated prior to the maximum coverage period, notification must be provided detailing the reason coverage is terminated and the effective date of the termination. Additional notification requirements may apply depending on the qualifying event and who administers the plan. Contact your insurance carrier or the U.S. Department of Labor for more information on notification, election, and payment requirements. Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of COBRA. Refer to the American Recovery and Reinvestment Act of 2009 (ARRA) for additional provisions. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.txt.pdf


Consumer Credit Protection Act Coverage The law protects everyone receiving personal earnings, such as wages, salaries, commissions, bonuses, or other income, including earnings from a pension or retirement program. Overview This Act places a limit on the amount of an employee's wages that are subject to garnishment (the lesser of 25 percent of weekly earnings or earnings in excess of 30 times the federal minimum hourly wage). The Act also prevents an employer from discharging employees because of wage garnishments resulting from one single debt or for child support garnishments. Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of this Act.


Employee Retirement Income Security Act (ERISA) Coverage This Act applies to employee pension plans and welfare benefit plans. Overview ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. For example, it specifies when an employee must be allowed to participate and how long he or she must work before benefits become non-forfeitable. ERISA also requires plans to provide participants with plan information, including important information about plan features and it provides fiduciary responsibilities for those who manage and control plan assets. Generally, an employee who is at least 21 years of age and has worked for the employer at least 1,000 hours in a 12-month period is eligible to participate in any qualified plan the employer offers. Under ERISA, plan administrators must file an IRS Form 5500 annually with the Employee Benefits Security Administration of the U.S. Department of Labor and provide all plan participants and beneficiaries with a Summary Plan Description (SPD) and a Summary Annual Report (SAR), which is a summary of the information filed with Form 5500. Governing Agency The Employee Benefits Security Administration of the U.S. Department of Labor is responsible for enforcing the provisions of ERISA.


Equal Pay Act (EPA) Coverage This Act primarily covers employees covered under the FLSA. Refer to the Fair Labor Standards Act located in this section for more information on employer and employee coverage. Those employees who are exempt from the minimum wage and overtime provisions of the FLSA may still be covered under the EPA. Overview This Act amended the FLSA to prohibit sex-based wage discrimination between men and women in the same establishment who are performing similar work under similar working conditions. The law was written to ensure that employers pay similarly situated female workers the same rate of pay as male employees when both sexes are performing similar or identical work. Pay differentials are permitted when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. These are known as “affirmative defenses” and it is the employer’s burden to prove that they apply. In correcting a pay differential that violates the statute, no employee’s pay may be reduced. Instead, the pay of the lower paid employee(s) must be increased. Under the EPA, records must be kept in accordance with the FLSA. Any documents describing or relating to wage differentials for employees of the opposite sex must be retained for at least two years. Such documents may include performance evaluations, job descriptions, collective bargaining agreements, etc. Employers should retain employee payroll records for active and terminated employees for three years. Posting Requirement Covered employers must post the Equal Employment Opportunity is The Law poster describing the provisions of the Act. Governing Agency The EEOC is responsible for enforcing the provisions of the EPA.


Fair Labor Standards Act (FLSA) Coverage Employees may be covered by the FLSA under the “Enterprise Rule” or “Individual Employee Coverage Rule.” The Enterprise Rule applies when two or more employees are sufficiently engaged in interstate commerce or in the production, handling, or selling of goods or materials moved or produced for interstate commerce and the employer (i) has gross annual sales “not less than $500,000” or “of at least $500,000”; (ii) is a hospital, nursing home, preschool, elementary school, secondary school, or college; or (iii) is an activity of a public agency. Employees are protected by the FLSA under the Individual Employee Coverage Rule if their work regularly involves them in commerce between states ("interstate commerce"). The Act covers individual workers who are "engaged in commerce or in the production of goods for commerce." Overview The FLSA addresses minimum wage, overtime, recordkeeping, and child labor provisions. It allows recovery of wages and penalties for violations. The Act requires covered employers to pay their non-exempt workers at least a minimum wage of $6.55 an hour ($7.25 an hour, effective July 24, 2009) and an overtime wage rate of at least one and one-half times the employee's regular rate of pay for each hour worked in excess of 40 hours in a workweek. Certain employees are excluded from the minimum wage and overtime provisions of the Act under sections 541(13)(a)(1) and 541(13)(a)(17). Under the FLSA, employers may pay employees under age 20 a rate of $4.25 an hour for the first 90 days of employment, known as a "training wage." The Small Business Job Protection Act established a minimum dollar amount that employers must pay "tipped employees." The employer may credit a certain amount of tips against the employer's minimum wage obligation. Employers may be required to pay employees more than that minimum amount to ensure that the employee's tips, plus the dollar amount paid by the employer, equals the minimum wage. The Genetic Information Nondiscrimination Act (GINA) amended the FLSA regarding child labor violations. Employers may face a penalty of up to $50,000 for any child labor violation that causes the death or serious injury of any employee under the age of 18 years old. The penalty may be doubled if the violation is a repeated or willful violation. GINA also increased the maximum penalty for other violations of child labor regulations from $10,000 per worker to $11,000 per worker. Covered employers are required to maintain certain identifying information and data pertaining to hours worked and wages earned for covered, non-exempt employees. Certain records must be kept for exempt employees. All payroll data records must be retained for at least three years under the FLSA and must be available for inspection by representatives from the Department of Labor, Wage and Hour Division. State laws may have more stringent requirements. Posting Requirement A notice by the Wage and Hour Division (Federal Minimum Wage poster) must be posted on the employer’s premises.

Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of the FLSA.


Family and Medical Leave Act (FMLA) Coverage All employers with 50 or more employees (including part-time, temporary, and seasonal employees) during each of 20 or more calendar workweeks (not necessarily consecutive workweeks), in the current or preceding calendar year must comply with the FMLA. Overview This Act requires covered employers to provide eligible employees with up to 12 workweeks of unpaid leave during any 12-month period for any of the following events: a. The birth of a child of the employee and/or to care for the newborn child. b. The placement of a child with the employee for adoption or foster care. c. To care for an eligible employee’s spouse, parent, and/or child with a serious health condition. d. A serious health condition of the employee. A serious health condition is an illness, injury,

impairment, physical, or mental condition that includes either in-patient care at a medical care facility or continuing treatment by a health care provider as defined by the Act.

e. Any qualifying exigency arising out of the fact that a spouse, son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation. A qualified exigency includes: (1) short-notice deployment; (2) military events and related activities; (3) childcare and school activities; (4) financial and legal arrangements; (5) counseling; (6) rest and recuperation; (7) post-deployment activities; and (8) additional activities where the employer and employee agree to the leave.

Military Caregiver Leave: The National Defense Authorization Act amended the FMLA to provide for a Military Caregiver Leave. Under this amendment covered employers must provide eligible employees who are the spouse, son, daughter, parent, or next of kin of a covered servicemember with up to a total of 26 workweeks of leave during a single 12-month period to care for the servicemember who is undergoing medical treatment, recuperation, or therapy, is otherwise in “outpatient status,” or is otherwise on the temporary disability retired list, for a serious injury. A “serious injury” is one incurred by the servicemember in the line of duty on active duty in the Armed Forces that may render the servicemember medically unfit to perform the duties of the servicemember’s office, grade, rank, or rating. The 12-month period begins on the first day the eligible employee takes Military Caregiver Leave. During the single 12-month period, an eligible employee shall be entitled to a combined total of 26 workweeks of leave under this provision of the FMLA, including leave taken for other FMLA-qualifying reasons. Eligible employees include those employed by a covered employer, who work at a site with 50 or more employees within 75 miles of the employee’s worksite, have worked for the employer at least 12 months (need not be consecutive, but employment periods prior to a break in service of seven years or more need not be counted, with certain exceptions) and who have worked at least 1,250 hours in the previous 12-month period. During FMLA leave, employers are not required to maintain any employee benefits with the exception of health care benefits where they were provided prior to the leave. However, all benefits must be restored upon the employee’s return to work. During the period of leave, the employer must maintain the employee’s coverage under any group health plan on the same terms and conditions as if the employee were actively employed. The employee is still responsible for his premium contribution while on leave.


The employer is not obligated to maintain the employee’s health insurance if the employee’s premium is more than 30 days late. The employer must provide the employee written notification that the payment has not been received at least 15 days before coverage will be terminated, unless full payment has been received by that date. All benefits must be restored upon the employee’s return to work. Check with your insurance carrier to ensure employees are able to be reinstated to the plan without specific requirements, such as, a waiting period, qualifying event, etc. If the insurance carrier is unable to immediately reinstate the employee upon the employee’s return to work, the employer will be in violation of FMLA. Following an FMLA qualified leave, eligible employees must be returned to the same job or a job with equivalent status, benefits, and pay. “Key employees” may be eligible for leave and the continuation of health benefits, but may be denied restoration to their prior or an equivalent position if: (i) the denial is necessary to prevent substantial and grievous economic injury to the employer; (ii) the employer notifies the employee of his “key employee” status at the time the employee gives notice of the need for leave, along with complete information pertaining to the potential consequences with respect to reinstatement and maintenance of health benefits; and (iii) the employee elects not to return after receiving notice that continued leave will result in grievous economic injury to the employer. Under the Act, a “key employee” is defined as a salaried, FMLA-eligible employee who is among the highest paid 10 percent of all employees employed by the employer within 75 miles of the employee’s worksite. The FMLA does not supersede any state or local laws which offer greater family or medical leave rights. Compliance with the FMLA does not excuse non-compliance with other disability-based laws. Employers must keep accurate records pertaining to their obligations under the Act in accordance with the recordkeeping requirements of the FLSA and the FMLA. Records must be retained for at least three years. Posting/Notice Requirement Every employer covered by the FMLA is required to post a notice of employees' rights under the FMLA in the workplace. Where an employer’s workforce is comprised of a significant number of workers who are not literate in English, the employer is responsible for providing the notice in a language in which the employees are literate. Employers must also provide a copy of the notice of employee’s rights under the FMLA to all new hires unless provided in an employee handbook or similar written benefits material. The notice may be provided electronically to employees where all requirements are met and all employees and applicants have access.

Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of the FMLA.


Federal Insurance Contributions Act (FICA) (Social Security Act) Coverage Most employers and employees are required to pay FICA taxes. Certain classes of employment are exempt, such as municipal employees and members of religious orders. Several types of wages are exempt from FICA tax. Consult the Circular E (IRS Publication) for more detailed information on FICA exemptions and exceptions. Overview This Act established the payroll tax paid by employees and employers. The tax is broken down into two components: Social Security tax (6.2% of the employee’s wages, up to a yearly established wage base) and Medicare tax (1.45% of the employee’s wages with no cap on the amount of wages subject to the tax). The Social Security tax funds the Social Security’s Old Age, Survivors, and Disability (OASDI) benefit programs, while the Medicare tax funds the Hospital Insurance portion of the program. FICA taxes are due quarterly. Employers paying taxes late are subject to interest penalties. Failure to pay taxes may result in a lien on an employer’s property. Employers are required to keep records for at least four years under FICA. Governing Agency The Internal Revenue Service (IRS) is responsible for enforcing the provisions of FICA.


Federal Unemployment Tax Act (FUTA) (1936) Coverage Employers with one or more employees in 20 calendar weeks or payroll of $1,500 in a calendar quarter are subject to FUTA taxes. Overview Unemployment insurance is designed to ensure financial security for qualifying workers during times of temporary unemployment. It was established as part of the Social Security Act and is funded through a joint federal-state program. Taxes paid under FUTA are used for: (i) paying state and federal administration expenses of the unemployment program; (ii) providing emergency, interest-free loans to any state for unemployment benefits; and (iii) funding 50 percent of the federal-state extended benefits program that provides an additional 13 weeks of benefits to the unemployed during periods of extended unemployment. Governing Agency The U.S. Department of Labor is the governing agency and reviews the rate annually.


Health Insurance Portability and Accountability Act (HIPAA) Coverage Any group health plan or health insurance issuer offering group health insurance coverage must comply with HIPAA. The Privacy Rule and Administrative Simplification rules of HIPAA apply to health plans, health care clearinghouses, and any health care providers who conduct certain transactions electronically. Overview Title I of HIPAA, signed into law on August 21, 1996, limits the extent to which a health insurance plan may subject employees to pre-existing condition limitations; requires certain "late enrollees" be offered special enrollment opportunities; and prohibits discrimination either in eligibility or cost because of health status. The primary legal requirement under HIPAA is for plan administrators to provide a "Certificate of Group Health Plan Coverage" at the time an individual ceases to be covered by the group plan and is not eligible for COBRA; when an individual becomes eligible for COBRA or exhausts continuation coverage; or anytime the individual requests certification within 24 months of when coverage ceases. HIPAA limits or eliminates "job lock" caused when employees were unable to change jobs because they would lose health insurance coverage and be subjected to long pre-existing condition waiting periods on a new employer's health insurance plan. HIPAA also incorporated changes to COBRA. Under the Act, a qualified beneficiary who becomes disabled at any time during the first 60 days of COBRA coverage is eligible for an 11-month extension of continuation coverage, for a total of 29 months of COBRA continuation. This extension applies to both the disabled individual and to his family. Another modification to COBRA under HIPAA is that children born to or adopted by an individual on COBRA will be allowed to enroll in the plan immediately, not having to wait until the next open enrollment date. On December 28, 2000, the Department of Health and Human Services (HHS) published final regulations, the Privacy Rule. The intention of the privacy regulations is to control the use and disclosure of protected health information (PHI), and to provide individuals with increased access to their own medical records, including an accounting of non-routine uses and disclosures of their PHI. The privacy protections afforded under HIPAA do not apply to various medical records gathered by employers for the sole purpose of implementing the employer’s business practices or legal requirements. This includes, but is not limited to, doctors’ notes verifying the need for disability leave; medical certification forms requested under the FMLA; Return to Work/Fitness for Duty forms, Workers’ Compensation records, etc. Governing Agency For more detailed information regarding HIPAA, or for sample certificates of group health plan coverage, contact the U.S. Department of Labor, Employee Benefits Services Administration (EBSA). For more information regarding the HIPAA Privacy Rules, contact the U.S. Department of Health and Human Services, or visit their Web site at www.hhs.gov.


Immigration Reform and Control Act (IRCA) of 1986 Coverage Employers with four or more employees are prohibited from discriminating against employees or applicants on the basis of citizenship or national origin. All employers and employment agencies are barred from hiring, continuing to employ, or referring aliens who are not authorized to work in the United States. Overview This Act is structured to control illegal immigration to the United States and prohibit the employment of unauthorized foreign nationals. This Act applies to all individuals hired after November 6, 1986. Employers are required to have all new employees complete a Form I-9. Within three working days of employment, employees must provide supporting documentation verifying their identity and employment eligibility. Employers must retain a completed copy of the Form I-9 for each employee for three years following the date of employment or one year following termination, whichever is later. Verification of identity and work authorization may be obtained only after a job offer has been made. Fines for failure to comply with verification and recordkeeping regulations range from $100 to $1,000. Fines for hiring illegal aliens range from $250 to $10,000. Governing Agency The U.S. Citizenship and Immigration Service (USCIS) is responsible for enforcing the provisions of IRCA. Additional information regarding your responsibilities as an employer under IRCA can be obtained from the agency’s Web site at www.uscis.gov or contact the Office of Special Counsel for Immigration-Related Unfair Employment Practices Employer Hotline at 1-800-255-8155.


Internal Revenue Code and Regulations The Internal Revenue Code and Internal Revenue Regulations include a series of tax laws and regulations, passed by Congress, which are maintained and enforced under the guidance of the Treasury Secretary. The IRS Code and Regulations apply to a number of entities, including private businesses, tax exempt and government entities, as well as individuals. Their purpose is to provide guidelines to ensure compliance with tax requirements for the entities mentioned above. There are different types of regulations which include: the Code, the Code of Federal Regulations, Treasury Regulations, and Proposed Treasury Regulations. Failure to follow regulations could result in negative tax implications and potential fines and penalties. Some examples of Codes and Regulations are: Code section 401(k) pertaining to the taxation of defined contribution retirement plans; Code section 125 relating to pretax health and fringe benefits; Code section 132 relating to transportation fringe benefits; and Proposed Treasury Regulation 1.125-2 relating to flexible spending account (FSA) benefits. Governing Agency The Internal Revenue Service (IRS) is the agency responsible for maintaining and enforcing these laws


Jury System Improvement Act Coverage This Act applies to all employers. Overview This Act provides all employees the right to unpaid time off because of jury service or scheduled attendance for jury service in any federal court. Employers may not discharge, threaten to discharge, intimidate, or coerce employees because of such service. Governing Agency Any individual claiming an employer has violated the provisions of this Act may do so in district court.


National Labor Relations Act (NLRA) Coverage Most private employers (both unionized and non-unionized) are covered by the Act provided the employer meets the minimum annual gross volume of business, as determined by the National Labor Relations Board. The dollar volume threshold varies from $50,000 - $500,000 or more, depending on the type of business. Typically, all but the smallest of private employers are covered. Overview Two basic rights are afforded to employees of covered employers under the Act: the right to organize, join, or assist a union; and the right to engage in “concerted activities for mutual aid or protection.” The latter includes any activity by two or more employees to improve wages, benefits, or working conditions. The NLRA prohibits employers from taking adverse employment action against individuals who exercise their rights under the Act. The Act prohibits employers from engaging in unfair labor practices including: interference, restraint, or coercion; employer domination or support of a labor organization; discrimination on the basis of labor activity; discrimination in retaliation for involvement with any NLRB proceeding; and refusal to bargain. Governing Agency The National Labor Relations Board (NLRB) is the governing agency charged with enforcing the provisions of the Act.


Older Workers Benefits Protection Act (OWBPA) Coverage Employers who employed at least 20 persons (full-time or part-time) in each of 20 or more calendar weeks in the current or preceding calendar year and who are engaged in an industry affecting commerce. Overview This Act, an amendment to the ADEA, was passed by Congress to regulate releases in which employees are relinquishing the right to sue for age discrimination in exchange for a severance package. Employers wishing to create waivers should consult legal counsel for assistance. Governing Agency The EEOC is responsible for enforcing the provisions of the OWBPA.


Pregnancy Discrimination Act (PDA) Coverage The PDA affects employers with at least 15 employees on each working day in each of 20 or more calendar weeks in the current or preceding calendar year. Overview The PDA amends Title VII of the Civil Rights Act of 1964 to prohibit an employer from treating pregnancy, childbirth, or other related medical conditions differently than it treats other temporary disabilities for purposes of employment, including hiring, firing, promotion, seniority, leaves of absence, benefits, and pay increases. Posting Requirement Covered employers must post the Equal Employment Opportunity is The Law poster describing the provisions of the Act. Governing Agency The EEOC is responsible for enforcing the provisions of the PDA.


Uniform Services Employment and Reemployment Rights Act (USERRA)

Coverage This Act applies to virtually all employers, including the federal government. Overview Employers are prohibited from discriminating against any employee or prospective employee on the basis of application for, or membership in, a uniformed service. “Uniformed Services” includes the Armed Forces (Army, Navy, Marines, Air Force, and Coast Guard), the Army National Guard, and the Air National Guard when engaged in active or inactive duty for training, or full-time National Guard duty, the commissioned corps of the Public Health Service, and any other category of persons designated by the President in time of war or emergency. Employers are required to grant those who take military leave the same rights as other employees on leaves of absence and provide returning employees with the same benefits they would have received if they had remained continuously employed. USERRA also requires employers to offer employees and their dependents continuing health plan coverage for up to 24 months and the unqualified right to employment for all returning members of the uniformed services, provided they meet certain criteria outlined in the law. Pension plan benefits that accrued during military service, regardless of whether they are defined benefit or defined contribution plans, are guaranteed under USERRA. For seniority and benefits based on seniority, individuals returning from military leave are entitled to any benefits they had prior to the leave, as well as any seniority or benefits that would have accrued had they not taken leave and remained continuously employed. This regulation is referred to as the “escalator principle.” Non-seniority based benefits are handled according to company policy, while employees are out on leave. Posting Requirements Employers are required to provide to persons entitled to the rights and benefits under USERRA, a notice of the rights, benefits, and obligations of such persons and such employers under USERRA. Employers may provide the notice, “Your Rights Under USERRA,” by posting it where employee notices are customarily placed. However, employers are free to provide the notice to employees in other ways that will minimize costs while ensuring that the full text of the notice is provided (for example, by handing or mailing out the notice, or distributing the notice through electronic mail). Governing Agency The U.S. Department of Labor, Veterans’ Employment and Training Service is responsible for enforcing the provisions of USERRA.


Unemployment Insurance Unemployment insurance is a federal program which is administered by each state. Unemployment insurance is available for people who become unemployed through no fault of their own. The federal government mandates a minimum period of 26 weeks. However, state laws can extend the length of unemployment longer and many do so during periods of high unemployment. The federal-state unemployment insurance system offers the first economic line of defense against the effects of unemployment. Although a federal tax is collected from employers, benefits are not paid from the federal fund; it is funded through a state payroll tax. The unemployment tax paid to the federal government is used exclusively for: • payment of administrative costs of the joint federal-state program • funding of an extended benefits program, split evenly with the state governments

and • interest-free loans to the state when the state unemployment fund is depleted (generally due to

poor economic conditions or high unemployment). The state assigns every subject employer a tax rate once a year. This rate is based on the employer’s experience rating. Experience rating, also called “merit rating,” refers to the practice of adjusting the State Unemployment Insurance (SUI) tax rate based on the employer’s experience with unemployment. The reasoning is that employers with high involuntary unemployment should pay more taxes than employers with little or no involuntary unemployment. In fact, a good experience rating, which means a lowered tax rate, can be viewed as a reward for employers who stabilize employment. Factors which can affect an employer’s tax rate include: • claims history and other controllable factors • stabilizing employment by reducing turnover (can reduce an employer’s experience • rating) • protecting themselves against non-justified unemployment claims

and • analyzing the benefits of voluntary contributions. The minimum and maximum tax rates permitted by state law vary from state to state. Minimum rates are as low as 0%, and maximum rates are as high as 10.5%. Generally, an employer’s rate remains in effect for one year. Most rates are issued on a calendar year basis, January 1 through December 31. A few states, however, issue rates effective July 1 through June 30.


An employee or claimant is entitled to receive unemployment benefits if the individual: • meets the state’s requirements for wages earned or hours worked • becomes laid off • is discharged through no fault of his own

or • voluntarily terminates employment for reasons attributable to the employer (for example, a change

in hours or rate of pay). An employee or claimant is not entitled to receive benefits if the individual: • does not meet the state’s wage or hours worked requirements • is discharged for misconduct (usually must be proven with witnesses and disciplinary actions)

or • voluntarily terminates employment or quits due to a reason which is not attributable to the employer

(such as relocation with lack of transportation or job refusal). Each state has different laws regarding a voluntary termination. Employers should seek qualified professional advice and research state laws concerning entitled and not entitled employees. A determination is a notification of who is eligible to collect unemployment benefits and whether the employer’s account is being charged. The determination notifies the employer of the Department of Labor’s decision, states the employer’s right to an appeal and the appeal deadline. Good claim management can reduce employer expenses by ensuring timely responses to claims as well as the processing of accurate information. Claim response due dates are always shown on the unemployment claim form. If an employer responds late to a claim, he may lose the right to an appeal. The time provided to respond to an unemployment claim is short, usually four to 10 days. In some states, the employer is penalized for not responding to a claim.


Workers’ Compensation Insurance Workers’ compensation is a program that pays medical and disability benefits for employees who suffer work-related injuries and illnesses. The workers’ compensation system provides replacement income, medical expenses, and sometimes vocational rehabilitation benefits, which can include on-the-job training, schooling, or job replacement assistance. Most employers are covered under state workers’ compensation laws. Benefits vary by state or jurisdiction and the nature of the disability or injury. Failure to obtain required coverage may subject employers to fines and penalties. To qualify for workers’ compensation benefits, the injury or illness must occur over the course of employment. Most on-the-job injuries are covered. The workers’ compensation system provides benefits to injured workers regardless of fault. The conditions of “no fault” coverage stipulate that an employee will be covered, regardless of fault, but waives the employee’s right to sue the employer for additional benefits outside those provided by workers’ compensation coverage. There are, however, some limitations to this “no fault” coverage. Coverage may be denied if injuries occur under the following conditions: • injuries suffered in the course of “horse play” • injuries suffered while an employee is intoxicated or using illegal drugs • self-inflicted injuries (including those caused by a person who starts a fight) • injuries suffered while committing a criminal act

and • injuries suffered while an employee was not on the job. A workers’ compensation policy is insurance to cover the business entity (that is, sole proprietorship, partnership, or corporation). Employers are required by law to prove they can meet financial obligations in providing workers’ compensation benefits, even in the event of a serious or catastrophic injury. Workers’ compensation insurance protects the employer, in the event that an employee, also called the beneficiary, is injured on the job or becomes ill because of working conditions. The employer pays a premium for the insurance, and the beneficiary receives the benefit after a claim has been filed. The insurance proves the employer is financially responsible and capable of providing all benefits the law requires. Businesses purchase workers’ compensation insurance to minimize the potential for financial ruin following a serious accident.


Workers’ compensation insurance is governed by a set of laws intended to provide the financial means necessary to allow workers injured on the job to be “made whole,” meaning to recover from their injuries. Each state is responsible for drafting its own workers’ compensation laws. These laws provide wage replacement, medical care benefits, and permanent-partial and permanent-total disability benefits to injured workers. Nearly every business is required to provide workers’ compensation benefits to its employees. Benefits vary by state or jurisdiction and by the type of disability or injury. Virtually every state requires employers to provide these benefits. These benefits may extend to a spouse, children or other dependents in the event of an employee’s death. Workers’ compensation premiums are estimated for the entire policy period, unlike most insurance policies such as auto, life, and homeowner’s insurance where the premium is determined when the policy is set up. Workers’ compensation premiums are calculated for each business classification code. A classification code is assigned to an employer according to the type of business operation. For example, 8017 is the code assigned for a retail store. Each classification code has an associated rate. Rates are regulated by the state and are published in a state workers’ compensation manual. The rate is used to calculate the premium associated with a specific classification code. Workers’ compensation rules govern the issuance and pricing of policies, and the minimum benefits provided under a policy. Workers’ compensation laws are in effect in all 50 states, the District of Columbia, and certain federal jurisdictions. The National Council on Compensation Insurance publishes workers’ compensation insurance rules, which are recognized by more than 40 states. The remaining states make and publish their own rules.



Laws Affecting Federal Contractors and/or Recipients of Federal Grants

Both federal and state governments have laws requiring contractors supplying goods or services to the government to pay prevailing rates. There are also equal employment opportunity laws and regulations enforced by the Office of Federal Contract Compliance Programs. The following provides a brief overview of those laws and who is covered under them. Additional information regarding compliance with specific laws may be obtained from the enforcing agencies listed.


Copeland Act The "Anti-Kickback" section of the Copeland Act applies to all contractors and subcontractors performing on any federally funded or assisted contract for the construction, prosecution, completion, or repair of any public building or public work, except contracts for which the only federal assistance is a loan guarantee. This provision applies even where no labor standards statute covers the contract. The regulations pertaining to the Copeland Act payroll deductions and submittal of the weekly statement of compliance apply only to contractors and subcontractors performing on federally funded contracts in excess of $2,000 and federally-assisted contracts in excess of $2,000 that are subject to federal wage standards. The "Anti-Kickback" section of the Act precludes a contractor or subcontractor from in any way inducing an employee to give up any part of the compensation to which he or she is entitled under his or her contract of employment. The Act and implementing regulations require a contractor and subcontractor to submit a weekly statement of the wages paid to each employee performing covered work during the preceding payroll period. The regulations also list payroll deductions that are permissible without the approval of the Secretary of Labor and those deductions that require consent of the Secretary of Labor. Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of this Act.


Davis-Bacon Act of 1931 The Davis-Bacon Act of 1931 requires that workers on federal construction contracts in excess of $2,000 be paid the prevailing wage. The Davis-Bacon Act, as amended, requires that each contract over $2,000 to which the United States or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to various classes of laborers and mechanics employed under the contract. Under the provisions of the Act, contractors or their subcontractors are to pay workers employed directly upon the site of the work no less than the locally prevailing wages and fringe benefits paid on projects of a similar character. The Davis-Bacon Act directs the Secretary of Labor to determine such local prevailing wage rates. Governing Agency The U.S. Department of Labor is responsible for enforcing the provisions of this Act.


Executive Order 11246 Executive Order 11246 may affect your business if you have any federal grants or contracts, depending on the dollar amount of such contracts. Coverage Employers with federal contracts or subcontracts of more than $10,000 are bound by this law. Overview Like Title VII of the Civil Rights Act of 1964, Executive Order 11246 prohibits discrimination on the basis of race, color, religion, sex, or national origin. Federal contractors with at least 50 workers and contracts totaling $50,000 or more must develop and implement written affirmative action plans to increase use of protected classes. Governing Agency The U.S. Department of Labor Office of Federal Contract Compliance Programs monitors Federal contractors' compliance with this order.


McNamara-O’Hara Service Contract Act (SCA) The SCA applies to every contract entered into by the United States or the District of Columbia. The principal purpose is to furnish services to the United States through the use of service employees. The SCA requires contractors and subcontractors performing services on covered federal or District of Columbia contracts in excess of $2,500, to pay service employees in various classes no less than the monetary wage rates. Fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement must be furnished. Safety and health standards also apply to such contracts. The compensation requirements of the SCA are enforced by the WHD within the U.S. Department of Labor. Governing Agency The SCA safety and health requirements are enforced by the Occupational Safety and Health Administration with the DOL.


Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) The Vietnam Era Veterans Readjustment Assistance Act may affect your business if you have any federal grants or contracts, depending on the dollar amount of such contracts. Coverage This Act applies to federal contractors and subcontractors with contracts of $25,000 or more entered into before December 1, 2003, regardless of the number of employees. This Act applies to federal contractors and subcontractors with contracts of $100,000 or more entered into on or after December 1, 2003, regardless of the number of employees. Overview for contracts of $25,000 or more entered into before December 1, 2003 Covered employers must take affirmative action in hiring and promoting special disabled veterans, Vietnam Era veterans, other protected veterans, and recently separated veterans (3 years) who serve on active duty or during a war campaign or expedition for which a campaign badge has been authorized. Overview for contracts of $100,000 or more entered into on or after December 1, 2003 Covered employers must take affirmative action in hiring qualified disabled veterans, recently separated veterans (3 years), Armed Forces Service Medal veterans, and other protected veterans who served on active duty in the U.S. military, ground, naval or air service in a war, campaign or expedition in which a campaign badge has been authorized.. Federal contractors and subcontractors with 50 or more employees and $50,000 worth of federal contracts must develop, implement, and maintain a written affirmative action plan. Governing Agency The U.S. Department of Labor Office of Federal Contract Compliance Programs is the federal agency responsible for investigating individual charges of discrimination under the VEVRAA.


Vocational Rehabilitation Act of 1973 The Vocational Rehabilitation Act of 1973 may affect your business if you have any federal grants or contracts, depending on the dollar amount of such contracts. Coverage Employers with federal contracts of $10,000 or more. Overview Covered employers must take measures to employ qualified, disabled individuals. The Act offers many of the same protections as the ADA and requires a written affirmative action plan from employers who employ 50 or more workers and who have contracts of $50,000 or more. Governing Agency The U.S. Department of Labor Office of Federal Contract Compliance Programs monitors federal contractors' compliance with this order.


Walsh-Healey Public Contracts Act (PCA) The PCA requires contractors engaged in the manufacturing or finishing of materials, supplies, articles, or equipment to the U.S. government or the District of Columbia, to pay employees who produce, assemble, handle, or ship goods under contracts exceeding $10,000, the federal minimum wage for all hours worked and time and one-half their regular rate of pay for all hours worked over 40 in a work week. Governing Agency The PCA is enforced by the Employment Standards Administration’s Wage and Hour Division (WHD) within the U.S. Department of Labor (DOL).

Index

Section 7


Compensation Manual INDEX 7:1

A Ability of the Company to Fund the Plan.................................................................................... 2:3 Absentee Record .................................................................................................Section 4, Forms Age Discrimination in Employment Act (ADEA) of 1967............................................................ 6:1 Americans with Disabilities Act (ADA) ....................................................................................... 6:2 Area Wage Rate ........................................................................................................................ 2:4 Attendance Bonus ..................................................................................................................... 3:3 Auto Mileage Reimbursement Voucher ...............................................................Section 4, Forms

B Benefit Planning......................................................................................................................... 4:1 Benefits..................................................................................................................... Section 4; 4:4 Bereavement Leave................................................................................................................. 4:10 Bonuses..................................................................................................................................... 3:2 Broad Banding ......................................................................................................................... 2:12

C Cash Bonus Plan ....................................................................................................................... 3:2 Cash Profit Sharing Plan ........................................................................................................... 3:3 Civil Rights Act 1991 (CRA’91) .................................................................................................. 6:6 Commission Plans ..................................................................................................................... 3:7 Company Discounts................................................................................................................. 4:42 Compensation Administration.......................................................................................... Section 5 Compensation Objectives.......................................................................................................... 5:6 Compensation Philosophy ......................................................................................................... 5:5 Compensation Plan (sample)..................................................................................................... 5:5 Compensation Plan Development Checklist........................................................Section 2, Forms Compensation Planning............................................................................................ Section 1; 1:1 Compensation Strategy ............................................................................................................. 2:3 Compensation Survey................................................................................................................ 2:5 Communicating the Compensation Plan.................................................................................... 5:2 Consolidated Omnibus Budget Reconciliation Act (COBRA) .................................................... 6:7 Consumer Credit Protection Act ................................................................................................ 6:8 Consumer Directed Health Plans............................................................................................. 4:28 Copeland Act ........................................................................................................................... 6:30 Cost-Of-Living Adjustment (COLA)............................................................................................ 3:5 Critical Success Factors ............................................................................................................ 1:2


D Davis-Bacon Act of 1931 ......................................................................................................... 6:31 Dental Benefits ........................................................................................................................ 4:29 Department of Labor Bureau of Labor Statistics (BLS).............................................................. 2:6 Developing a Compensation Plan.................................................................................... Section 2 Disability Insurance.................................................................................................................. 4:30

E Emergency Call Back Pay ......................................................................................................... 3:5 Employee Assistance Program (EAP) ..................................................................................... 4:40 Employee Benefits ..................................................................................................................... 4:2 Employee Benefit Statements.................................................................................................... 4:3 Employee Expense Report ..................................................................................Section 4, Forms Employee Recognition Award.................................................................................................... 3:2 Employee Retirement Income Security Act (ERISA) ................................................................. 6:9 Employee Views ........................................................................................................................ 2:3 Employee Worth ........................................................................................................................ 2:3 Equal Pay Act (EPA)................................................................................................................ 6:10 Evaluating the Compensation Plan............................................................................................ 5:3 Executive Compensation ........................................................................................................... 3:9 Executive Order 11246 ............................................................................................................ 6:32 External Factors.................................................................................................................. 2:2; 2:4

F FSA.......................................................................................................................................... 4:19 FSA Debit Cards...................................................................................................................... 4:21 Factor Comparison .................................................................................................................... 2:9 Factors to Consider When Developing a Plan........................................................................... 2:2 Factors to Consider When Developing a Variable Pay Plan...................................................... 3:4 Fair Labor Standards Act (FLSA)............................................................................................. 6:11 Family and Medical Leave Act (FMLA) .................................................................................... 6:12 Federal Anti-Discrimination Laws .................................................................................... Section 6 Federal Employment Laws ............................................................................................. Section 6 Federal Insurance Contributions Act (FICA) (Social Security Act)........................................... 6:14 Federal Unemployment Tax Act (FUTA) (1936) ...................................................................... 6:15 Federal Wage and Hour Laws ................................................................................................... 6:4 Flex Time ................................................................................................................................. 4:38 Flexible Spending Account (FSA)............................................................................................ 4:19 Flexible Spending Account Debit Cards .................................................................................. 4:21 Full Cafeteria Plan ................................................................................................................... 4:22


G Gain Sharing Plan...................................................................................................................... 3:2 Geographic Differential .............................................................................................................. 3:5 Group Incentive Payments......................................................................................................... 3:3

H Hazard Pay ................................................................................................................................ 3:5 Health Insurance...................................................................................................................... 4:23 Health Insurance Portability and Accountability Act (HIPAA) .................................................. 6:16 Health Maintenance Organization (HMO)................................................................................ 4:24 Health Reimbursement Account (HRA) ................................................................................... 4:14 Health Savings Account (HSA) ................................................................................................ 4:15 Holiday or Year-End Bonus ....................................................................................................... 3:3 Holidays ..................................................................................................................................... 4:6

I Immigration Reform and Control Act (IRCA) of 1986............................................................... 6:17 Implementing the Compensation Plan....................................................................................... 5:1 Incentive Payments.................................................................................................................... 3:2 Indemnity Plans ....................................................................................................................... 4:26 Insurance ................................................................................................................................. 4:23 Internal Factors................................................................................................................... 2:2; 2:3 Internal Revenue Code and Regulations................................................................................. 6:18 Interviews................................................................................................................................... 2:7

J Job Analysis............................................................................................................................... 2:7 Job Analysis Questionnaire (Employee) ..............................................................Section 2, Forms Job Analysis Questionnaire (Manager/Supervisor)..............................................Section 2, Forms Job Banding and Slotting........................................................................................................... 5:7 Job Classification....................................................................................................................... 2:9 Job Description ...................................................................................................Section 2, Forms Job Description Sample.......................................................................................Section 2, Forms Job Descriptions ...................................................................................................................... 2:10 Job Evaluation ........................................................................................................................... 2:8 Job Levels within Bands ............................................................................................................ 5:7 Job Ranking............................................................................................................................... 2:9 Job Worth .................................................................................................................................. 2:3 Jury System Improvement Act ................................................................................................. 6:19


L Labor Market.............................................................................................................................. 2:4 Laws Affecting Federal Contractors and/or Recipients of Federal Grants...........Section 6, Forms Leave Request Form ...........................................................................................Section 4, Forms Legal Requirements......................................................................................................... Section 6 Length of Service Increase ........................................................................................................ 3:6 Life Insurance .......................................................................................................................... 4:31 Lump-Sum Increase................................................................................................................. 5:10

M Management Support and Involvement ..................................................................................... 1:2 Market Adjustment .............................................................................................................. 3:5; 5:8 Market Rate ............................................................................................................................... 2:6 McNamara-O’Hara Service Contract Act (SCA) ...................................................................... 6:33 Medical and Non-Medical Leaves of Absence........................................................................... 4:9 Medical Reimbursement Plans ................................................................................................ 4:14 Medical Savings Account (MSA).............................................................................................. 4:16 Merit Increase ............................................................................................................................ 3:6 Monetary (Direct) Compensation ............................................................................................... 3:1

N National Compensation Survey (NCS) ...................................................................................... 2:6 National Labor Relations Act (NLRA) ...................................................................................... 6:20

O Objectives of an Effective Compensation and Benefits Plan..................................................... 1:1 Observation ............................................................................................................................... 2:7 Older Workers Benefit Protection Act (OWBPA) ..................................................................... 6:21 On-Call Pay................................................................................................................................ 3:5 On the Spot Award..................................................................................................................... 3:3


P POP ......................................................................................................................................... 4:18 Paid-Time-Off (PTO).................................................................................................................. 4:8 Pay Adjustments ................................................................................................................. 3:5, 5:8 Pay for Performance.................................................................................................................. 3:1 Pay Grades.............................................................................................................................. 2:11 Pay Increases ............................................................................................................................ 3:6 Pay Structures ......................................................................................................................... 2:11 Performance Appraisals .......................................................................................................... 3:10 Performance Bonus ................................................................................................................... 3:3 Performance Increase ............................................................................................................... 5:9 Performance Planning & Appraisal ......................................................................Section 3, Forms Point Factor ............................................................................................................................... 2:9 Point of Service........................................................................................................................ 4:25 Position Requirements Worksheet ......................................................................Section 2, Forms Preferred Provider Organization .............................................................................................. 4:27 Pregnancy Discrimination Act (PDA) ....................................................................................... 6:22 Premium Only Plan (POP) ....................................................................................................... 4:18 Premium Pay ............................................................................................................................. 3:5 Production Payments................................................................................................................. 3:2 Profit Sharing Plans .......................................................................................................... 3:2; 4:36 Promotion .................................................................................................................................. 3:6

Q Qualified Transportation Plans (Transit and Parking Section 132 Plans)................................ 4:43 Qualified Tuition Program (QTP) ............................................................................................. 3:44 Questionnaires........................................................................................................................... 2:7

R Referral Bonus........................................................................................................................... 3:3 Reporting Pay ............................................................................................................................ 3:5 Request for Cash Advance..................................................................................Section 4, Forms Request for Flex Time..........................................................................................Section 4, Forms Request for Time Off............................................................................................Section 4, Forms Retention Bonus ........................................................................................................................ 3:2 Retirement Plans ..................................................................................................................... 4:32 401(k) Plan......................................................................................................................... 4:33 Return to Work Medical Certification ...................................................................Section 4, Forms Roth 401(k) Plan...................................................................................................................... 4:34


S S125 ........................................................................................................................................ 4:17 Safety Bonus ............................................................................................................................. 3:3 Salary Plans............................................................................................................................... 3:7 Salary Plus Commission............................................................................................................ 3:7 Salary Surveys........................................................................................................................... 5:6 Sample Compensation Plan ...................................................................................................... 5:5 Sample Compensation Surveys.......................................................................................... 2:5; 2:6 Sample Job Description.......................................................................................Section 2, Forms Savings Incentive Match Plan for Employees (SIMPLE) ......................................................... 4:37 Severance Plans...................................................................................................................... 4:45 School Visitation ...................................................................................................................... 4:13 Section 125 Plans.................................................................................................................... 4:17 Shift Pay .................................................................................................................................... 3:5 Short-term Disability................................................................................................................. 4:12 Sick Days................................................................................................................................... 4:7 Skill Based Pay Plans................................................................................................................ 3:2 Suggestion Bonus...................................................................................................................... 3:3 Summary of Current Compensation and Benefits SAMPLE................................Section 4, Forms

T Target Market Rate.................................................................................................................... 2:4 Target Rates of Pay................................................................................................................... 5:7 Time Away From Work .............................................................................................................. 4:5 Timing of Pay Increases or Adjustments ................................................................................. 5:11 Title VII of the Civil Rights Act ................................................................................................... 6:5 Total Compensation................................................................................................................. 5:11 Travel and Expense................................................................................................................. 4:41 Tuition Assistance.................................................................................................................... 4:39 Tuition Assistance and training Request .............................................................Section 4, Forms Types of Benefits ....................................................................................................................... 4:4 Types of Compensation................................................................................................... Section 3 Types of Insurance .................................................................................................................. 4:23

U Unemployment Insurance........................................................................................................ 6:24 Uniformed Services Employment and Reemployment Rights Act (USERRA)......................... 6:23 Union Environment .................................................................................................................... 2:6


V Vacation and Personal Days ..................................................................................................... 4:5 Vacation-At-A-Glance ..........................................................................................Section 4, Forms Variable Pay .............................................................................................................................. 3:2 Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) ............................................ 6:34 Vocational Rehabilitation Act of 1973 ...................................................................................... 6:35 Voting Leave............................................................................................................................ 4:11

W Walsh-Healey Public Contracts Act (PCA) .............................................................................. 6:36 Witness Leave ......................................................................................................................... 4:12 Workers’ Compensation Insurance.......................................................................................... 6:26


Documents

Managers Compensation Planning