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Regulatory Requirements for Compensation Programs for HR Professionals

April 21, 2015


April 21, 2015

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Compensation is one of the most delicate aspects of management which HR professionals have to deal with. This is because compensation plays an essential role in attracting, maintaining and motivating employees. As such, designing and implementing a compensation program can play a critical role in determining the overall performance, productivity and ultimately profitability of a company.

However, when creating a compensation program, the company and employees aren’t the only things an HR professional has to worry about. There are also numerous regulatory frameworks to consider. Compensation is one of the most heavily regulated aspects of human resource management. A savvy HR professional needs to not only have a thorough understanding of the various regulations; they also need to ensure that they comply with them.

The starting point is identifying the laws which spell out the regulatory requirements for compensation. That is what this guide will provide you with. You will find a brief summary of the laws which govern different aspects of compensation. These summaries are in no way exhaustive. They are intended to point you in the right direction. The idea is that when designing a compensation plan, these laws can provide you with a starting point.

So, let’s get started:

Minimum Wages. If you intend to design a compensation plan in line with the US minimum wage, there is one Act you need to study:

  • The Fair Labor Standards Act (FLSA)This act sets minimum standards for wages and overtime pay. Except for a few exemptions, the provisions affect most of employers both private and public. It sets a federal minimum wage which every employee should earn. It also prescribes overtime pay (50% higher than the minimum wage).

The FLSA has numerous other provisions regarding work hours, and employment of persons under 18. However, our concern here is about its compensation regulations. Study this law to ensure that you don’t fall afoul of the Wage and Hour Division (the division of the DOL which enforces the FLSA).

Equal Pay

If you intend for your compensation plan to avoid falling foul of anti-discrimination laws, then you need to check out the following acts:

  • The Equal Pay Act.  This act is actually an extension of the FLSA. It prohibits discrimination in compensation on the basis of gender. It was introduced mostly to prevent women from being paid less simply on the basis of their gender.
  • The Age Discrimination In Employment Act.  This act prohibits discrimination in wages and benefits on the basis of age. It was introduced to protect workers of 40 years and above from being discriminated against.
  • Contracts, Grants or Business With The GovernmentIf you are involved in any form of dealings (business or otherwise) with the government, then there are certain compensation guidelines to follow.

The three most important ones are the following:

  • The Davis-Bacon ActThis act stipulates the wages which should be paid to employees of companies which have been contracted to carry out construction projects for the federal government. It also stipulates the other benefits which such employees should enjoy.
  • The Walsh-Healey Public Contracts ActThis act stipulates wage standards for employees of companies which have been contracted to provide the federal government with materials and supplies. It sets minimum wages for such employees.
  • The McNamara-O’Hara Service Contract ActThis act sets wage standards for employees of companies contracted to provide various services to the federal government.

Basically, if you are involved in any contracts with the federal government, then you need to study the relevant act before you even develop your compensation plan. Make sure that your plan meets with the federal standards. Otherwise, you may risk not only the cancellation of your contract, but also other severe sanctions.

Industry-Specific Regulations

There certain compensation regulations which apply to specific industries or specific types of workers. If you are you are involved in the industry or intend to hire those kinds of workers, knowing such regulations is invaluable.

The most important ones are the following:

  • The Migrant and Seasonal Agricultural Worker Protection Act (MSPA)This act provides protection for migrant or seasonal workers in the agricultural sector. Among others, it stipulates guidelines under which they should be compensated.
  • The Longshoring and Harbor Workers’ Compensation Act (LHWCA)This act provides compensation standards for employees in the sea transportation sector. It stipulates how employers who operate in that sector should compensate their workers.
  • Ensuring Compliance With Compensation RegulationsKnowing the regulatory requirements for compensation programs isn’t enough. Compliance is what can save you from the potential legal sanctions which occur when your violate them. As such, you need to ensure that your compensation programs are in line with the regulatory requirements.

There are four things you can do to ensure this:

  1. The first is to ensure that you fully understand all the compensation regulations which are relevant to your situation. Now, this can be quite a tall order, given that the regulations are often stated in legal jargon. The best thing is to find an attorney to interpret any unclear parts for you. Make sure you understand the regulations even before you think of designing a compensation program.
  2. The second is to design your compensation program based on the regulations. At best, make sure that your program is strictly in tandem with the various regulatory provisions. At worst, make sure that you don’t inadvertently violate any. This will most likely require some extra effort on your part. However, the effort will save you from legal problems later.
  3. The third is to document your compensation program. Remember, if you ever face an accusation of violation, it is your documents which will help you out. As such, do not simply stop at creating a great program; go ahead and document it.
  4. The final step is to stay abreast of any legal changes and amendments to the relevant regulations. By nature, human laws are fluid. Sometimes they keep on changing. To be on the safe side, make sure that you are aware of what is happening. As soon as there is any change, update your compensation programs to match it.

Ultimately, creating a compensation plan will always be one of the most important aspects of an HR professional’s work. It is important to not only the employee and employer, but also to government agencies like the Department of Labor. The DOL is charged with ensuring that employees get a fair deal from employers. This is one of the major motivations of the different compensation regulations. To be on the right side of the law, you need to not only know the regulations, but also observe them.


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