Our HR Professionals answer commonly asked HR questions related to employee compensation.  For more frequently asked questions, check out our other faq pages on employee benefits & disability and HR administration.

Question: Are we allowed to give employees medical reimbursements in their paycheck in lieu of offering insurance?

Answer: The IRS prohibits employers from offering stipends or reimbursing employees for individual health plans, regardless of the tax treatment of the stipend or reimbursement. On the other hand, the IRS understands that employers have the right to set salaries however they like. So they will not stop an employer from setting a higher salary to offset an employee’s cost of individual health insurance. However, it is important to note that the employer should not require proof that an individual health insurance policy was purchased with the extra income. Similarly, the salary increase should not be contingent upon the purchase of individual health insurance.

Violating this prohibition comes with a stiff penalty—an excise tax of up to $100 a day per employee—for either pre-tax or post-tax reimbursements of individual health plans. Therefore, if an employer increases taxable wages to offset the cost of individual health insurance plans, the employer should not use a separate line item on employee paychecks to indicate this increase.

Question: What are the HR best practices for raises based on performance vs. raises based on market factors?

Answer: When it comes to compensation increases, a common strategy used by employers is to place an emphasis on performance as it rewards desired outcomes and motivates employees.

However, there are some downsides to basing compensation increases solely on performance. One of those is referred to as “wage compression”. This happens when new employees (whose pay will necessarily be based on the going market rate) come in at a starting salary close to or higher than your employees with tenure.

It’s very common for the market value of certain jobs to increase over time. Often this increase occurs at a higher rate than annual performance-based compensation increases, which are generally in the range of 1% – 4% of salary. As a result, new employees may end up earning close to or even more than high performing senior employees, unless of course you make a habit of taking the market value of a position into account when doing regular salary reviews.

Because of this, I recommend against taking market data completely out of compensation planning. It’s certainly okay to make performance your primary focus, but if a top performer can finagle a big raise with your competitor because the value of their position has increased at a quicker pace than their salary, they may be tempted to do so.

Question: What are the requirements for internships to be unpaid?

Answer: The DOL uses the six factors below to evaluate whether a worker is an intern or an employee for purposes of the Fair Labor Standards Act (FLSA). These six criteria must be applied when making this determination:

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The intern is not necessarily entitled to a job at the conclusion of the internship;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of these six conditions are met, a company may be able to classify the worker as an unpaid intern. Keep in mind, however, that this is a very high bar to meet. More often than not, the work done by an intern benefits the employer. Consequently, it’s often safest to simply pay minimum wage and overtime (if applicable) to interns.

Question: If we gave an hour’s notice to several employees not to come into work, but some of them showed up anyway because they hadn’t checked their email. Are we required to pay them?

Answer: Yes, you will likely need to provide reporting time pay to the employees who did not receive your email before their shift. It’s my estimation that if you were challenged, employees would say they couldn’t have seen the email in time as it was sent only one hour before their scheduled start time.

In states with reporting time pay, such as your state of California, you must provide proper notice of a shift cancellation to avoid paying employees for reporting to work. There are no hard and fast rules in California about what counts as proper notice, but it should be reasonable given the circumstances.

I would recommend accounting for preparation and commute time at a minimum. The best practice would be to give notice as early as you can or, for on-call shifts that are frequently cancelled, to have employees call in at a specified time prior to the shift to find out if they are needed.

Also, please note that requiring or even permitting hourly employees to check their work email during non-working hours comes with some risk. If these employees were to read or respond to work emails, for example, they would be engaged in compensable work. You’d be required to pay them for this off-duty time, even if you didn’t authorize it. Notice by phone call is generally a better practice.

Question: I have an exempt employee who only worked one day this week, but claims he needs to be paid for the whole week. Is that right?

Answer: Quite possibly. Under the Fair Labor Standards Act (FLSA), most exempt employees need to be paid their regular salary each pay period, regardless of the number of hours they put in. However, there are some circumstances in which an exempt employee’s salary may be reduced. Under the FLSA, deductions from exempt employee pay are generally permissible in the following situations:

  • For any workweek in which they perform absolutely no work
  • In the first or last week of employment, if they don’t work the full week
  • For absences of one or more full days for personal reasons other than sickness or disability
  • For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide sick leave plan (to be bona fide the plan must provide at least five days of paid leave)
  • To offset amounts an employee receive as jury or witness fees, or for military pay
  • For penalties imposed in good faith for infractions of safety rules of major significance
  • For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions
  • When they take unpaid leave under the Family and Medical Leave Act

Unless any of the exceptions above apply, your employee should be paid his usual salary, even though he only worked one day during the week. However, if he has a vacation or paid time off bank you can certainly reduce the number of hours he has available for future use by the number of hours he missed during this week (assuming, of course, that this is a standard policy and practice).

Question: We’d like to start giving cost of living raises to employees on their anniversary dates. What’s the best way to calculate these pay increases?

Answer: When the information is available, employers typically use the consumer price index (CPI) to calculate cost of living increases. It measures the change in prices consumers pay for goods and services such as housing, food, and medical care. Most heavily populated cities have their own CPI.

Most cities often see a small increase each year, but it is important to note that the CPI can also remain the same or decrease. It’s not guaranteed that a cost of living increase will occur based on the CPI. You can find the CPI for your urban area by searching the Bureau of Labor Statistics website.

If you tie salary increases to the CPI, I recommend that your policy neither guarantee annual raises nor decrease compensation when the CPI decreases. If you choose to guarantee a raise each year, you could have a minimal percentage increase that applies in those years in which the CPI does not increase. However, I typically recommend basing pay increases on merit, market factors, and profitability of the company.

Question: An employee has requested company wage guidelines. Are we required to show these to them?

Answer: No. Some employers choose to disclose the salary ranges for jobs, but you are not required to show an employee your company wage guidelines, nor do you need to share with them what other employees make or what criteria you use to determine their individual salaries.

However, you may need to allow employees access to their own personnel file or payroll records upon request if doing so is required by state law or your company policy, and I would not advise preventing employees from discussing their wages or other terms and conditions of their employment. Section 7 of the National Labor Relations Act protects the right of employees to discuss these matters with each other.

In this case, the employee is presumably asking because they believe some wages – quite possibly their own – are not fair. They may also have information about how much their co-workers are making. I recommend that you be prepared to have a candid discussion with them about why they are paid what they are paid and the company’s compensation strategy or philosophy in general. Although you aren’t required to have such a discussion, chances are something is brewing and a conversation may help deescalate the situation and make them feel heard.

Question: Do we have to pay an employee who drove to a cancelled meeting?

Answer: No. Some employers choose to disclose the salary ranges for jobs, but you are not required to show an employee your company wage guidelines, nor do you need to share with them what other employees make or what criteria you use to determine their individual salaries.

However, you may need to allow employees access to their own personnel file or payroll records upon request if doing so is required by state law or your company policy, and I would not advise preventing employees from discussing their wages or other terms and conditions of their employment. Section 7 of the National Labor Relations Act protects the right of employees to discuss these matters with each other.

In this case, the employee is presumably asking because they believe some wages – quite possibly their own – are not fair. They may also have information about how much their co-workers are making. I recommend that you be prepared to have a candid discussion with them about why they are paid what they are paid and the company’s compensation strategy or philosophy in general. Although you aren’t required to have such a discussion, chances are something is brewing and a conversation may help deescalate the situation and make them feel heard.

Question: We want to hire an administrative assistant. Can we classify this person as an independent contractor during a 90-day try-out period and then, if they work out, hire them as a full-time employee at the end of the 90 days?

Answer: The short answer is no.

It’s highly unlikely that an administrative assistant would meet the criteria for classification as an independent contractor. The IRS and the U.S. Department of Labor, along with state agencies, have specific criteria for determining who is an employee and who is an independent contractor. These criteria focus on the overall relationship workers have with their employer, with particular attention to who controls when, where, and how the job gets done, as well as who has the opportunity for financial profit or loss. Administrative assistants typically do not have that level of control over their work, so they’ll almost always be classified as employees.

I understand that you’d like to hire the individual on a trial basis, with the possibility of continued employment. You can do this by offering them temporary employment. During the 90-day period, make sure that you provide the employee with clear expectations for the position and success in the role. If you elect to end their employment once the 90 days are up, you should document why they are not being considered for continued employment.

Question: We have an employee claiming they shouldn't be classified as exempt from overtime. If it turns out they're right, what are the penalties for misclassification?

Answer:  The cost of misclassification will depend on several factors, such as how many employees are misclassified, how much extra money they would have been paid if properly classified, how the misclassification is discovered, and how your employees react to it.

Generally, if an employee goes to the federal Department of Labor and says they have been misclassified, the DOL will investigate, and they will very likely look at all your employee classifications. Any employee who the DOL determines should have been paid overtime in the last two years will be found to have been underpaid, and the organization will owe that money to the employee now (or three years’ worth if the misclassification is found to be “willful”). The organization will also owe them liquidated damages equal to the amount of money owed. So, if an employee should have been paid $2,000 in overtime, the organization will owe them $4,000. The organization will also owe taxes on those wages and interest on those taxes.

Additionally, many states have their own overtime laws, and in most cases the organization can be held liable under both federal and state law, meaning not only would the employee be owed double under the FLSA, but also any liquidated damages under state law (which could easily triple the original amount). And if you are in a state with late payment penalties, you could owe up to 30 days’ worth of the employee’s pay on top of the already discussed damages. There’s also a very good chance that the organization will be held liable for any related attorney’s fees – both your own and the employee’s.

Finally, there are potential federal civil penalties of $1,894 per violation (generally one penalty per misclassified employee), state penalties (which will vary), and in some cases the potential for jail time. As soon as judgment is rendered in favor of the employee, statutory interest will begin to accrue on the amount owed – generally 10% per year.

If you have any additional questions about overtime, check out our free guide “Everything You Need to Know About Overtime“.

Answers provided by:

hr expertAngela, PHR:

Angela has extensive experience in HR, conflict management and employee relations. She spent several years working as a high volume (and full cycle) recruiter for a large multi-channel retailer. Angela earned her B.A. in English Literature and Criminology from the University of South Florida. and also holds a paralegal certification from Saint Petersburg College.

hr expertsEmily, PHR

Emily joins the team with over six years of experience in HR, primarily in the healthcare and hospitality industries. She also spent a year running a non-profit. She graduated college with degrees in Music and Entrepreneurial Business, and her passion for helping and working alongside people led her to the field of HR. In her free time, Emily enjoys traveling and home brewing with her husband.

hr expertsMargaret, PHR, SHRM-CP

Margaret holds a Bachelor of Arts degree in Psychology from Portland State University and a Professional Certificate in Human Resources Management. She has worked in a variety of HR roles in a multi-state capacity. Margaret regularly attends seminars and other continuing education courses to stay current with new developments and changes that affect the workplace and is active in local and national Human Resources organizations.

hr expertsMonica, SPHR, SHRM-CP

Monica has held roles as an HR Generalist and Payroll and Benefits manager at a large ski resort, providing HR guidance to more than 500 employees. She also has HR experience in the healthcare field and the non-profit world. Monica holds a Bachelor of Science degree from Linfield College.

 

hr expertsKara, JD, SPHR

Kara practiced employment and bankruptcy law for five years before joining us, and was a Human Resources Generalist at an architecture and engineering firm for several years prior to that. As an attorney she worked on many wage and hour and discrimination claims in both state and federal court. She holds a Bachelor of Arts degree from Oregon State University and earned her law degree from Lewis and Clark Law School.

hr expertsOphelia, SPHR, GPHR, SHRM-SCP

Ophelia has held HR roles in the financial services, healthcare, IT, real estate, and telecommunications industries. She holds a Bachelor of Arts degree in Sociology and a Masters of Business Administration (MBA) degree with a concentration in Human Resources from Willamette University. A member of SHRM since 2008, Ophelia currently serves as the Director of College Relations for a regional Human Resources Management Association.

hr expertsEric, SPHR, SHRM-SCP

Eric has extensive experience in HR, management, and training. He has held several senior HRpositions, including as the HR & Operations Manager for an award-winning interactive marketing agency and as HR Director for a national law firm. Eric graduated with a Bachelor’s of Science in Economics from the University of Oregon with a minor in Business Administration.

hr expertsRussell, SPHR, SHRM-SCP

Russell has over 13 years of union and non-union human resources experience, during 10 of which he has held regional and director level HR roles in the healthcare, hospitality, property management, and engineering industries. He holds a BA from Indiana University and is an HR Specialist honor graduate from the US Army’s Adjutant General School. Russell has been a member of SHRM since 2004 and has worked as a pro bono HR Consultant, supporting small non-profit organizations.

hr expertsRebecca, SPHR

Rebecca has a diverse background in Human Resources and Training Management from the temporary staffing and insurance industries. She has served in a variety of HR management positions, and enjoys translating complex regulatory language into “real world” scenarios, allowing her clients to quickly utilize the content in their daily activities.

hr expertSarah, PHR, SHRM-CP

Sarah has extensive Human Resources experience in the legal, software, security and property preservation industries. She has a Business Communications degree from Villa Julie College (now Stevenson University) and a master’s certificate in Human Resources Management and a Strategic Organizational Leadership certification from Villa Nova University. Sarah is also a member of the National Society of Human Resources Management and has managed the HR function for small startup companies to mid-sized/large organizations.

kyle hr expertKyle, PHR:

Kyle joined us after six years of freelance writing and editing. He has worked with book publishers, educational institutions, magazines, news and opinion websites, successful business leaders, and non-profit organizations. His book, a memoir about grief and hope, was published by Loyola Press in 2013.

Visit the links below to learn more about our HR Services Answers provided by: