Employee Compensation FAQs

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.

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.

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.

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.

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).

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.

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.

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.

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.

Answer: Non-exempt employees need to be paid only for actual hours worked plus any reporting time pay that may be required by the state (this sometimes applies when employees show up for work but are sent home early).

Exempt employees, on the other hand, must be paid when the employer closes due to inclement weather, whether they do any work or not. You may require exempt employees to use accrued vacation or paid time off for the day if that is your regular practice when the workspace closes. However, exempt employees without enough paid time off to cover the absence must still be provided with their regular salary during the closure.

Many companies have an inclement weather or emergency closure policy for these sorts of situations. These policies typically address communication in the event of worksite closures and options for employees. You might, for example, allow employees to work from home. If you don’t have a policy like this in place, now might be the time to implement one. You can find an inclement weather policy in the HR Support Center Policy Library.

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“.

Answer:  The Fair Labor Standards Act (FLSA) is a federal law requiring that most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek. Some employees, however, are not entitled to overtime, while others are not entitled to overtime or minimum wage. Employees who are entitled to both minimum wage and overtime are called non-exempt, while those who are not entitled to both are called exempt.

The FLSA lists quite a few exemptions. The most commonly used (particularly in office settings) are the executive, administrative, and professional exemptions. These are known as white-collar exemptions, and employees who are properly classified this way are not entitled to minimum wage or overtime. But, to qualify, each position must pass a three-part test:

1. Duties: The employee must perform specific tasks (such as managing at least two people) and regularly use their independent judgment and discretion. Each exemption has its own duties test.
2. Salary level: The employee must make at least $455 per week (equal to $23,600 per year).
3. Salary basis: The employee must be paid the same each week regardless of hours worked or the quantity or quality of their work. Reducing an exempt employee’s pay is only allowed in very narrow circumstances.

If an employee meets all the criteria under one of the white collar exemptions, the employee may be properly classified as exempt and will not be entitled to minimum wage or overtime pay. If the employee does not meet all the criteria under a specific exemption, they must be classified as non-exempt, and paid at least minimum wage and overtime when applicable.

Answer: Yes. Titles, job duties, and locations are irrelevant—focus only on the total number of hours worked by the individual for your organization.

Under the Fair Labor Standards Act, non-exempt employees must be paid overtime for all hours worked over 40 in a workweek for a single employer. In some cases, an employee working a schedule like this for two separate companies may even be entitled to overtime, assuming the organizations have the same owners and management or otherwise qualify as joint employers.

Failure to pay overtime may result in significant penalties, as employees who bring a successful claim are often entitled to double what they should have earned in overtime under federal law and frequently have similar remedies under state law.

Answer: If an exempt employee does any work, they must be paid for the full day—there is no minimum. For instance, if the employee came to the office for the first 15 minutes of their usual 8-hour day, then went home sick, they would be entitled to their full pay for that day.

The only exceptions to the Full-Pay-for-Partial-Day rule is during the employee’s first or last week of employment, when the employer is offsetting amounts received for civil service like jury duty or military leave, or when the employee is taking unpaid leave under FMLA.

Employers can, however, use an employee’s paid time off to fill in the gaps. So, if that employee had paid time off available in their PTO bank, the employer could use a partial day of that time to cover their absence. But if the employee was out of paid time off (or was never offered any), the employer would still owe them for the full day.