Masters assignment 602
The Slow Movement to Better Balance — Part 1
Lesson Topics:
· Father of Capitalism
· National Labor Relations Act (NLRA)
· Fair Labor Standards Act (FLSA)
· Exceptions to Minimum Wage Mandate
· Overtime Pay
INTRODUCTION
In the prior lessons, we have discussed the ways in which businesses might find themselves liable in the employment arena for a variety of conduct. In Lesson Seven, we will discuss some much more fundamental changes in the law that have occurred in the last century as society has recognized the dangers of unchecked capitalism and the need for worker rights and protections.
Father of Capitalism
Adam Smith has been described as the “father of capitalism”. In the 18th century, he authored a seminal paper on the benefits capitalism, and although the years since then have brought with them some deviation from Smith’s ideas, his work is largely responsible for the modern laissez-faire capitalist economy which exists in America today. Smith’s underlying philosophy essentially proposes that the economy operates at optimal levels when the people are free to pursue their own individual economic self-interests. He posited that if people were uninhibited to make business decisions that maximized their own productivity and profitability, the economy would benefit from such efforts through increased competition and continual product specialization (Vision, 2006).
However, if Smith’s ideas were in any way errant, then it was because he failed to account for the fact that human selfishness, to the extent of ignoring the interests of others, would lead to abuse by those with power over those without. With that in mind, the American 20th century was to a large extent a slow, arduous evolution of worker rights and liberties, aimed at providing a governmental structure that balances the interests of private sector capitalism with the welfare of the society which it employs (Karlin, 2015).
LEARN MORE ABOUT ADAM SMITH
National Labor Relations Act (NLRA)
The National Labor Relations Act (NLRA) was passed in 1935 and was the first major step in securing the rights of workers, by giving them a legally protect voice to negotiate the terms of their own working circumstances (National Labor Relations Board, n.d.). Prior to the NLRA, it was perfectly legal for employers to use coercion, threats, and adverse employment action to quash any attempts at employee organizing for the purposes of collective bargaining.
The NLRA created the National Labor Relations Board, a government oversight agency which is responsible for the protection of worker rights to collective bargaining. Under the NLRA, employees have the right to create unions, join existing unions, negotiate with employers concerning work circumstances (pay, schedules, etc.), and even to strike or picket if the response of the employer in question is not to their satisfaction.
It is illegal under the NLRA for employers to:
· Prohibit union activities
· Use rewards or punishments in order to influence union support
· Question an employee about his or her views concerning a union
However, unions are not completely free to operate without restrictions either. Under the NLRA, unions may not discriminate in their support of employees based on their union views. They cannot require union support, and cannot threaten any adverse action for failure to do the same.
It is important to remember that union membership may never be required under the NLRA. Unions are free to solicit membership to new employees, and employees are free to join if they wish, but there can be no penalty for failure to join. However, there is one caveat worth elucidating, the ‘right to work’ debacle.
READ MOREAbsent state legislation, unions are technically free to create agreements with employers for mandatory union dues to be paid to the union by each employee (through payroll deduction) notwithstanding employee union membership; in these cases, employees may be lawfully required to pay dues, but still are not required to join the union or participate in its activities in any way. However, roughly half of the states in America have passed so-called ‘right to work’ statutes, which essentially prohibit such agreements; unions are still free to operate, but may not create employer agreements for mandatory action or payment from employees. Thus, states with these types of laws are commonly referred to as ‘right to work’ states, while those without are called ‘non-right to work’ states. Today (March 2016), half of the states in America have ‘right to work’ laws in place (United States Department of Labor, n.d.-a).
Fair Labor Standards Act (FLSA)
Despite the tremendous impact of the NLRA (discussed supra), it became apparent that minimum standards of employee working conditions still needed to be legally prescribed in order to curb employer abuses. Thus, the next piece of legislation furthering worker rights was the Fair Labor Standards Act (FLSA) which came just three years after the NLRA in 1938. The goal of the FLSA was to improve compensation and labor conditions for American workers, particularly in manufacturing, which was the dominant industry of the time. In this lesson, we will discuss the minimum wage and overtime mandates of the FLSA; Lesson Eight will discuss other important features of the act.
MINIMUM WAGE
One of the biggest components of the FLSA was a federally mandated minimum wage (United States Department of Labor, n.d.-b). Prior to a minimum wage standard, employers were free to leverage the supply and demand dynamics of available work to force people into labor for deplorable compensation. Congress justified their power to regulate wages on almost every business by way of the Interstate Commerce Clause, and the very first minimum wage was set in 1938 (at the time of the FLSA’s enactment) at $.25, which would be just $4.19 in today’s dollars (after adjustment for inflation) (CNN Money, n.d.). However, that wage has obviously been continuously amended since then, and the current minimum wage (as of March 2016) is $7.25; it was last adjusted to this amount in July 2009.
Although the federal minimum wage prescribes the national compensation floor, it is important to keep in mind that states are free to set their own minimums at higher levels than the federal rate, and in fact, 29 states and Washington D.C. have done so (National Conference of State Legislatures, 2016). In addition to state laws that amend the minimum wage, HR professionals should remember that unions may negotiate higher mandatory wages with employers pursuant to the NLRA.
Exceptions to Minimum Wage Mandate
There are a few exceptions to the FLSA minimum wage mandate worth noting. HR professionals need to be very familiar with all laws which pertain to their industry, and ensure their practices conform.
· EXCEPTION 1
The first is that any business which generates less than $500,000 USD in annual sales is exempted from the minimum wage requirement. This exception is designed to prevent federal law from crushing small business growth with unfeasibly burdensome labor costs. However, there is also an exception to the exception: hospitals, schools, and public agencies must abide by the federal minimum wage notwithstanding their size or revenue volume (United States Department of Labor, 2009a).
· EXCEPTION 2
Another exception to the minimum wage mandate is for tipped employees. Under current law (March 2016), any employee who regularly receives more than $30 in tips per month is exempt from minimum wage standards, and so his or her employer can credit a percentage of their tips in order to meet the federal wage standard (United States Department of Labor, 2013).
· EXCEPTION 3
A final exception to the minimum wage mandates concerns employment of younger employees. First, the FLSA prohibits the employment of anyone under the age of 14 in the interest of outlawing child labor. However, under the FLSA, employers in certain industries (retail, services, agriculture, or post-secondary education) are permitted to pay full-time college students 85 percent of the federal minimum wage. For high school students at least 16 years of age and enrolled in vocational education programs, an employer may pay the student 75 percent of the federal minimum wage. In both cases, student employees are limited to 20 hours per week while school is in session, and the employer must file for a certificate beforehand with the United States Department of Labor (United States Department of Labor, 2010). However, it is important to note that employers are prohibited from using these reduced wage incentives to replace other active employees who are legally entitled to higher wages.
The first is that any business which generates less than $500,000 USD in annual sales is exempted from the minimum wage requirement. This exception is designed to prevent federal law from crushing small business growth with unfeasibly burdensome labor costs. However, there is also an exception to the exception: hospitals, schools, and public agencies must abide by the federal minimum wage notwithstanding their size or revenue volume (United States Department of Labor, 2009a).
Overtime Pay
In addition to minimum wage standards, the FLSA also governs mandatory overtime pay for workers. Prior to overtime pay regulation, employers could force employees to work inhumanely long hours without any additional compensation. The FLSA overtime rules require that employees who work more than 40 hours in any given week be paid at least time-and-a-half for all hours over forty (United States Department of Labor, n.d.-c).
IMPORTANT CAVEATS
NUMBER OF HOURS
First, neither the FLSA nor any other federal legislation caps the number of hours which an employer can require an employee to work. Employers are free to require that their employees work as many hours as the employer pleases, and if an employee refuses, the employer may legally terminate him or her for cause. However, the reality of the overtime compensation mandate under FLSA means that hours over 40 for each employee are much more (50% more) expensive for the employer, and thus employers are financially incentivized by this law to limit employee hours and avoid overtime whenever possible.
Additionally, employers who work employees unreasonably long hours run the risk that the employee might make poor judgments and cause unnecessary risk of negligence through being sleep-deprived or otherwise just “burnt out”, so this is yet another incentive for employers to be reasonable with respect to required hours (United States Department of Labor, 2008b).
HOURS OVER 40
Another important thing to remember about the overtime requirement is that it mandates time-and-a-half pay on any hours over 40 per week. This is important because not all employers pay employees on a weekly basis. Recently, employers have begun to realize that paying employees less frequently results in reduced overhead costs for the payroll function. Since there are no federal regulations governing pay frequency many employers are choosing to pay their employees bi-weekly or even monthly (Reeves, 2014). However, many states have enacted laws to restrict pay periods.
However, just because the pay interval is increased does not mean that hours from more than one week can be aggregated for the sake of calculating overtime pay. For example, suppose an employer pays his employees bi-weekly, and in a given pay period, one of his employees works 60 hours in the first week and 20 hours in the second. The employer is not permitted to aggregate the hours and deny overtime pay based on the fact that the employee’s total hours across the two weeks (80) are that which would be expected from two 40-hour work weeks (or because the average of the two weeks is 40 hours per week). Instead, the employer must pay overtime compensation for the 20 hours of overtime that the employee accrued in the first week, notwithstanding hours in the second week.
CLASSIFIED AS EXEMPT
1. The amount of compensation: Employees paid less than $23,600 per year are considered non-exempt. On the other end of the spectrum, most employees compensated at $100,000 or more are considered exempt, but this is not true in every case.
2. How compensation is structured: If an employee is paid a fixed salary not subject to change based on hourly production or productivity, they are more likely to be construed as exempt. There are, however, a host of exceptions and acceptable pay modifications that employers may make while still finding an employee exempt under FLSA.
3. The nature of the position: Employees are likely to be considered exempt if they regularly supervise two or more other employees as a primary duty of their position, and have input on the status of such employees’ jobs.
Generally speaking, executive and administrative employees may be eligible for exemption. However, it is important to note that titles are of very little significance in a legal assessment of eligibility for exemption. An employer can call any employee a “manager” if they wish, but if the circumstances of that employee’s job do not meet the standards for exemption, his or her title will not affect such a finding. There is also a special exemption for “professional” employees who might not otherwise meet the above-described test; this exception applies to the traditional notion of “profession” which includes doctors, lawyers, dentists, teachers, architects, clergy, etc. (United States Department of Labor, 2008a).
As with the minimum wage standard, it is important to remember that states are free to tighten restrictions on overtime laws, and set additional thresholds for compensation. For example, in addition to FLSA standards, California requires that employers in the state pay their employees time-and-a-half for any hours over eight in a workday, and double time pay for any hours over 12 in a workday (FindLaw, n.d.). There are also special exceptions for certain industries at the federal level; nursing, for example, may adopt an “8 and 80” rule where they pay overtime pay for any hours beyond eight in a day or 80 in a two-week pay period (United States Department of Labor, 2009b). Also, unions may negotiate with employers for additional compensation beyond federal and state mandates. HR professionals should be familiar with the federal and state laws (as well as any exceptions) that control their industry, and union contracts, if applicable.