Individual Analysis Paper

Chapter 12: Establishing a Pay Structure

“The importance of getting payment decisions right”

Blanca Raventós Riera

Bentley University

MG250: Human Resources

Professor Melinda Berry
Academic year 2022-2023
 Blanca Raventós
Human Resources Management

Learning Objective 12-1: Decisions about Pay

A well-designed Pay Structure enables a company’s management to fairly reward

performance and skills development of its employees while controlling the overall base
salary cost providing the minimum and maximum pay for each type of job, this makes it
easier to plan for future costs. When talking about Pay Structure decision-making, two
relevant components should be considered by the company: Job structure and Pay level.

On the one hand, Job structure creates the relative compensation among the various
functions and degrees of responsibility by determining the relative pay for various job types
inside the organization. Pay level, on the other hand, refers to the typical sum that a company
pays for a given employment (including wages, salaries, and bonuses). Additionally, Pay
levels and Job structure work together to create a Pay structure - considered a pay policy-
that aids in the achievement of the company's objectives for employee motivation, cost
containment, and the ability to recruit and retain skilled labor. In fact, by putting workers
with comparable responsibilities together, a Pay structure makes it easier to decide how much
to pay each particular employee.

The choices made about a company's Pay structure are determined by the organization's
goals, market forces, and legal requirements. The legal requirements will be examined
and expanded upon in this Individual Analysis Paper as one of the factors affecting a
company's pay structure.

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 Blanca Raventós
Human Resources Management

Learning Objective 12-2: Legal Requirements for Pay

In the United States, laws and regulations govern pay practices and policies. The US's legal
criteria for pay policies are listed below.

Equal Employment Opportunity

When talking about Equal Employment Opportunity in terms of pay, we mean employers
should offer equal compensation for equal labor without basing pay inequalities on an
employee's age, sex, race, sexual orientation, or any other protected status. Instead, any pay
disparities must be connected to commercial factors. For instance, some legal justifications
for why salaries could differ could be experience, abilities, seniority, or job performance.

Even though equal opportunity laws exist, they do not provide equal pay for men and women,
whites and minorities, or any other group because there are many valid elements that
influence a person's salary, from education to career choice, making it challenging to close
the wage gap.

The Economic Policy Institute conducted a research1 that showed that salary gaps between
white and black workers are wider now than they were in 1979. To discover the
"unobservable metrics" that can affect the black-white pay disparity and look for ways to
include them, the article advises engaging with groups that are directly involved in the
education, workforce development, and employment of African Americans. Additionally, it
emphasizes how growing earnings inequality has consistently contributed to the widening of
this wage gap. It states that the government could solve this issue by raising the federal
minimum wage, establishing new work scheduling guidelines, and strictly enforcing wage

1
Valerie Wilson and William M. Rodgers. (September 20, 2016). Black-white wage gaps expand with rising
wage inequality. Economic Policy Institute.
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Human Resources Management

laws intended to stop wage theft. Finally, it emphasizes the necessity of restoring the workers'
previously severely curtailed right to collectively bargain with their bosses.

In addition, the textbook mentions that "equal pay for comparable worth" has been
suggested as a solution by certain policymakers. In truth, this policy makes use of job
evaluation, a process by which a committee of persons with experience in the jobs being
reviewed rates those jobs in order to determine the value of a job in terms of its difficulty and
significance to the business. The employer then contrasts the salary for each job with the
evaluation points given to each position. Equal pay should apply to positions with the same
number of evaluation points. But the obvious disadvantage of such policy is that it puts the
employer at a competitive disadvantage with businesses that pay at market rate.

Minimum Wage

The minimum hourly wage that companies are required to give their employees is referred
to as the "minimum wage". Although the 1938 Fair Labor Standards Act (FLSA) set the
current minimum wage at the federal level in the US at $7.25 per hour, this amount only
applies when no state laws setting a higher one is in place. After January 2022, several states
actually raised their hourly minimum wages, and more states will do the same in 2023.

The federal minimum wage does not, however, apply to all employees; there are various
exceptions and exemptions that could result in some employees receiving less than $7.25 per
hour. For instance, employees under the age of 20 may earn $4.25 per hour for a period of
up to 90 consecutive days as a “training salary” according to the textbook. Also, tip
employees minimum wage is below $7.25 per hour, a tipped employee is only required to be
paid $2.13 per hour in direct wages if that amount combined with the tips received at least
equals the federal minimum wage2.

2
U.S: Department of Labor. (January 1, 2022). Minimum Wages for Tipped Employees.
 Blanca Raventós
Human Resources Management

States Minimum Wage

35

30

25

20

15

10

States with federal minimun wage of $7.25/h

States with minimun wage > $7.25

Source: Own graph based on “Minimum Wage by State 2022 and 2023 Increases3”

Overtime Pay

It is established by the 1938 Fair Labor Standards Act (FLSA) that companies are required
to pay greater rates for overtime. The term “overtime” refers to hours worked in excess of
40 a week. These "additional hours” are not just the ones spent on production or sales but
also on tasks like going to needed meetings, tidying up the workplace, or moving between
locations.

According to the FLSA's federal overtime provisions, employees who are covered by that
Act must receive overtime pay at a rate of at least time and a half their regular rates of
pay for hours worked over 40 in a workweek. This rate must also include any bonuses and
other payments, that must be converted into wages per hour to determine the total overtime
rate.

3
Paycor. (July 21, 2022). “Minimum Wage by State 2022 and 2023 Increases”.
 Blanca Raventós
Human Resources Management

Thus, we multiply the straight time rate of pay by all overtime hours worked and add one-
half of the employee's hourly regular rate of pay times all overtime hours worked to determine
the overtime rate4. It should be emphasized that some employees are free from overtime
compensation, including managers and outside sales personnel, executives, professionals,
and highly compensated staff.

Child Labor

Throughout American history, child labor has been an issue. Children were frequently
favored throughout the industrial revolution because factory owners saw them as more
controllable and affordable workers. As the labor reform movement grew in the early decades
of the 20th century, child labor started to drop, and in order to safeguard children's health,
safety, and educational possibilities, the FLSA now severely regulates the use of child work.
In addition to the FLSA, certain state laws now forbid the use of child labor.

The FLSA defines "children" as anyone who is less than 18 years old. However, there are
various restrictions on when minors under the age of 18 can begin working. The Department
of Labor prohibits hiring 16- and 17-year-olds for dangerous jobs like mining, meatpacking,
and several types of manufacturing involving large machinery. Children between the ages of
14 and 15 are only permitted to work nonhazardous jobs after school for short periods of
time. Under 14 years old workers are prohibited from working in any interstate commerce-
related jobs, except for non-hazardous jobs done for a company that is completely owned by
the child's parent or legal guardian.

Because of the closure of schools and families' need for money, millions of children are being
compelled to pursue jobs that are frequently hazardous, laborious, and illegal, according to
the article “Futures in Peril: The Rise of Child Labor in the Pandemic5” published in the New

4
U.S. OFFICE OF PERSONNEL MANAGEMENT. Fact Sheet: How to compute FLSA Overtime Pay
(https://www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets/how-to-compute-flsa-
overtime-pay/)
5
Richard Pérez-Peña. (September 27, 2020). Futures in Peril: The Rise of Child Labor in the Pandemic. The
New York Times.
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Human Resources Management

York Times. Numerous bright youngsters' educations have been cut short and many of the
kids are unlikely to return to school because they and their families have grown reliant on
their income. For decades, poverty had been falling around the world, especially in Asia,
allowing an increasing number of kids to stay in school, but these tendencies have changed
due to the pandemic, worsening a problem that for many years had been eradicated.

Conclusions

In light of all of the aforementioned information and as stated in the analysis paper's title, the
importance of getting payment decisions right is one of the most important factors to take
into consideration when determining the viability of a business.

In addition to allow the viability of the project, a company’s pay structure must also comply
with legal requirements. US legal requirements forbid wage discrimination for reasons that
are not related to business considerations, imply the payment of a federal minimum wage to
employees in the absence of a state-set minimum wage that is higher, require overtime pay,
and place limitations on the employment of minors for specific jobs. Therefore, decisions
about how to structure employee compensation are not solely in the hands of businesses; they
are also influenced by market forces and must adhere to all the legal standards outlined above.

References

Valerie Wilson and William M. Rodgers. (September 20, 2016). Black-white wage gaps
expand with rising wage inequality. Economic Policy Institute.

U.S: Department of Labor. (January 1, 2022). Minimum Wages for Tipped Employees.

Paycor. (July 21, 2022). “Minimum Wage by State 2022 and 2023 Increases”.

U.S. OFFICE OF PERSONNEL MANAGEMENT. Fact Sheet: How to compute FLSA

Overtime Pay (https://www.opm.gov/policy-data-oversight/pay-leave/pay-
administration/fact-sheets/how-to-compute-flsa-overtime-pay/).

Richard Pérez-Peña. (September 27, 2020). Futures in Peril: The Rise of Child Labor in the
Pandemic. The New York Times.
 Blanca Raventós
Human Resources Management