The U.S. Department of Labor's Wage and Hour Division (WHD) data reveals a concerning reality: many employees are underpaid. In the past five years, $1.4 billion in back wages was recovered due to employers violating federal labor laws.
This shows that non-compliance with compensation and benefits laws prevents workers from earning their due wages rightfully. As such, lawyers must thoroughly understand state and federal employee compensation and benefits laws.
Traditionally, the liberty to contract principle, which allows employers and employees freedom to negotiate terms including compensation and benefits, governed the payment from employers to employees. This established the foundation for determining employment conditions.
The Federal Supreme Court, however, has long recognized the power of the government to regulate the liberty of contract, starting with the 1937 landmark case of West Coast Hotel Co. v. Parrish. Therefore, Congress and the state legislatures have enacted various legislation that aim to protect prospective employees.
There is no single universal law, federal or state, that can be referred to as the law of compensation in the U.S. In reality, the laws of compensation in the U.S. are a set of distinct federal and state laws. Each regulates and provides rules and standards for specific compensation and benefits, usually part of standard employment contracts.
The following types of legal compensation and benefits are among those which are regulated, to a certain extent, by existing universal law of compensation:
Minimum wage and overtime pay; Leave benefits; Retirement benefits; Compensation for injuries.The Fair Labor Standards Act of 1938 (FLSA) is the primary source of federal rules on minimum wage and overtime pay.
Under the FLSA compensation law, employers are required to pay employees at least a basic minimum wage.
The current federal minimum wage is $7.25 per hour. Nonetheless, some state laws also provide minimum wage rates applicable within the respective state. In case such state compensation laws require a higher amount of minimum wage compared to that mandated under the FLSA, employers in that state must pay the higher amount.
However, not all employees are entitled to the federal minimum wage under FLSA. A few examples of these include farm workers employed in small farms and employees employed by certain seasonal and recreational establishments.
Under the FLSA, employers are required to pay overtime pay to their employees. The overtime pay is based on the number of hours worked more than 40 hours in a single workweek at a rate of at least 1.5 times the regular rate of pay, wherein the normal pay rate must not be less than the minimum wage.
Note that FLSA does not impose any limit on the number of hours employees aged 16 and older may work in any work week. However, the FLSA does not require overtime pay for work rendered during weekends (i.e., Saturdays and Sundays), holidays, or regular days of rest.
Moreover, similar to the rules on minimum wage, certain employees are also not entitled to receive overtime pay, such as:
Commissioned sales employees of retail or service establishments andThose who work as drivers, loaders, and mechanics whose primary duties affect the safety of operation of vehicles in the transportation of passengers or property in interstate or foreign commerce.
One shortcoming of the FLSA or any other existing federal law is that they do not create nor regulate leave benefits such as vacation, holiday, and sick leaves, which are typical in standard employment contracts. Hence, such leave benefits are, more often than not, merely subject to agreement between the employer and the employee.
As an exception, federal law requires employers to grant their employees medical and family leave. Under the Family and Medical Leave Act of 1993, eligible employees are entitled to a maximum of 12 weeks of unpaid, job-protected leave per year to allow said employees to attend to family and medical matters, including: