Compensation and Benefits Plan (Exempt and Non-Exempt).

 Compensation and Benefit Plan

Reema Mansukhani, Ian Hosein, Jennifer Butsch, Devin Parks

HRM 531

February 25, 2013

Dr. Payne

Compensation and Benefit Plan

As Cascio explains in chapters six and seven a reputable, well balanced compensation package and reward system play a key role in increasing employee motivation, and enhancing organization productivity and effectiveness (Cascio, 2010).  Total compensation includes pay and benefits such as paid vacation, flex time, holidays, medical, life insurance, tuition reimbursement, 401K.  Jobs within an organization fall within two categories, exempt and non-exempt.  Exempt and nonexempt status is determined by rules set forth by the Fair Labor Standards Act (FLSA) of 1938.  There are a few factors that will determine the status of an employee (exempt or nonexempt): the type of work performed, amount of pay, and when they are paid.  Employees who make under $23,600 are automatically considered nonexempt.  However, certain jobs are classified exempt by definition, for example outside sales (Chamberlain, n.d.).  It is important for human resources personnel to understand the difference and classify jobs properly.  Failure to classify jobs correctly can result in employee dissatisfaction and ultimately lead to legal problems (Employee Compensation, n.d.).  The following paragraphs analyze how the process for developing a compensation and benefits package compare and contrast for exempt and non-exempt individuals.

Exempt Process

            Exempt jobs are usually held by higher level positions, managers, or other skilled professionals. They usually get a fixed annual base salary and are not eligible for overtime pay, no matter how long they work.  In fact, exempt employees are often expected to work more than the typical 40 hours per week.  Because of this benefit packages for exempt employees is often more lucrative than for nonexempt employees.  Benefits may include health insurance, life insurance, a retirement plan (including profit-sharing, stock option programs, 401(k) and employee stock ownership plans), continuing education incentives, vacation and holiday pay, and sick leave. Companies may also offer nontraditional benefits such as daycare and cafeteria plans, to employees either at free or reduced cost (Employee Compensation, n.d.).

The following process should be followed for creating a compensation package for an exempt position (Creating A Smart Compensation Package, 2005).

  • Market salary reports should be studied, and periodically reviewed to decide on the base salary and bonus structure for similar positions and industries in the market.  Alternately, similar positions in the company related to their responsibilities and duties should be within the same salary band.  This will ensure internal and external equality of the total compensation package.
  • Total compensation package should be aligned with the organization goals, and designed to follow the future direction and need of the company.
  • Performance appraisal and incentive systems should be carefully designed to motivate employees to produce more and reach higher levels of job satisfaction.
  • Comp time should be granted to exempt employees as they are not entitled to overtime. An employer may reason that exempt employees are under more stress and therefore entitled to more vacation time (Benefit Package Differences For Exempt And Non-Exempt, 2010).
  • The compensation package should comply with federal and state rules and regulations for exempt workers.
  • The total compensation package should operate inside the organization’s budget and financial resources.
  • The compensation package developed should be consistent, and at the same time very accommodating. It should be flexible enough to adapt to the current trends and changing market.  This will maintain the market competitiveness that is needed to attract and retain talented workers.

Nonexempt Process

One of the largest differences between exempt and nonexempt workers, is that nonexempt employees are paid in terms of wages instead of salary.  In addition, nonexempt employees spending time more than the specified work week, typically more than 40 hours, are eligible to receive overtime pay.  This is typically set at time and one-half their regular rate of pay for each hour they worked over during that work period (Chamberlain, n.d.).  However, if a nonexempt employee does not work a full week, he or she will fall short of the forty hours and will not take home a full work week’s paycheck.  Nonexempt employees should also be paid at least minimum wage.  If the state minimum wage is higher than the federal minimum wage, employees should be paid at the rate of the state minimum wage.  The process of determining the proper wage for a nonexempt employee relies on several factors:

  • Wages must be high enough to attract and motivate good employees.   This often involves reviewing competitive rates for similar positions in the area (Employee Compensation, n.d.).
  • The total compensation package should operate inside the organization’s budget and financial resources.
  • The compensation package should comply with federal and state rules and regulations for exempt workers.

For nonexempt employees, benefits may be limited to health and retirement benefits as well as paid time off.  Nonexempt employees are not typically paid more than exempt employees because they are generally not expected to complete their tasks no matter what the hours are.

Conclusion

Exempt and nonexempt positions are determined by criteria set forth by the FLSA.  Although the two are different, they are likely to coexist within the same company.  The most obvious difference between the two is that exempt employees are paid in terms of salary and are eligible for comp time, whereas nonexempt employees are paid in terms of wages and are automatically paid overtime for time worked over the defined work week, typically 40 hours.  Other benefits such as paid vacation time, health care, and continuing education benefits may be different between the two groups within the same company.  A company may justify the difference by stating that exempt employees are typically under more stress and deserve more vacation time, or they may simply value the exempt employees more and therefore be willing to spend more resources to take care of those employees.  As long as the benefits do not discriminate based on gender, ethnicity, national origin, religion, etc. the difference in benefits between exempt and nonexempt employees is entirely legal (Benefit Package Differences For Exempt And Non-Exempt, 2010).

 

 

References

Benefit Package differences for exempt and Non-exempt. (2010). Retrieved from http://www.humanresourceblog.com/2010/05/13/benefit-package-differnces-for-exempt-and-non-exempt/

Cascio, W. F. (2010). Managing human resources: Productivity, quality of work life, profits (8th ed.) New York, NY: McGraw-Hill/Irwin.

Chamberlain, Kaufman, and Jones. (n.d.) Coverage Under the FLSA.  Retrieved from: http://www.flsa.com/coverage.html

Creating a Smart Compensation Package. (2005). Retrieved from http://URL:

http://www.entrepreneur.com/article/77934

Employee Compensation. (n.d.). Enclyclopedia of Business. 2nd ed.  Retrieved from: http://www.referenceforbusiness.com/small/Di-Eq/Employee-Compensation.html

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