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Compensation and Incentive Plans.

Scenario:

You are the Director of Compensation and Benefits for Lansing-Smith Corporation, a 6-month old sales and service organization that currently has a workforce of 150 employees. You recently joined the organization when the Vice President of Operations decided to move the Compensation and Benefits function out of the Accounting Department, into a separate function. From your own observations you have identified several areas in need of review, redesign or development, including projects such as an audit of current pay plans to ensure they are aligned with federal regulations, an analysis of various pay plans to assess which plans will provide maximum benefit for Lansing-Smith, extensive job analyses to ensure a solid understanding of each position, job evaluations to determine the worth of the positions, consideration of various incentive plan designs to identify a plan that effectively drives individual and group performance to achieve production goals and research, development, communication and management training for a company-wide performance appraisal process.

You are dedicated to developing compensation and benefit practices that are motivating and empowering for employees. You are confident that with well-developed programs and practices, employees will be motivated to perform at higher levels, thereby driving overall company performance.

Task needing assistance:

2-3 pages

One of your responsibilities as Director of Compensation and Benefits for Lansing-Smith is to ensure compliance with the Fair Labor Standards Act. You have learned that employees were hired into various roles with little regard for legal requirements affecting employee compensation. In your review of the pay plans, you notice that all employees (including clerical employees, managers, supervisors, sales staff, customer service staff, accountants) have been classified as Exempt status. Additionally, with no structured pay plan, you are concerned that some employees may have been hired without regard to minimum wage requirements.

Develop a plan to address this issue for Lansing-Smith. You should consider the following in your plan:

1. What are the risks with the current process?
2. What are the definitions of exempt and non exempt classifications and what is the application to this situation?
3. Consider overtime pay implications
4. Consider legal ramifications/penalties for violations of the law, what exposure does this present?
5. What are your conclusions and recommendations?
6. Develop a detailed plan to address any concerns and bring the company back in line with legal regulations.

Solution Preview

1. What are the risks with the current process?

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record-keeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $5.15 an hour. Overtime pay at a rate of not less than one and one-half times their regular rates of pay is required after 40 hours of work in a workweek. http://www.dol.gov/esa/whd/flsa/

Therefore, the risk of the present hiring process (as identified in the scenario above) is that the company may not be in compliance with FLSA. For example, you have learned that employees were hired into various roles with little regard for legal requirements affecting employee compensation. In your review of the pay plans, you notice that all employees (including clerical employees, managers, supervisors, sales staff, customer service staff, accountants) have been classified as Exempt status. Additionally, with no structured pay plan, you are concerned that some employees may have been hired without regard to minimum wage requirements (from the above scenario)

2. What are the definitions of exempt and non-exempt classifications and what is the application to this situation?

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.
Exempt Employees meet the criteria that exempt them from the minimum wage and overtime compensation provisions of the FLSA. The four exemption categories that apply to state employees are Executive, Administrative, Professional, and Computer Professional.

Non-Exempt Employees do not meet the criteria for any of the exemption categories and are eligible for federal minimum wage and overtime under FLSA. http://www.colorado.gov/dpa/dhr/comp/docs/flsa.pdf.
Specifically, the exempt classification means that FLSA provide exemptions from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. All other employees are classified as non-exempt meaning that that FLSA does not provide an exemption from both minimum wage and ...

Solution Summary

You are dedicated to developing compensation and benefit practices that are motivating and empowering for employees. This solution provides assistance in developing a plan to address this issue for Lansing-Smith. Supplemented with information on fair labor standards.

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