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Compensation Manual

Dear Client,
The Compensation Manual has been designed to review the basic components you
may wish to consider when developing a compensation and benefits plan. This
manual explains the objectives of an effective compensation and benefits plan, as
well as the importance of evaluating, auditing, and communicating your plan.
Valuable information regarding federal laws that impact compensation and benefits
have also been included in this manual. There may be additional federal, state, or
local laws you must comply with as well.
The Compensation Manual is divided into seven sections. Sample forms are
provided throughout the manual. These forms may be used for reference when
developing and implementing your companys compensation and benefits plan. At
the end of the manual is an alphabetic index, cross-referenced for your convenience.
Please understand that the information presented in this manual is intended for
general information purposes only, and should not be considered legal advice or a
legal opinion regarding any particular facts or circumstances. You are urged to
consult with legal counsel concerning your own situation and any specific questions
you may have.
Thank you for your continued business!

Paychex, Inc.
Human Resource Services

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Compensation Manual
This manual, a product of the Human Resource Services division of Paychex, Inc., is protected
under copyright law. It is sold with the understanding that the publisher is not engaged in
rendering legal or other professional services. This product is a reference tool and should be
used as guidance and not an interpretation of the law. If legal advice or other expert assistance
is required, the services of a competent legal or other professional person should be sought.
2009. Paychex, Inc. All Rights Reserved. Revised 2/09.

Remember:

These materials are for general information purposes only, and are not intended as legal
advice. If you have questions or need legal guidance regarding particular facts and
circumstances, you should consult an attorney.

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Table of Contents
Section 1: Compensation Planning
Compensation Planning............................................................................................................. 1:1
Why Compensation Planning is Necessary ............................................................................... 1:1
Objectives of an Effective Compensation and Benefits Plan ..................................................... 1:1
Critical Success Factors ............................................................................................................ 1:2

Section 2: Developing a Compensation Plan


Why Developing a Compensation Philosophy is Necessary ..................................................... 2:1
Factors to Consider When Developing a Plan ........................................................................... 2:2
Internal Factors................................................................................................................... 2:3
External Factors ................................................................................................................. 2:4
Job Analysis............................................................................................................................... 2:7
Job Evaluation ........................................................................................................................... 2:8
Job Descriptions ...................................................................................................................... 2:10
Pay Structures ......................................................................................................................... 2:11
Section 2: Forms
Job Analysis Questionnaire (Employee)
Job Analysis Questionnaire (Manager/Supervisor)
Job Description
Sample Job Description
Compensation Plan Development Checklist
Position Requirements Worksheet
Section 3: Types of Compensation
Monetary (Direct) Compensation ............................................................................................... 3:1
Variable Pay .............................................................................................................................. 3:2
Pay Adjustments ........................................................................................................................ 3:5
Pay Increases ............................................................................................................................ 3:6
Commission Plans ..................................................................................................................... 3:7
Executive Compensation ........................................................................................................... 3:9
Performance Appraisals .......................................................................................................... 3:10
Section 3: Forms
Performance Planning and Appraisal

Table of Contents

TOC - i

Section 4: Benefits
Benefit Planning......................................................................................................................... 4:1
Types of Benefits ....................................................................................................................... 4:4
Time Away From Work .............................................................................................................. 4:5
Vacation and Personal Days .............................................................................................. 4:5
Holidays ............................................................................................................................. 4:6
Sick Days ........................................................................................................................... 4:7
Paid-Time-Off (PTO) .......................................................................................................... 4:8
Medical and Non-Medical Leaves of Absence ................................................................... 4:9
Bereavement Leave ......................................................................................................... 4:10
Voting Leave .................................................................................................................... 4:11
Witness Leave .................................................................................................................. 4:12
School Visitation ............................................................................................................... 4:13
Medical Reimbursement Plans ................................................................................................ 4:14
Health Reimbursements Account (HRA) ......................................................................... 4:14
Health Savings Account (HSA) ......................................................................................... 4:15
Medical Savings Account (MSA) ..................................................................................... 4:16
Section 125 Plans............................................................................................................. 4:17
Premium Only Plan (POP) ............................................................................................... 4:18
Flexible Spending Account (FSA)..................................................................................... 4:19
Flexible Spending Account Debit Cards .......................................................................... 4:21
Full Cafeteria Plans ......................................................................................................... 4:22
Types of Insurance .................................................................................................................. 4:23
Health Insurance............................................................................................................... 4:23
Health Maintenance Organizations (HMO) ....................................................................... 4:24
Point of Service ................................................................................................................ 4:25
Indemnity Plans ................................................................................................................ 4:26
Preferred Provider Organization ...................................................................................... 4:27
Consumer Directed Health Plans ..................................................................................... 4:28
Dental Benefits ................................................................................................................. 4:29
Disability Insurance........................................................................................................... 4:30
Life Insurance ................................................................................................................... 4:31
Retirement Plans ..................................................................................................................... 4:32
401(k) Plan ....................................................................................................................... 4:33
Roth 401(k) Plan............................................................................................................... 4:34
Profit Sharing Plans .......................................................................................................... 4:36
Savings Incentive Match Plan for Employees (SIMPLE) ................................................. 4:37
Miscellaneous Benefits ............................................................................................................ 4:38
Flex Time .......................................................................................................................... 4:38
Tuition Assistance............................................................................................................. 4:39
Employee Assistance Programs (EAP) ............................................................................ 4:40
Travel and Expense.......................................................................................................... 4:41
Company Discounts.......................................................................................................... 4:42
Qualified Transportation Plans ......................................................................................... 4:43
Qualified Tuition Programs (QTP) .................................................................................... 4:44
Severance Plans............................................................................................................... 4:45

Table of Contents

TOC - ii

Section 4: Forms
Summary of Compensation and Benefits SAMPLE
Request for Time Off
Absentee Record
Vacation-At-A-Glance
Leave Request Form
Request for Flex Time
Return to Work Medical Certification
Tuition Assistance and training Request
Request for Cash Advance
Employee Expense Report
Auto Mileage Reimbursement Voucher

Section 5: Compensation Administration


Implementing the Compensation Plan ....................................................................................... 5:1
Communicating the Compensation Plan.................................................................................... 5:2
Evaluating the Compensation Plan............................................................................................ 5:3
Sample Compensation Plan ...................................................................................................... 5:5

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TOC - iii

Section 6: Legal Requirements


Federal Laws ............................................................................................................................. 6:1
Age Discrimination in Employment Act (ADEA) of 1967..................................................... 6:1
Americans with Disabilities Act (ADA) ................................................................................ 6:2
Title VII of the Civil Rights Act of 1964 ............................................................................... 6:5
Civil Rights Act of 1991 (CRA 91) ...................................................................................... 6:6
Consolidated Omnibus Budget Reconciliation Act (COBRA) ............................................. 6:7
Consumer Credit Protection Act ......................................................................................... 6:8
Employee Retirement Income Security Act (ERISA) .......................................................... 6:9
Equal Pay Act (EPA)......................................................................................................... 6:10
Fair Labor Standards Act (FLSA) ..................................................................................... 6:11
Family and Medical Leave Act (FMLA)............................................................................. 6:12
Federal Insurance Contributions Act (FICA) (Social Security Act).................................... 6:14
Federal Unemployment Tax Act (FUTA) (1936) ............................................................... 6:15
Health Insurance Portability and Accountability Act (HIPAA) ........................................... 6:16
Immigration Reform and Control Act (IRCA) of 1986 ....................................................... 6:17
Internal Revenue Code and Regulations.......................................................................... 6:18
Jury System Improvement Act.......................................................................................... 6:19
National Labor Relations Act (NLRA) ............................................................................... 6:20
Older Workers Benefit Protection Act (OWBPA) .............................................................. 6:21
Pregnancy Discrimination Act (PDA) ................................................................................ 6:22
Uniformed Services Employment and Reemployment Rights Act (USERRA).................. 6:23
Unemployment Insurance ........................................................................................................ 6:24
Workers Compensation Insurance.......................................................................................... 6:26
Laws Affecting Federal Contractors and/or Recipients of Federal Grants............................... 6:29
Copeland Act .................................................................................................................... 6:30
Davis-Bacon Act of 1931 .................................................................................................. 6:31
Executive Order 11246 ..................................................................................................... 6:32
McNamara-OHara Service Contract Act (SCA) ............................................................... 6:33
The Vietnam Era Veterans Readjustment Assistance Act (VEVRAA).............................. 6:34
The Vocational Rehabilitation Act of 1973........................................................................ 6:35
Walsh-Healey Public Contracts Act (PCA) ....................................................................... 6:36

Section 7: Index ................................................................................................. Section 7

Table of Contents

TOC - iv

Compensation Planning
Section 1
This section will explain:

why compensation planning is necessary

objectives of an effective compensation and benefits plan


and

critical success factors.

Remember: These materials are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Compensation Planning
Why Compensation Planning is Necessary
For the purposes of this manual, total compensation includes wages and benefits, both current and
deferred, both monetary and non-monetary, provided by an employer to its employees.
Employee compensation is a major component of your business. Your business compensation costs,
however, are more than simply an expense. An employees salary incentives and benefits may
significantly affect the quality of your workforce and your companys competitive advantage. A poorly
designed plan may lead to an unmotivated, less productive workforce, which may result in a high
turnover rate. A well developed compensation plan can be important in attracting and retaining high
quality employees.
Determining the correct formula of direct and indirect compensation and benefits plans will partly
depend on the type of employer and its competition.

Objectives of an Effective Compensation and Benefits Plan


A comprehensive compensation and benefits plan requires adequate time to research and develop.
The following components should be considered before implementing a plan:

What market are you competing in for employees? Is it local or regional? Is it the same or a similar
industry? Do you desire to meet or exceed the market rate? Is it desired or necessary for your plan
to be competitive?

In regards to monetary compensation, how will base pay be administered? Should pay increases be
earned through performance or should they be based on seniority? How often do you want to
review monetary compensation?

Always keep in mind that you want your plan to be both internally fair and externally competitive.

You will need to determine how performance is to be measured and how performance is linked to
compensation.

Any plans should support the company mission and its strategy. They must be compatible with the
culture of the organization and should reflect the workforce composition in terms of work
experience, education, skills, etc.

It is essential that your plan be cost effective, affordable, and perceived as fair by your employees.
If possible, your plan should share company success, as your employees are the people who help
the organization succeed.

Remember that you need a plan that is simple to communicate and administer. It should be one
that can easily be updated as circumstances change. The plan must be compliant with federal,
state, and local laws and regulations.

A company may also wish to develop separate sales and executive compensation plans. These involve
a specialized area of expertise and are therefore outside the realm of what is discussed in this manual.

Compensation Manual

COMPENSATION PLANNING 1:1

Critical Success Factors


A well developed compensation plan enables the employer to attract and maintain quality employees.
A poorly designed compensation plan may yield little benefit and could expose the employer to
violations of federal, state, or local laws. The following is a brief description of the necessary
components that are critical for a successful compensation plan.

Management Support and Involvement


A successful compensation plan requires full support from upper management. Management
should review the compensation philosophy to ensure it aligns with the companys mission and
values.

Objectivity
Criteria used to determine compensation level must be based on the job rather than the person
completing the job.

Training
Management and Human Resources personnel should be trained in the development and
administration of compensation plans.

Evaluation
The compensation plan should be audited periodically to determine if updates are needed to ensure
the plan continues to meet the organizations objectives.

Compensation Manual

COMPENSATION PLANNING 1:2

Developing a Compensation Plan


Section 2
This section will explain:

why developing a compensation philosophy is necessary

factors to consider when developing a plan

job analysis

job evaluation

job descriptions
and

pay structures.

Remember: These materials are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Why Developing a Compensation Philosophy is Necessary


An organization's compensation philosophy reflects the employer's ideals and values. Generally, a
compensation philosophy includes the goal of attracting, motivating, and retaining the best employees.
A compensation philosophy should explain the company's values and objectives along with an
explanation of how the plan will be implemented. The philosophy should support the companys overall
mission, vision, corporate culture, and strategy.
In developing a compensation philosophy, the employer should determine whether the company will set
salaries at, above, or below market values and the degree to which employee benefits should
complement those salaries.
A company should also be aware of external equity (comparison of your pay practices within an
industry) and internal equity (how you pay your existing employees versus each other and as compared
to new employees).
Refer to the Compensation Philosophy located in Section 5, Compensation Administration, Sample
Compensation Plan.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:1

Factors to Consider When Developing a Plan


Once a compensation philosophy has been determined, a compensation plan can be developed.
Compensation plans must ensure compliance with applicable state, federal, and local laws while
striving to achieve internal fairness among similarly situated employees.
Finding the right compensation mix can be critical to determining business success. The size, age, type
of business, management structure, and philosophy all influence the compensation plan. Generally, a
company will use internal or external comparisons, or a combination of both, to determine the plan
thats best for their company.
Internal factors that may impact compensation include:

compensation strategy
job worth
employee worth
employee views
and
ability of the company to fund the plan.

External factors that may impact compensation include:

labor market
area wage rate
market rate
target market rate
and
union environment.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:2

Internal Factors
There is no perfect" compensation program. Each is unique to the conditions of the particular
business. It is important for companies to evaluate internal factors when developing a compensation
plan.

Compensation Strategy
The effectiveness of a company's compensation plan can be measured by the extent to which pay
rates are competitive with others in the labor market. Companies may choose to pay above market,
lower than market, or at the market rate. This type of compensation strategy is chosen based on the
goals of the company for attracting, motivating, and retaining employees and the companys
financial position.
Companies that choose to pay above market rate may be able to attract and retain the most
qualified employees.
Companies that choose to pay lower than market rate may have a higher turnover rate and may
need to constantly recruit new employees. Such a compensation strategy may be chosen for areas
with large numbers of qualified workers.
Companies that choose to pay at market rate typically hope to attract and retain employees while
staying competitive in the market.

Job Worth
Internal equity is an important issue to consider when determining job worth. Internal equity
compares a jobs salary range with the salary ranges of similar jobs within the organization. Each
job must be evaluated to determine its value to the company. Using job analysis and evaluation, an
employer can determine the internal value of individual jobs. The salary range for a job may be
considered internally equitable if it corresponds with the responsibility and duties of the position as
compared to other similar positions.

Employee Worth
Employers who give merit increases or grant pay for performance plans need to set the guidelines
for such awards. Based on their performance, some employees are more valuable to the company
than others. In this instance, employees may be compensated based on employee worth.

Employee Views
Employees who view the compensation plan as fair and reasonable may be more productive and
more satisfied with their jobs.

Ability of the Company to Fund the Plan


Employers must evaluate their budget before implementing a compensation plan. Pay levels which
exceed the companys ability to pay cannot be supported. The plan must base the rates in
accordance with the availability of funds. Employers should also recognize that the cost associated
with compensation usually increases over time, therefore, the plan should be created with cost
maintenance in mind.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:3

External Factors
Having reviewed the internal factors that should be considered when developing a compensation plan,
we now turn to an overview of external factors. This includes an introduction to the Labor Market, Area
Wage Rate, Market Rate, Target Market Rate, and Union Environment.

Labor Market
The labor market refers to a geographic area where new employees for a job may be located. The
market may differ for each job. The labor market for certain positions such as Vice President of
Marketing or Certified Public Accountant generally is larger than that for a Customer Service
Representative or Outside Salesperson.
The labor market influences the wage and salary structure through the supply of labor. Companies
also differ greatly on how many of their jobs are filled from the outside market. There are many
companies in which the labor supply is mostly provided from within the company.

Area Wage Rate


Employers may be concerned that their compensation practices are competitive with similar
industries within their region. If employees believe they can receive better pay for performing the
same work, they may leave to work for a competitor. High turnover may be a sign that the
compensation plan is too far below market rate.

Market Rate
The market pricing method measures the worth of selected jobs against the current market. These
evaluations typically create brief descriptions of benchmark jobs and compare the descriptions to
customized market data or published compensation surveys. Employers then set salaries for their
own organizations based on these comparisons. The market pricing method can help employers
maintain competitive salaries; those that use it essentially allow the market to establish their
compensation philosophy.

Target Market Rate


Employers need to look at their compensation strategy in relation to the market rate to determine
their target market rate, or the level at which employers wish to pay their employees.

Union Environment
Employers who have union environments need to bargain regarding compensation issues. This is a
strong external factor for compensation planning.
Employers who do not have a union, but are faced with the possibility of their workforce becoming
unionized, may attempt to meet or exceed their competitors compensation rates.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:4

Compensation Survey
A compensation survey can assist employers in developing a pay plan by showing what competitors
are paying employees for similar jobs. Compensation surveys generally provide information regarding
average salary ranges for positions based on job title, geographical area, company size, and industry.
Many private companies and consultants offer compensation surveys based on current salary specific
information for a fee. Employers may wish to get compensation surveys for all positions or some
positions to ensure that their compensation plan is meeting their goals.
Some companies may choose to conduct their own compensation surveys. Conducting a survey
consists of collecting and analyzing salary and benefits data from other organizations in the geographic
area that you are attempting to evaluate. Such an undertaking may be costly and time consuming, and
it may be difficult to gather this information from other organizations, particularly if they are competitors.
Sample Compensation Survey: Position: Market Research Director, FLSA Status: Exempt

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:5

Sample Compensation Survey: Position: Receptionist, FLSA Status: Non-exempt

Reports provided by ERI Economic Research Institute, Inc. from ERIs Salary Assessor software. ERIs Salary Assessor software is
licensed to users as an annual subscription. For more information, visit www.erieri.com or call Trish Springer at 1-800.627.3697.

The Department of Labor's Bureau of Labor Statistics (BLS) is an agency within the Department of
Labor that collects, processes, analyzes, and disseminates essential statistical data in the broad field of
labor economics and statistics. The BLS develops the National Compensation Survey (NCS) which
provides comprehensive measures of occupational earnings, compensation cost trends, benefit
incidence, and detailed plan provisions. Detailed occupational earnings are available for metropolitan
and non-metropolitan areas, broad geographic regions, and on a national basis. The NCS and other
compensation resources from the BLS can be found on the following web sites:

U.S. Department of Labor Bureau of Labor Statistics National Compensation Survey: Guide for
Evaluating Your Firm's Jobs and Pay: http://www.bls.gov/ncs/ocs/sp/ncbr0004.pdf
U.S. Department of Labor Bureau of Labor Statistics Glossary of Compensation Terms:
http://www.bls.gov/ncs/ocs/sp/ncbl0062.pdf
U.S. Department of Labor Bureau of Labor Statistics National Compensation Survey:
http://www.bls.gov/ncs/home.htm
U.S. Department of Labor Bureau of Labor Statistics: http://www.bls.gov

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:6

Job Analysis
Job Analysis
Job analysis and evaluation help employers determine appropriate wages and salaries. A job analysis
includes assessing the duties, tasks, and activities involved in performing the job. There are many ways
in which an employer can perform a job analysis, including interviews, observation, and questionnaires.
Using information from the analysis, the employer can more easily evaluate the position.

Interviews
Interviews can be formal or informal and may be used in conjunction with other job analysis methods.
Generally, this method is used to analyze professional positions.
Employees currently performing the job are interviewed either individually or in a group setting.
Questions are asked to gather information regarding the knowledge, skills, and abilities necessary to
successfully perform the job.
These interviews assist employers in distinguishing what duties and skills are essential to complete a
particular job.

Observation
Observation allows you to evaluate the work setting, the tools and equipment used, relationships
among employees, and difficulty of the job. Remember, the job analysis is to assess the job. It is
important to remember that it is not a specific employee who is being assessed. Some jobs are easier
to observe than others due to the nature of the work. Generally, this method is used to analyze
production type jobs.

Questionnaires
A questionnaire is a written series of questions completed by an employee that relate to the specific
duties of the job, the tasks the employee performs, and the skills the employee will need to complete
the particular job.
Questionnaires can allow an employer to obtain a clear and comprehensive understanding of the duties
and responsibilities of each position. Questions are commonly open ended to elicit specific details
related to the job. Questionnaires are generally given to the employees currently in the position and
their supervisors or managers.
A sample Job Analysis Questionnaire is located at the end of this section.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:7

Job Evaluation
Job Evaluation
Once a job analysis has been completed, job evaluations are used to compare all of the jobs in the
organization to one another and determine the relative economic value of each. It is a process where
jobs are ranked based on the demands placed upon the employee performing the particular job and in
considering the knowledge, skills, and abilities required by the job. The goal is to provide a basis for a
fair and orderly grading structure.
Job evaluations give employers a measure of the internal worth of work performed within the company.
A well designed and executed job evaluation program establishes uniform standards to determine the
value of work which can help avoid unfair pay practices.
Job evaluations measure the economic value of work employees perform. To derive an accurate
measure of a position's worth, it is important that:

evaluations are conducted for the job rather than the person performing the job
only assigned and approved job duties are considered
evaluations are based on average requirements needed to succeed in the job rather than those
exhibited by high or low performers
and
job descriptions are accurate.

Basic factors often used in designing job evaluations are:

skills, which encompasses education, training, experience, and ability


responsibility, which includes the amount of judgment exercised during decision making and
supervisory duties
effort, which includes both physical and mental components
and
working conditions, which includes workplace hazards and other dangerous or unpleasant factors
employees must deal with.

There are a variety of job evaluation methods employers can use. The most frequently used methods
for job evaluation are job ranking, job classification, factor comparison, and point factor plans. To
determine which method will best serve the needs of the company, employers should evaluate if the
method is both reliable and credible. Some methods may be too complex for a small employer, or the
results might not justify the time and expense required.
You may want to consider whether you have the expertise to undertake the job evaluation process.
Companies may wish to obtain advice before undertaking such a process. Many employer associations
and compensation consultants are trained and can assist with the job evaluation process.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:8

Job Ranking
Job ranking is one of the easiest job evaluation systems to use. Jobs are arranged based on their
importance to the company or on their level of difficulty. Job ranking is effective when an employer only
has a few jobs to evaluate. Generally, ranking is based on subjective factors rather than objective
factors. This may make job ranking less defensible than other job evaluation techniques.

Job Classification
Job classification is a job evaluation method that uses a series of classes to organize jobs. Classes are
based on factors such as the degree of skill and responsibility required by various jobs throughout the
company. Once classes are established, each job under evaluation is compared to the class
descriptions and placed at the appropriate level within the structure. The duties and responsibilities of
the job are analyzed to determine the different kinds of work and the level of difficulty of the job. Job
classification tends to narrowly define the scope and value of the job.

Factor Comparison
Factor comparison plans compare jobs on a factor-by-factor basis and then rate them according to the
results. Benchmark jobs are jobs that can be matched by title and description to a comparable job in a
compensation survey. They are ranked from highest to lowest degree for each factor and the proportion
of pay is dependent on the established factor. Sample factors include skill, mental effort, and
responsibility. Using the proportions, factors are weighted and the position is determined. Other jobs in
the company can then be compared to the benchmarked job and placed on the rating scale.

Point Factor
Point factor plans are a type of factor comparison plan that break down each job into a series of factors
that help distinguish a particular job from all other jobs. Employers choose the factors based on job
content and/or qualifications needed to perform the particular job. Factors used for point factor plans
should reflect the basic job evaluation factors and may include:

innovation/creativity
problem solving skills
internal and external contacts
concentration
and
manual dexterity.

Once the job factors are selected, they are assigned a point value based on their relative importance to
the job requirements. Each factor is divided into degrees, representing varying amounts of the element
or attribute.
The final step in the point factor process is to assign point values for each degree for each job factor.
The total point value for each job is represented by the total points assigned. The wage scale for jobs
should reflect their overall point value.
Point factor plans that are based on clearly defined factors, degrees of factors, and comprehensive job
analyses produce rational results that may be more objective than those determined using other
methods. Once definitions are developed, they can be used to verify that the compensation program
stays on track.
Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:9

Job Descriptions
Job descriptions should be developed using the information gathered from the job analysis. A wellwritten job description is the foundation for hiring and retaining good employees. A job description
outlines the necessary skills, duties, responsibilities, training, and education required for each position.
The format should be designed after all the necessary job information has been collected, reviewed,
and documented. The format will be determined by variables such as job type, company, and industry.
To eliminate errors and streamline your data, it is advised to be consistent with the format used for all
job descriptions within your company.
Typically, job descriptions contain:

job title and grade


identify the positions FLSA status: exempt or non-exempt
organization information and relationships
job summary
essentials functions (principal duties and responsibilities)
non-essential functions (additional duties and responsibilities)
required education and training
required experience
required skills
working conditions (necessary travel, working hours, unusual working conditions, etc.)
supervisory responsibilities (if applicable)
and
latest revision date.

There is no ideal strategy to format job descriptions. The best is the one that works for your company.
Job requirements must be accurate and proven to be necessary for job performance. Job criteria
should not in any way discriminate against women, minorities, or other protected classes. Job
descriptions are only valuable when they are accurate and current. They should be reviewed on a
continual basis for accuracy.
A sample Job Description is located at the end of this section.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:10

Pay Structures
Once an employer determines the internal and external worth of jobs, they can place the jobs into pay
structures. Internal worth was determined using information from the job analysis and job evaluation.
External worth was determined using compensation survey data on jobs in the external market and
union environment information.
A pay structure consists of a series of pay ranges. There is a minimum and maximum pay rate that an
employer is willing to pay for work within that range. Jobs are placed within the pay structure according
to their internal and external worth.
The number of ranges to include in a pay structure is dependent on the number of different job levels
an employer wants to recognize and the size of the company.

Pay Grades
Jobs with similar skill, effort, and responsibility are grouped together in a series of levels or pay grades.
Each pay grade should include a pay range allowing employers to recognize employees who
demonstrate outstanding performance in a position or variations in length of service. A pay range is
composed of minimum, midpoint, and maximum pay rates.
The minimum pay rate is frequently used for new hires or newly promoted employees with minimal job
qualifications. An employer should set the minimum pay rate for a particular job at or near the minimum
pay rate based on their target market rate.
The midpoint or middle-pay value for the range is the rate an employee adequately performing the
assigned duties should receive. Employers set the midpoints for their pay ranges based on their target
market midpoint for similar jobs at other companies. They will determine the maximum and minimum
pay rates based on these standards.
The maximum pay rate in a range is the most that a company is willing to pay individuals for jobs that
fall in that particular range. Pay rates between the midpoint and the maximum are generally paid only to
employees who demonstrate exceptional work performance or employees with a high level of seniority.
Pay ranges usually overlap, so that the highest rates paid in one range are the same as the lowest
rates paid in the next higher grade. However, extensive overlap occurs when there are too few
differences between the pay rates for jobs in different grades. Extensive overlap may indicate that
separate grades should be collapsed into one grade.

Pay Grades Example

Compensation Manual

GRADE

MINIMUM

MIDPOINT

MAXIMUM

20

$22,500

$27,750

$33,000

21

$32,500

$39,250

$46,000

22

$45,500

$56,250

$67,000

23

$66,500

$77,250

$88,000

DEVELOPING A COMPENSATION PLAN 2:11

Broad Banding
Broad banding is a type of pay structure that uses only a few, large salary ranges that span levels
within the organization. Occupations which are similar in nature are generally placed in the same band.
As a result, jobs that were previously separated by one or more pay grades under a traditional pay
grade system are placed in the same band under a broad banding system.
Broad banding has several advantages that include:

supporting a flatter organizational hierarchy


fostering superior teamwork among employees
encouraging workforce interchangeability
and
allowing employers to easily reward extraordinary performance because pay is no longer
determined by rigid pay grades.

An employer that adopts a broad banding structure might have one band for upper management, one
band for middle management, one band for professionals, and one band for staff employees.
Jobs are grouped together in terms of difficulty, responsibility, and importance. Market conditions are
also considered in determining a jobs placement in the pay bands.
Broad banding makes determining pay grades easy. Bands are often broken down into different job
levels. Jobs are placed into the level within the band based on the requirements and responsibilities of
the job.

Broad Banding Example


POSITION

MINIMUM

MIDPOINT

MAXIMUM

Administrative

$22,500

$33,750

$45,000

Operations

$28,000

$51,500

$75,000

Technical

$35,000

$62,500

$90,000

Professional

$50,000

$100,000

$150,000

Management

$50,000

$125,000

$200,000

Upper Management

$100,000

$175,000

$250,000

Pay rates below the minimum for a particular grade or band are often referred to as green circle rates.
Employees who are paid at green circle rates typically do not possess the required skills for the job.
Pay rates paid higher than the maximum for a particular grade or band are often referred to as red
circle rates. Red circle rates typically occur due to adjustments to the pay structure, a pay increase
granted to a deserving employee who has reached the top of the pay scale, or the restructuring of a
position.

Compensation Manual

DEVELOPING A COMPENSATION PLAN 2:12

Developing a Compensation Plan Forms


Section 2
Forms located in this section include:

Job Analysis Questionnaire (Employee)

Job Analysis Questionnaire (Manager/Supervisor)

Job Description

Sample Job Description

Compensation Plan Development Checklist

Position Requirements Worksheet

Remember: These forms are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Job Analysis Questionnaire


(Employee to Complete)

List your duties and responsibilities for the job you are performing. Specify any frequencies, quantities,
and production quotas such as calls answered each month, weekly production, etc.
1.

2.

3.

What are the essential job-related skills required to perform the job successfully?
1.

2.

Are there special physical or mental skills required? If so, what are they?

What are the working conditions under which the job is performed?

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Job Analysis Questionnaire


(Supervisor/Manager to Complete)

1. What is the job title?


2. To whom does this position report?
3. What are the essential functions of the job? State any frequencies, quantities, production quotas,
etc in order of priority. You may state occasional duties for information; however, they will not be
included in the final job description.

4. What are the essential job-related skills required to perform the job successfully?

5. Are there special physical or mental skills required? If so, what are they?

6. What training and educational job-related skills are required for satisfactory job performance?

7. What are the working conditions under which the job is performed?

8. Does the position require problem-solving skills? If so, how often are they required?

9. Will decision-making be a part of the job? If so, how frequently is it required?

10. How much supervision by another employee does the position require?
Minimal

Maximum

11. Does this position require any supervision of others? If so, how many?

12. Is there advancement potential? If so, list the potential position(s).

Job Description
Job Title
Department
Reports To
FLSA Status
Basic Function

Responsibilities
1.
2.
3.
4.
5.
Skills

Education and Training

Experience

Prepared By
Approved By
Date

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Sample Job Description


Job Title
Department
Reports To
FLSA Status

Receptionist

Prepared By
Approved By
Date

Basic Function
Responsible for relaying incoming telephone calls and greeting visitors in a professional manner
while performing various clerical duties.
Responsibilities
1. Answer multi-line telephone system, take accurate messages, and transfer telephone calls
to the appropriate person in an efficient manner.
2.

Greet and screen incoming visitors in a professional manner and promptly notify
appropriate person of their arrival.

3.

Open and distribute incoming mail on a daily basis and prepare outgoing mail using
postage meter.

4.

Receive and sign for packages, and deliver to the appropriate person promptly.

5.

Operate standard office equipment including:


- multi-line telephone system

- postage meter

- facsimile machine

- calculator

- photocopy machine

- computer/printer

6.

Monitor facsimile machine, direct incoming documents, and send documents through
facsimile as requested.

7.

Type correspondence and memorandums in proper format and proofread and mail as
assigned.

8.

Maintain an adequate office supply inventory and requisition additional items as needed.

9.

Contact appropriate company for necessary preventive maintenance/service on office


equipment and maintain related files.

10. Perform other related duties as assigned.


Skills
Oral Communication Skills
Written Communication
Skills
Telephone Etiquette
Proofreading Skills
Customer Service

Diplomacy
Professionalism
Filing
Math Aptitude
Organization

Education and Training


Degree: High School Diploma or Equivalent
Experience
Prior general office experience helpful

Time Management
Computer Literacy
Keyboard Skills

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Compensation Plan Development Checklist

Develop Compensation Philosophy

Review Internal Compensation Factors


Choose types of job analysis to be performed:

Review External Compensation Factors

Compensation surveys

Determine Company Target Rates

Determine Grades/Bands

Place jobs into grades/bands based on job analysis results

Determine pay ranges for grades/bands based on compensation surveys/company target


rates

Determine Mix of Base Pay and Variable Pay


Choose types of variable pay that will be offered:

Determine Benefits to be Offered

Communicate Plan to Employees


Determine how plan will be communicated:

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Position Requirements Worksheet


Position Title

Technical Skills (Ranked)

Level Necessary

Performance Skills (Ranked)

Level Necessary

Experience Level
Education
Salary Range
Industry Experience
Hours of the Job
Other Conditions

Environment
Other Notes

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Types of Compensation
Section 3
This section will explain:

monetary compensation

variable pay

pay adjustments

pay increases

commission plans

executive compensation
and

performance appraisals.

Remember: These materials are for general information purposes only, and are not intended as legal advice. If
you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

This page intentionally left blank.

Monetary (Direct) Compensation


Once a job structure has been created, you will need to decide how your employees compensation will
be determined. Compensation assists in creating a motivated and efficient workforce. Compensation
should adhere to the companys goals, vision, and align with human resource goals and objectives. If a
highly skilled workforce is needed, salaries may need to be above industry or regional averages in
order to attract quality personnel. Paying less than other employers may result in attracting less-skilled
employees, resulting in mediocre performance. If, on the other hand, the strategy is to obtain
inexpensive labor with little regard for turnover, lower salaries may be sufficient.
Compensation may include base pay, variable pay, or a combination of both. Requirements regarding
base pay may be dependent on the classification of the position under federal, state, and local wage
and hour laws.
Base pay is a fixed compensation paid to an employee for performing specific job responsibilities. It can
be paid as a salary, hourly, piece rate, or commissioned amount.

Salary is a fixed amount that may be paid on a weekly, biweekly, semimonthly, or monthly basis.
Hourly rate is a fixed amount paid for each hour worked.
Piece rate is a fixed amount paid for each piece or completed task.
Commission pay is generally made to sales employees based on the amount or percentage of the
employees sales.

Pay For Performance


For many companies, base pay is the only form of compensation that an employee receives. Other
companies wishing to reward productivity may add variable pay into the compensation equation. Base
pay is sometimes viewed as an entitlement whereas pay for performance plans or variable pay
normally depends on employee or company performance.

Compensation Manual

TYPES OF COMPENSATION 3:1

Variable Pay
Variable pay includes a variety of pay programs that reward employees based on an increase in
productivity, profits, or some other measure of business success. Variable pay allows employees to
impact their direct compensation since a portion of their pay is based on performance. Sales
representatives may heavily favor variable pay, while other employees may prefer base pay.
Common types of variable pay plans include:

Profit Sharing Plan


Profit sharing plans is when compensation is based on company performance.

Gain Sharing Plan


Gain sharing plans which promote positive behavior among groups of employees to increase
productivity, expense savings, and quality.
Example: A manufacturer needs to cut labor costs to achieve lower unit costs. The company sets
certain realistic labor cost goals for the next month. If direct labor costs can be reduced by five
percent, they will split the amount saved with all employees. The employer shares with employees
the fact that such lower unit costs would not only help the company but would also add to
employees' take-home pay and make their jobs more secure.

Skill Based Pay Plan


Skill based pay plans are determined by the number of tasks employees are capable of handling.
The purpose of these plans is to reward employees as they attain several different job skills.

Cash Bonus Plan


Cash bonus plans offers lump-sum awards to employees for meeting specific goals or specific
performance.

Retention Bonus
Retention bonus is an incentive that is promised on a fixed future date provided that the employee
stays with the company until that date.

Employee Recognition Award


An employee recognition award is given to employees to recognize special performance.

Production Payments
Production payments are payments linked to an employees or a group of employees production or
output. Payments are generally based on a set formula and linked to production or to completing
work in a certain amount of time.

Incentive Payments
Incentive payments reward the accomplishment of specific results. Awards usually are tied to
expected results identified at the beginning of the performance cycle.

Compensation Manual

TYPES OF COMPENSATION 3:2

Group Incentive Payments


Group incentive payments are based on the formula output of a group, team, or department of
workers rather than on the output of the individual worker.

Cash Profit Sharing Plan


Cash profit sharing plans are payments to employees in recognition of their contribution to company
profitability.

Performance Bonus
A performance bonus is a payment based on the individuals performance. Payments may be made
in cash, shares, share options, or other items of value. This is based on past performance instead
of an incentive plan.

Holiday or Year-End Bonus


A holiday or year-end bonus is a payment to employees at a holiday or near the end of the year as
a sign of appreciation for working hard throughout the year.

Attendance Bonus
An attendance bonus is a payment to employees who achieve specific attendance goals.

Suggestion Bonus
A suggestion bonus is a payment to employees whose innovative suggestions to create better work
processes or improve establishment efficiencies have been considered or implemented.

Referral Bonus
A referral bonus is a payment for referring an individual to the company for employment. Generally,
the new employee must work for the company for a designated time (for example, six months)
before the current employee receives the bonus.

Safety Bonus
A safety bonus is a payment to employees for maintaining a high level of safety in the workplace.

On the Spot Award


On the spot award is a bonus paid to employees as an instant award for desired behavior or
performance.

Compensation Manual

TYPES OF COMPENSATION 3:3

There are also non-monetary benefits that a company can offer such as:

flexible work hours


alternative workweeks
leave time
merchandise
tickets to local theater, lottery, movie, or team event (for example, lunch)
gift certificates
gas cards
and
office items or supplies.

Many variable pay options do not add to long term payroll costs as they are not a permanent change to
base pay.

Factors to Consider When Developing a Variable Pay Plan


Specific factors to consider when designing a variable pay plan include:

type of variable plan


budget constraints
eligibility requirements
time frame for award
and
performance criteria.

A variable pay plan should have defined goals that can be easily communicated to employees.
Employers should consider whether the desired goals of the variable plan will be long-term or
short-term.
If factors contributing to job results are beyond the worker's control, or if the worker's contribution is too
difficult to measure, a variable pay plan may not be effective.
Variable pay plans can assist in measuring employee performance. In addition, performance measures
should relate to the employer's overall business strategy. For example, if an employer is attempting to
increase market share, its variable pay plan might stress sales volume over cost control.
A downside to pay for performance or variable pay plans is that such plans may be difficult to design
and monitor. As a job increases in complexity, so does the way in which it must be analyzed. If
productivity goals are too high and unattainable, the plan may have a negative impact on employee
satisfaction. Employers need to consider who will be included in the plan, amounts which will be
allocated for increases, and the method and timing of the payment. An on-going assessment should be
done to determine the size of such payments and whether they continue to be perceived as having
value to employees.
Compensation Manual

TYPES OF COMPENSATION 3:4

Pay Adjustments
Pay adjustments are changes, generally increases, in base pay that do not involve a change in the
duties of the position.

Market Adjustment
A market adjustment increase is made to correct internal or external market inequities. These
adjustments typically occur when market conditions change, requiring the company to increase its
rates of pay to remain competitive. Such adjustments help keep the company's salary program
flexible and equitable with labor market conditions.

Hazard pay
Hazard pay is an additional payment for working under dangerous or undesirable conditions.

Geographic Differential
Geographic differential is an additional payment based on cost of living in the area or for working in
an undesirable area.

Shift Pay
Shift pay is an additional payment for working less desirable hours. Examples include second and
third shifts.

Reporting Pay
Reporting pay is given to employees who show up to work but are sent home because there is no
work available.

On-call Pay
On-call pay is when the employee must be available to return to work on short notice if the need
arises.

Emergency Call Back Pay


Emergency call back pay is when an employee is called back because of an emergency.

Premium Pay
Premium pay is additional payment for working holidays or vacation days.

Cost-Of-Living Adjustment (COLA)


COLA is a salary increase or additional payment designed to balance with the cost of living. COLAs
generally are tied to one of the Consumer Price Indexes (CPIs) published by the Bureau of Labor
Statistics.

Compensation Manual

TYPES OF COMPENSATION 3:5

Pay Increases
Pay increases are raises to base pay which may or may not involve a change in the duties of the
position.

Merit Increase
A merit increase is an increase of an employee's salary to a higher rate in his/her same salary
group. To receive a merit increase, the employee must typically demonstrate job performance and
productivity that are consistently above what is normally expected or required. Merit increases
demonstrate that improvement in performance and proficiency should be taken into account and
rewarded.

Promotion
A promotion is a change in job assignment of an employee from one job class to another with a
higher minimum salary. Increased skills, experience, and responsibility are expected upon a
promotion granted to an employee.

Length of Service Increase


A length of service increase is an increase in base pay dependent upon the employees length of
service. Generally, this type of increase is given yearly.

Many employers use a combination of merit increases and length of service increases.

Compensation Manual

TYPES OF COMPENSATION 3:6

Commission Plans
Commissions are payments usually made to salespeople based on the amount or percentage of sales
they make. The main reason for providing commissions is to provide an incentive for the salesperson
to sell more.
There may be three types of plans used to compensate salespeople:
1. Straight Salary Plans
Straight salary plans pay only a salary to salespeople. They may be used when the main job
requirement is providing service to the client rather then selling.
2. Straight Commission Plans
Straight commission plans pay the salesperson only a commission. There is no base salary. In
some organizations, they may be allowed a draw. A draw is a specific dollar amount advanced on
future commissions.
3. Salary Plus Commission
Salary plus commission pays salespeople a base salary in addition to a commission.

Compensation Manual

TYPES OF COMPENSATION 3:7

A basic commission plan should reflect the following:

How commission fits into your organizations mission and vision as well as the organizations total
compensation strategy.

Determine salespersons territories. Make sure they can generate the revenue necessary for your
salespeople to earn their commissions. Sales expectations should be realistic.

Review applicable state laws on sales and commissions prior to setting up the plan. For example,
under New York State law, commission salespeople must be paid their commissions no later than
the last day of the month following the month in which these commissions are earned. If a
commission plan provides that a commission is earned in March the commission must be paid by
the end of April.

Consult a labor attorney to draw up a written commission plan. In some states, commissioned
salespeople must have a detailed explanation of the parameters surrounding their commission plan.

Decide if perquisites (perks) are to be included. Perks can include company cars, car allowances,
expense allowances, entertainment allowances, club memberships, etc.

Specify deductions to be made from commission plans. States such as New York generally prohibit
an employer from deducting any sum from an employee's wages, except for deductions required by
law and those authorized in writing by the employee and for the benefit of the employee (for
example, pension and health benefits). Examples of prohibited deductions may include deductions
for spoilage or breakage, cash shortages or losses, and fines or penalties for lateness, or
misconduct.

Specify that all commissions earned on or before the date of termination will be paid when the final
base salary payment is made, in accordance with applicable state law.

Draft the payment formula to be clear that the payments are "commissions" under the applicable
state law.

Specify when and how a commission is earned, and when the commission will be paid, in
accordance with applicable state law.

Determine how much you want to pay the salesperson. This can include a base salary plus
commission. For example, if you want your salespeople to earn $100,000, $60,000 could be in the
form of salary and the other $40,000 in the form of commission. The plan can also be setup as
straight commission.

Compensation Manual

TYPES OF COMPENSATION 3:8

Executive Compensation
Executive compensation is usually reserved for top executives in a company and may include the
following:
Base Salary
Bonus
Perquisites (perks)
Golden Parachutes
Stock Option Plans
Stock Purchase Plans
Phantom Stock Plans
Restricted Stock Grants
Restricted Stock Units
Performance Grants
Employee Benefits
Retirement Plans
Company Paid Life Insurance
Post employment benefits and salary
Federal securities laws require clear, concise, and understandable disclosure regarding the
compensation paid to CEOs, CFOs and certain other high-ranking executive officers of public
companies.
Consult a labor attorney and/or an executive compensation specialist to discuss executive
compensation.

Compensation Manual

TYPES OF COMPENSATION 3:9

Performance Appraisals
Performance appraisals are the basis for many compensation decisions. When conducted properly,
performance appraisals can provide managers with a guideline to make effective employment
decisions. Employers should administer performance appraisals fairly and consistently using objective,
job-related criteria. Such criteria should be based on the job rather than the person completing the job.
Refer to the information on job descriptions and job analysis to achieve the best results. Objective, jobrelated criteria might include "operating within a budget," "meeting deadlines," or "complying with
company absenteeism policies."
A sample Performance Appraisal Form is located at the end of this section.
Performance is only one contributing factor when determining an employees pay rate. Other variables
that may influence pay are:

pay history
present position and experience
the date and amount of the last pay increase
pay relationship within the work area and other parts of the company
labor-market conditions
the financial condition of the company
and
the previous decisions regarding wage level and structure.

These combined factors may influence an individuals pay rate.

Compensation Manual

TYPES OF COMPENSATION 3:10

Types of Compensation Forms


Section 3
Forms located in this section include:

Performance Planning and Appraisal Form

Remember:

These forms are for general information purposes only, and are not intended as legal advice. If
you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Performance Planning and Appraisal


EMPLOYEE INFORMATION
Employee Name

Date

/ _________

Department ________________________________________________________________________________
Position

PURPOSE OF REVIEW
3 Months
6 Months
Annual
Other

Date

/ _________

PROCEDURE
SECTION 1: PERFORMANCE APPRAISAL - describes eight professional criteria associated with job
success or failure. Write the corresponding numerical value in the last column for each criterion. Add
the numbers to obtain a total value. Check the rating that most closely indicates the level at which the
individual has performed.
Transfer the total to the appropriate space at the bottom of the page. This will indicate and support your
overall evaluation of the individuals performance.
SECTION 2: STRENGTHS AND DEVELOPMENT NEEDS - provides space for discussing overall job
performance. Refer to Section 1 when completing this section.
SECTION 3: WORK PLAN FOR COMING REVIEW PERIOD - should reflect a mutually agreed-upon
work plan for the coming review period. This section enables the supervisor and employee to develop a
work plan for accomplishing the future objectives.
SECTION 4: EMPLOYEE COMMENTS AND SIGNATURES - is reserved for the individuals comments
and signatures.

SECTION 1:

PERFORMANCE APPRAISAL
Below Job Requirements

PROFESSIONAL CRITERIA

Performance was below job


requirements in one or more
important areas and immediate
improvement will be required.

Achieved Job Requirements


Performance met job requirements
in all important areas with extra effort
evident in one or more of the
following: quality, quantity,
timeliness, or other important
dimensions of performance.

Inadequate job knowledge.


Understanding of the skills,
procedures, and methods required
for job is insufficient.

Understands and effectively


completes normal job routine. Needs
little additional instruction.

Works at extremely slow pace.


Rarely meets deadlines. Needs
constant follow up.

Works at a steady pace. Output


definitely meets requirements.
Occasionally completes work ahead
of deadlines.

Excessive errors and mistakes.


Requires constant checking and
rework.

Meets standards for accuracy and


neatness. Makes some mistakes,
but of a tolerable level. Needs
normal supervision.

Shows little initiative. Never


volunteers. Must be told to do
everything.

Voluntarily solves non-routine job


problems when necessary. Effective
worker.

Frequently is hostile and


uncooperative when working with
others to complete an assigned task.
Attitude is unacceptable.

Generally cooperative. Willing to


accept suggestions and direction.
Acceptable relations with others.

Frequently undependable. Often fails


to deliver a complete job. Leaves
routine tasks incomplete.

Dependable. Can be relied on to


complete all aspects of job. Needs
normal supervision.

Frequently disorganized with work


area in disarray. Results in high
degree of lost time and inefficiency.

Work is sufficiently organized to


efficiently perform job.

Unacceptable attendance record.


Continual lateness or absences from
work.

Occasionally is absent or tardy.


Reports absence or tardiness in
advance.

Consider the employees ability to effectively present


ideas and information orally and/or in written form.

Unacceptable communication skills.


Does not communicate message in
a timely manner.

Generally communicates effective


with coworkers, management, and
clients.

JUDGMENT

Frequently exercises poor judgment.

Usually exercises good judgment.

KNOWLEDGE
Consider knowledge of skills, procedures, methods,
equipment, and materials required to do the job.

PRODUCTIVITY
Consider the amount of work the individual produces
during an extended period of time.

QUALITY
Consider the accuracy and thoroughness of
employees work. Assess work results in terms of
rejections, errors, and overall neatness.

INITIATIVE
Consider the degree to which employee is a self-starter,
can work with minimum supervision, and seeks new and
better methods to do the job.

COOPERATION
Consider the effectiveness of the employee in
accomplishing duties by working with others (for
example, peers, supervisors, and customers).

DEPENDABILITY
Consider the extent to which the employee can be relied
upon to be available for work and to complete work
properly.

ORDERLINESS
Consider the employees ability to organize work and the
work area.

ATTENDANCE
Consider the employees record of being at work
regularly and on time.

COMMUNICATION

Consider the extent to which the employee makes


good decisions.

Exceeded Job Requirements


Performance exceeded the requirements
of the job in several important areas.

Performance exceeded the


requirements of the job in all major
areas. Significant work above and
beyond the responsibilities was
achieved.

INSERT
NUMERIC
VALUE

0-3

Well informed. Completely understands all


aspects of this job and related jobs.

An authority on own responsibilities.


Knows why job functions are
performed and how they relate with
other jobs.

Works fast. Produces more than most.


Often work is completed ahead of
deadlines.

Exceptional producer. Consistently


completes work ahead of deadlines.

Consistently high degree of accuracy and


neatness. Work can be relied upon.
Seldom needs supervision.

Consistently highest level of quality.


Final output is virtually perfect.

Seeks new tasks and responsibilities.


Resourceful in familiar situations. Self-starter.

Goes out of way to accept


responsibility. Highly resourceful and
constructive in new situations.
Creative and independent worker.

Very cooperative. Usually shows


consideration of others viewpoints. Often
offers assistance. Can be counted on to
help.

Always works effectively with others.


Shows a keen insight into people.
Constantly offers and always is
available to help others.

Very dependable and persistent despite


possible difficulties. Completes normal work
and occasional special projects with little
supervision.

Highly motivated and trustworthy. Can


be counted on to go beyond limits of
duties with little or no supervision
when needed.

Highly organized and efficient worker.

Exceptionally precise in organization


of work. Has immediate access to
anything needed. Extremely efficient.

Seldom absent or tardy. Always reports


absence or tardiness in advance.

Excellent attendance record. Always


at work and on time.

Effectively verbalizes thoughts to coworkers,


management, and clients.

Excellent communicator. Effectively


expresses thoughts in a verbal and
written format.

Regularly exercises good judgment. Able to


think quickly and logically under normal
situations.

Excellent judgment. Can be counted


on to think quickly and logically under
pressure.

OVERALL RATING DETERMINATION:


Check appropriate box on basis of total points.

Exceeded Job Requirements in all major areas


Exceeded Job Requirements in several important areas
Achieved Job Requirements
9-16 Points

TOTAL
POINTS
2730 Points
1726 Points
Below Job Requirements

0-8 Points

SECTION 2: STRENGTHS AND DEVELOPMENT NEEDS


Cite outstanding accomplishments and describe employees specific strong points.
__________________________________________________________________________________
__________________________________________________________________________________
Describe areas where the employee must improve or training is needed.
__________________________________________________________________________________
__________________________________________________________________________________

SECTION 3: WORK PLAN FOR COMING REVIEW PERIOD (if appropriate)


A.

List objectives or special projects (in priority) that have been assigned to the employee for the
coming review period. State results or standards of performance and target dates mutually agreed
upon. (Attach additional page if necessary.)
_____________________________________________________________________________
_____________________________________________________________________________

B.

Describe the action plan which will be used to achieve the objectives listed above (For example,
what staff member, supervisor, or others will do and within what time frame).
_____________________________________________________________________________
_____________________________________________________________________________

SECTION 4: EMPLOYEE COMMENTS AND SIGNATURES


Employee Comments
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

Employee Signature_________________________________________ Date _________ /_______ / ______


(Signature does not imply agreement with contents)

Supervisor Signature ________________________________________ Date _________ /_______ / ______


Management Signature ______________________________________ Date _________ /_______ / ______

Benefits
Section 4
This section will explain:

benefit planning
and

types of benefits.

Remember: These materials are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances,
you should consult an attorney.

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Benefit Planning
Employer benefits are a significant component of an employees overall compensation plan. A well
planned and administered benefits plan can assist you in attracting and retaining the best employees.
Before you design a benefit plan, you may need to conduct a benefit needs assessment to determine
the following:

What is the budget for company benefits?


How much is the company willing to contribute on behalf of the employees?
What benefits do the employees want or need?
Do you want employees to determine the benefits offered?
What are your goals for the benefit plan?
Do you want to administer your benefits plan or outsource the administration?
Conduct a gap analysis to compare the companys benefit needs, the employees needs, and the
current benefits offered. A gap analysis can assist you in the identification of what the companys
overall benefit package will and will not include.
What will be the communication method(s) used to educate the employees on their benefit
package?

Initially, the company should determine what their budget allows them to contribute toward benefit
plans. Depending on the budget available, an employer may seek to meet or exceed the market or it
may provide minimal benefits. The company should then consider whether they will pay for the benefits,
share the cost with the employees, or have the employees pay the entire amount. If the company
decides to share the cost, the percentage the company will cover needs to be determined. Several
state laws have a minimum employer contribution level with respect to insurance plans. Check with
your carrier to determine and verify your required contribution.
A company may consider the preferences of its workforce when determining what benefits to offer. For
example, employees frequently desire basic health insurance. Beyond that, benefits that maximize
perceived value for employees may depend on the demographic of the employee base. Younger
employees may value flexible hours and increased vacation time more highly than a 401(k) plan.
Employees who have children may value flexibility, increased vacation time, and enhanced medical
coverage. Employees closer to retirement age may value their 401(k) or enhanced medical coverage.
Some companies can easily administer all of their benefits, while others may require outside support.
This determination may involve a budgetary assessment and a realistic look at the companys internal
resources.

Compensation Manual

BENEFITS 4:1

Employers may offer several or few benefits to their employees. The following list provides the types of
employee benefits that employers may offer. As a reminder, employers need to determine what
benefits meet the needs of both the employees and the company.
Employee Benefits (this list is not all inclusive)

Health, dental, vision, and prescription coverage


Cafeteria and flexible benefit options
Life, accidental death, and travel insurance
Short-term and long-term disability insurance
Sick, vacation, personal, and holiday leave (some states may require)
Pension and retirement savings plans
Stock purchase plans or stock options
Training and education programs
Membership in associations or clubs
Wellness programs, smoking cessation, and weight loss programs
Recreation, fitness centers, and special events
Employee assistance program
Legal and financial services
Credit union, financial planning, and retirement planning
Transportation subsidies and parking
Housing subsidies and relocation benefits
Flexible work environments and flexible schedules
Casual dress
Dependent care subsidies, referrals, and services
Elder care and long-term care
Food service and concierge service
Discounts on company services and products

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Employee Benefit Statements


Employers may also choose to implement a process of creating and distributing employee benefit
statements. When creating employee benefit statements, the following should be considered and
included to the extent possible.

List all benefits provided by the company.


Compute actual or inferred cost or value of each benefit.
Calculate specific cost based on individual employee's use of the benefit.
Calculate actual or projected value of each benefit for each employee.
Prepare customized statements for each individual employee. Include total benefit cost and
annualized salary and reflect total compensation provided.
Use positive language in any accompanying documents and encourage employees to ask
questions.
Distribute statements annually.

A Sample Summary of Compensation and Benefits is located at the end of this section.

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Types of Benefits
Benefits are valuable resources that are provided to employees. Some benefits are necessary and
mandated by federal and state laws.
Fringe benefits may include, but are not limited to, medical insurance, life insurance, dental insurance,
section 125 and 401(k) plans, vacation pay, holiday pay, and tuition assistance.
Designing the right benefit plan for your company and employees is a comprehensive task as tax and
legal implications need to be considered.
Since some benefits provide favorable tax treatment under the Internal Revenue Code, employers may
wish to discuss tax treatment of specific benefits with their accountant or attorney.

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Time Away From Work


Vacation and Personal Days
Vacation and personal days provide time for employees to relax away from work and take care of
personal business. Most vacation and personal day benefits are based on an employees length of
service with the company, and are paid at 100% of the employees current regular pay rate.
When developing a vacation and/or personal day policy, it is important to determine the following:

Who is eligible for the benefit?


When are employees eligible to use vacation and personal days?
What is the number of vacation and personal days offered?
How are vacation and personal days earned?
May employees carry over earned but unused days to the next year?
May employees be paid in lieu of using vacation and/or personal days?
Is there a use-it or lose-it policy in place? (state law may dictate)
Are employees required to request vacation and personal days in advance?
Are there any restrictions on use of vacation or personal days?
Are vacation or personal days paid out at termination? (state law may dictate)

Vacation and personal days are fringe benefits that are not generally required by federal or state laws.
However, state laws may dictate the use of paid time off when offered. For example, state law may
dictate whether an employer may impose a use-it or lose-it policy or whether unused time must be
paid upon termination of employment. Employers may choose a vacation and/or personal day policy
that works best for them as long as it is applied consistently and complies with state laws.
Employers offering paid vacation and personal days may face problems with vacation or leave
hoarding. This occurs when employees save up their available time, rather than using it throughout
the year. Leave hoarding may increase financial liability for employers who offer or are required to pay
out vacation time at year end or termination. Financial liability can also increase because the employer
must pay out vacation at the employees current rate, rather than the rate at which it was earned.
Decreased employee productivity may result when employees do not take time off from work. Using
vacation days, rather than being paid in lieu of taking the time off gives employees a rest and time to
rejuvenate. Without such time, productivity may decrease as the employee becomes burned out.
To eliminate the problems associated with leave hoarding, employers should establish a culture where
employees are expected to take vacation at least once or twice each year. Stress the need for regular
vacations during new employee orientation and promote taking regular vacations so it becomes part of
the companys culture. Instruct employees not to call in or check e-mail while out of the office.
Employees should take time off to relax.
The Request for Time Off, Absentee Record, and Vacation-At-A Glance forms are located at the end of
this section.

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Holidays
Many employers choose to offer paid holidays as another fringe benefit. Employers may determine
which days they offer as paid holidays. Many employers offer the nationally recognized holidays. To
avoid claims of religious favoritism, employers may wish to offer floating holidays instead of specific
religious holidays, with the exception of the nationally recognized holidays.
When creating your holiday policy, it will be important to determine the following:

When will employees be eligible to be paid for holidays (such as, after the completion of the
companys introductory period)?
Will part-time employees be eligible for paid holidays?
How will holidays that fall on the weekend be handled?
Will the company offer any additional floating holidays, for holidays observed by the employee, but
not recognized by the company?

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Sick Days
Many employers choose to offer employees paid sick time when they are absent from work due to an
illness or injury. Some companies may allow employees to use earned sick days to care for a sick
family member.
Employers are not obligated by law to offer paid sick days, as sick days are considered a fringe benefit.
Employers may choose a sick day policy that works best for them as long as it is applied consistently
and complies with state laws.
Employers offering paid sick days should develop a written policy to inform employees of the eligibility
requirements. The policy should include the number of paid sick days available, whether or not earned
but unused sick days may be carried over to the next year, or if employees may be paid in lieu of using
the days. Employers should indicate whether employees will be paid for earned but unused sick days
upon termination.
In accordance with federal wage and hour laws, employers that have a bona fide sick day plan may
make deductions from an exempt employee's salary for full day absences due to illness or injury if the
exempt employee is either not yet eligible for time off under the plan or has exhausted all their available
time under the plan. In the absence of a bona fide sick day plan, an employer would not be able to
make a deduction from an exempt employee's salary for absences of less than a full week due to
illness or injury. Partial day deductions are never permitted from an exempt employees salary except
for certain leaves under FMLA.
Depending on the circumstances and eligibility requirements, employees who are absent from work due
to a non-occupational illness, injury, or pregnancy-related disability may be eligible for state-mandated
or company sponsored disability insurance benefits depending on the circumstances and eligibility
requirements.
Employers are cautioned against requiring doctor's certificates for regular sick leave. There are many
issues to be considered and potential exposures for the employer when implementing such a policy,
including but not limited to privacy concerns, responsibility for the cost of obtaining the note may fall on
the employer (because they may be causing the employee to incur an expense they otherwise wouldnt
have), discrimination claims if the policy is not consistently enforced, and possible accommodations
under state or federal disability or discrimination laws. Further, requiring a note for every illness may not
be fair to employees who do not inappropriately use the time available.
Employers may require medical certification when employees are requesting a disability leave or FMLA
leave.

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Paid-Time-Off (PTO)
Some employers choose to combine all paid-time-off benefits such as vacation, personal, holidays and
sick days into one benefit, paid-time-off. Employers need to evaluate their company operations to
determine if this type of benefit is appropriate for their workforce and employee population.

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Medical and Non-Medical Leaves of Absence


A medical leave of absence is designed to provide time off from work due to a non-occupational illness,
injury, or pregnancy-related disability to eligible employees in accordance with federal and state laws. If
no applicable law exists, employers may wish to develop a company policy for medical leaves to
promote consistent implementation and possibly reduce exposure to discrimination claims.
A non-medical leave of absence is designed to provide time off from work for reasons as required by
state law or permitted by company policy. Qualifying reasons may include, but not limited to, personal
issues or to care for a sick family members.
Employers should verify the eligibility requirements for the federal Family Medical Leave Act and state
mandated leaves with the U.S. Department of Labor or their state Department of Labor.
The Leave Request Form and Return to Work Medical Certification forms are located at the end of this
section.

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Bereavement Leave
The company may provide eligible employees with bereavement leave for the death of a family
member. Such leave is a fringe benefit and is not mandated by federal or state laws.
Bereavement policies should specify which employees are eligible for paid time off, who is considered a
family member for purposes of taking leave, the number of days allowed for bereavement, and whether
or not written verification of an employees family relationship to the deceased and attendance at the
funeral service is required as a condition of bereavement pay.
Employees should request bereavement leave as soon as possible after learning of the need for leave.
If the employee is eligible for the leave, approve and document the days on the employees absentee
record. All bereavement days should be reported to the payroll department in accordance with
company policy.

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Voting Leave
Many states require employers to provide employees with time off to vote. In some instances, this time
may be unpaid and may only apply to general elections. However, some state laws require employers
to grant employees paid time off to vote.
Employees should inform their employer of the need for voting leave as soon as possible. Employers
are allowed to request employees to present a voters receipt upon returning to work, where permitted
by state law. All voting leave days for non-exempt employees should be reported to the payroll
department in accordance with company policy and/or state law. Under the Fair Labor Standards Act
(FLSA), exempt employees cannot have their salary reduced for partial day absences, including for
voting leave.
Contact your local Board of Elections or state Department of Labor for state voting leave requirements.

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Witness Leave
If an employee is summoned as a witness in a court proceeding, some state laws mandate that they
must be allowed the necessary time off.
Some state and local laws prohibit discrimination against an employee for serving as a witness, and
others require employees be paid for time away from work while serving as a witness.
Contact your local Department of Labor or legal counsel for state requirements.

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School Visitation
A company may offer, and some states require, employers to provide employees who are parents or
guardians paid time off to attend school conferences or activities at their childs school.
Employees should inform their employer of the need for school visitation leave as soon as possible.
Non-exempt employees may use available paid time off, if applicable. Such time should be reported to
the payroll department in accordance with company policy.
Under the Fair Labor Standards Act (FLSA), employers may not make deductions from exempt
employees salaries for partial day absences due to school visitation leave.
For more information about state school visitation laws, contact your local Department of Labor.

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Medical Reimbursement Plans


Health Reimbursement Account (HRA)
A Health Reimbursement Account is a solely employer funded medical reimbursement plan where
employees can utilize the money (on a tax free basis) to pay for out-of-pocket medical expenses and
insurance premiums. It is not necessary to have an insurance plan to participate in an HRA. However, if
an insurance plan is offered, it must be a high deductible health insurance plan.
If the plan is qualified under the Employee Retirement Income Security Act (ERISA), certain eligibility,
participation, and reporting requirements will apply. HIPAA and COBRA may also apply.
Consult with your tax advisor and legal counsel prior to establishing any benefit plan.

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Health Savings Account (HSA)


A Health Savings Account (HSA) is a tax sheltered savings account similar to an Individual Retirement
Account (IRA), but designated for qualified medical expenses. An HSA allows an account holder to pay
for qualified medical expenses and save for future qualified medical expenses on a tax-free basis.
Contributions, earnings, and qualified distributions are exempt from federal income tax, social security
taxes, and state taxes (based on state tax regulations). HSAs are similar to medical savings accounts,
but do not have as many restrictions or limitations. Individuals must be covered by a HSA-qualified,
high-deductible health plan (HDHP) to set up an HSA, however there is no requirement that this must
be an employer sponsored HDHP.
IRS and Treasury regulations allow the option for employee contributions to HSAs to be made through
a salary reduction on a pretax basis under a Section 125 plan or directly to the HSA Custodian outside
of the plan. There are specific requirements when offering this option as part of a Section 125 plan. In
addition, contributions may be made by an HSA Account Holder, or on his or her behalf, by any other
person including an employer or family member.
Unlike other benefits offered under a Section 125 plan, employees may make changes prospectively to
their Section 125 HSA plan elections at any time during the year. Employees making changes to their
elections must be aware of the IRS annual plan limits for HSA contributions.
Beginning in 2007, an account holder can contribute up to the statutory maximum contribution (plus the
catch-up contribution if applicable) for the calendar year, even if they first become eligible or enroll in
the middle of the year. However, if the account holder contributes a full years contribution but is
eligible only part of the year, they will be subject to taxes and penalties if they do not remain eligible for
a full 12 months after the year in which they first become eligible.
Employers should consider how these changes to Section 125 plan elections will be administered.
Enrollment in a HDHP in conjunction with an HSA may impact other benefits offered under a Section
125 plan, such as the Health Flexible Spending Account (FSA). IRS regulations prohibit any changes to
the Health FSA as a result of changes in insurance benefits. In addition, participation in a Health FSA
may impact an employees eligibility to participate in an HSA and vice versa. If an employee has a FSA
in conjunction with a HSA, they may only submit medical expenses under the unreimbursed medical
portion of the FSA for dental, vision, and preventive care. Employees HSAs may be used to pay for
any remaining HSA qualified expenses.
Consult with your CPA or labor attorney regarding these plans.

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Medical Savings Account (MSA)


A Medical Savings Account (typically referred to as an Archer MSA) is a tax free savings account
established outside of a cafeteria plan that can be used by employees of a small employer or selfemployed individuals who are covered under a high deductible health plan. The Archer MSA can be
used to pay for the deductible amounts and out-of-pocket expenses associated with the accompanying
high deductible plan. MSAs are more restrictive than a health savings account, however, they are not
subject to the requirements of cafeteria or section 125 plans, such as third party substantiation and the
use-it or lose-it rule.
Consult with your tax advisor and legal counsel prior to establishing any benefit plan.

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Section 125 Plans


Section 125 plans are employer sponsored plans which allow eligible employees to make pretax
contributions toward a number of qualified fringe benefit plans. These plans are often referred to as
cafeteria plans. Section 125 of the Internal Revenue Code gives employees the opportunity to shelter
money, tax-free, to pay for the out-of-pocket cost of their medical, dental and dependent care expenses
as well as paying for insurance premiums through a salary deduction prior to being taxed. Section 125
plans can benefit both the employee and the employer in several ways.
Savings for Employees

Contributions are automatically deducted from employees salaries before taxes are calculated.
This saves employees on federal withholding, FICA, and state withholding taxes (based on state tax
regulations). Consult your tax advisor regarding specific state requirements.
Because employees taxable incomes are reduced by the amounts contributed, employees may pay
less taxes on the money earned, meaning more take home pay.
Employees can also use their Section 125 plan as a budgeting tool for out-of-pocket medical,
dental, and dependent care expenses.

Savings for Employers

A Section 125 plan allows businesses to save social security, Medicare (FICA), federal
unemployment taxes (FUTA), and state unemployment taxes on the funds participants contribute.
When employers sponsor a Section 125 plan, employees feel appreciative of the commitment on
the part of management towards their welfare. This feeling of appreciation can help increase
employee morale and foster a positive attitude toward the employer.

The three most common benefits offered under a Section 125 plan include:

Premium Only Plan (POP)


Flexible Spending Account (FSA)
Full Cafeteria Plan

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Premium Only Plan (POP)


A Section 125 Premium Only Plan (POP) is a pretax benefit contribution option for employees. This
benefit offers participants a non-taxable benefit when paying a portion of an insurance premium through
payroll deduction. Some benefits that may be included on a pretax basis are group health/accident
insurance, group term life insurance up to a $50,000 face value, and disability benefits*. Employee
contributions are deducted from gross pay before federal income tax and FICA are calculated. In most
states, employee contributions are also deducted before state income tax is calculated. This means tax
savings for both the employer and the employee.
Consult with your CPA for state specific guidelines.
*Disability premiums may be taken on a pretax basis. However, the benefit may be taxable once
received.

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Flexible Spending Account (FSA)


A Section 125 Flexible Spending Account (FSA) allows employees to set aside monies on a pretax
basis from their payroll for eligible health and/or dependent care expenses that are not reimbursed by
any other employer provided benefit plan.
The employer selects a maximum contribution for unreimbursed medical expenses for the plan year
and participants may elect to contribute an amount each plan year up to that maximum. For dependent
care expenses, the IRS sets the maximum. Participants are reimbursed for expenses with pretax
dollars from the FSA.
An FSA offers a budgeting tool that helps pay for out-of-pocket medical, dental, and dependant care
expenses not covered by any other employer benefit plan. Like a POP, an FSA helps pay for itself by
increasing employee take-home pay while decreasing employer payroll taxes.

An employee decides how much of his salary should be set aside before taxes are calculated.
This amount is automatically deducted from the employees paycheck every pay period, just like
any other payroll deduction, and is credited to his FSA account.

The employees pay their out-of-pocket expenses upfront. They then submit claims and documentation
and reimbursements are made from their accounts.
Recent IRS guidance and regulations have addressed the use of FSA debit card programs. The use of
such programs allows the participant to pay for an FSA eligible expense directly out of their flexible
spending account rather than first out of their pocket and then receiving reimbursement from the
account. In addition, with the newest guidance, this option significantly reduces the need for participant
to submit substantiation documentation after the purchase as many items are substantiated right at the
point-of-sale.
Some common out-of-pocket medical expenses include: eyeglasses and contact lenses, medical
insurance deductibles, prescriptions, co-payments, orthodontia, chiropractic services, dental
treatments, x-ray and laboratory services, and certain over-the-counter medications.
Dependent care expenses include: custodial care for a child under the age of 13, custodial care for a
disabled spouse or dependent incapable of self care, or household-related services that may be
associated with the care of a qualifying individual.
Effective for plan years beginning 2005, employees can incur expenses for an additional 2 months
immediately following the end of the plan year, for reimbursement from remaining balances from the
prior years account. This is known as the Grace Period. This is an option, not a requirement, and
must be included in the plan documentation if it is offered.

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Important Notes:

FSA health and dependent care funds cannot be co-mingled.


FSA health participants are able to receive their full annual election at any time during their plan
year. This is referred to as Uniform Coverage, but service still has to incur prior to reimbursement.
FSA dependent care participants are able to receive reimbursement only as it is deducted from their
pay and after the service has incurred.
Both FSA health and dependent care funds have the use it or lose it principle, in which any
unclaimed funds revert to the plan at the close of the plan year (and grace period if applicable).
Reimbursements under the dependent care benefit are subject to IRS code Sections 129 and 21.

If the plan is qualified under the Employee Retirement Income Security Act (ERISA), certain eligibility,
participation, and reporting requirements will apply. The IRS has detailed requirements established
under Sections 125 and 129 of the Internal Revenue Code (Code). Based on plan design, requirements
under Health Insurance Portability and Accountability Act (HIPAA) and Consolidated Omnibus Budget
Reconciliation Act (COBRA) may also apply to medical FSAs. FSAs are subject to all Section 125
regulations plus additional guidelines specific to these plans.
Consult with your tax advisor and legal counsel prior to establishing any benefit plan.

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Flexible Spending Account Debit Cards


An alternative method for employees to access their flexible spending account funds is through the use
of a FSA debit card linked to their FSA account that is offered by some service providers. This helps
eliminate the need to pay for an expense first out of pocket and then wait for reimbursement.
Depending on how an employer decides to set up their FSA Debit Card program will dictate how a
participant may use their card. The following purchases do not usually require receipt submission:
Prescription co-payments, over-the-counter items at pharmacies, grocery or discount stores, wholesale
clubs, or mail/Web-based vendors with an inventory information approval system (IIAS) installed. An
IIAS is point-of-sale technology for retailers who accept debit cards for use with medical FSAs. Each
point-of-sale terminal contains an embedded code confirming the merchant as selling FSA eligible
items. Depending on the items purchased, participants may be required to submit documentation to
validate the expense as eligible under the plan.

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Full Cafeteria Plans


In a full cafeteria plan, an employer provides a menu of benefit options for employees to choose from.
The employer also provides a fixed dollar amount with which the employee purchases benefits. A full
cafeteria plan usually includes POP and FSA features.

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Types of Insurance
Health Insurance
Health insurance is a broad term that can mean almost any type of insurance that pays for
health-related services. There is no existing law that requires employers to offer medical or other health
insurance benefits to employees or to pay any portion of the premium. That decision is left to company
policy, but must be implemented consistently to avoid discrimination claims. Some states, however, do
have insurance laws which require employers who offer group health insurance plans to offer the
benefit to all employees who work a minimum number of hours.
Check with their insurance carrier or state department of insurance for state-specific laws.

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Health Maintenance Organization (HMO)


A Health Maintenance Organization (HMO) is a form of health insurance in which a group of doctors
and other medical professionals offer care for a flat monthly rate with no deductibles. However, only
visits to professionals within the HMO network are covered by the policy. All visits, prescriptions, and
other care must generally be cleared by the HMO in order to be covered. A primary physician within the
HMO handles referrals.

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Point of Service
Point of service plans are similar to an HMO format, but allow outside network services that are
generally reimbursed by the provider from the basis of a fee schedule on usual, customary, and
reasonable charges.

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Indemnity Plans
An indemnity plan partially reimburses the patient and/or provider as expenses are incurred. Such a
plan generally allows the participant the choice of any provider without effect on reimbursement.

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BENEFITS 4:26

Preferred Provider Organization


A Preferred Provider Organization is an indemnity plan where coverage is provided to participants
through a network of selected health care providers, such as hospitals and physicians.

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Consumer Directed Health Plans


Over the last several years, due to the rising health care costs for both employees and employers,
Consumer Directed Health Care Plans have become increasingly popular. They are designed to
control employer costs while allowing employees direct control over their healthcare. These plans
typically include Health Reimbursement Accounts (HRAs) or Health Savings Accounts (HSAs), as well
as a high deductible medical plan as determined by IRS guidelines.

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Dental Benefits
Medical insurance may include dental plans, which can cover all or portions of the cost for the following
services:

Cleaning, x-rays, and oral examinations


Fillings
Crowns and dentures
Root canals
Oral surgery
Orthodontia

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Disability Insurance
The company may offer, and/or state law may mandate disability insurance programs which provide
payment to employees who are absent from work due to non-work related injuries, illnesses, or
pregnancy-related disabilities.

Short-term disability is usually defined as an employee's inability to perform the duties of the
employees current occupation. Benefits may begin on the first or the eighth day of disability and
are usually paid for a maximum of 26 weeks. The employee's salary may determine the benefit
level, ranging from 60 to 80 percent of pay.
Long-term disability (LTD) benefits usually begin after short-term benefits are exhausted. LTD
benefits continue for the length of the disability or until normal retirement. Benefit levels are a
percentage of the employee's pay, usually between 60 to 80 percent. Social security disability
frequently offsets employer provided LTD benefits. Thus, if an employee qualifies for Social
Security disability benefits, these are deducted from benefits paid by the employer.

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Life Insurance
Traditionally, employer sponsored life insurance plans pay death benefits to beneficiaries of employees
who die during their working years. There are two main types of life insurance:

Survivor income plans, which make regular payments to survivors


Group life insurance plans, which normally make lump-sum payments to specified beneficiaries.

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Retirement Plans
Retirement plans are designed to be used in combination with social security benefits and personal
resources to provide supplemental income upon retirement. Employees are eligible to participate on
dates as designated by the plan.
The Pension Protection Act (PPA) as well as the Economic Growth and Tax Reconciliation Act
(EGTRRA) updated many regulations that pertain to retirement plans. These include adding the option
for individuals age 50 or older to contribute catch-up contributions and the enhancement of the
automatic enrollment provisions to include a permissible withdrawal option as well as the availability of
safe harbor provisions. Automatic enrollment requires employees to provide an affirmative election if
they do not want to participate in the plan.

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401(k) Plan
A 401(k) plan is a company sponsored retirement plan that allows employees to set aside tax-deferred
contributions for long-term savings. This benefit is primarily funded by employee contributions. The
employers contribution, if any, may be determined on a year-to-year basis. Most 401(k) plans provide
greater flexibility in funding choices by permitting employees to direct the investment of their
contributions and offer enhanced accessibility to monies through 401(k) loans. 401(k) contributions are
protected from creditors.
The term 401(k) comes from a section in the Internal Revenue Code. This section explains the
requirements and regulations necessary to implement this type of a plan.

A qualified plan is a plan that meets the requirements established by the IRS and the Department of
Labor. A 401(k) plan must be qualified in order to receive favorable tax treatment.
Contributions and earnings allocated to an employees account are not taxed for federal income tax
(all states except Pennsylvania) until they receive a distribution (benefit payment) from the plan.
Therefore, contributions are not included in the employees current income.
The tax savings continue with the growth of your contributions. Participants do not pay taxes on the
growth until a distribution is taken, usually upon retirement.

Another advantage of a 401(k) plan is the option for an employer-matching contribution. This
contribution is a great way to get employees to participate in the plan. Participation is important as it
affects how much the principals of the business may defer.
Employee Retirement Income Security Act of 1974 (ERISA) requires qualified plans to meet certain
minimum standards for eligibility, participation, vesting, and reporting.

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Roth 401(k) Plan


A Roth 401(k) is a different way to contribute to a 401(k) plan. It is an after-tax salary deferral
contribution. Roth elective deferrals greatly enhance existing 401(k) plan flexibility by providing post-tax
contributions and tax-free plan distributions (if certain requirements are met). A Roth 401(k) is a new
401(k) plan feature. The 401(k) plan document must be amended to allow for Roth elective deferrals.
If an employer includes Roth elective deferrals in the plan document, the contribution option must be
available to all plan participants. An employer cannot offer the Roth option only to a select group of
employees, such as salaried or exempt employees. Employers are not required to offer the Roth
401(k) option in their plans.
401(k) plan participants have the opportunity to make pre- or post-tax contributions.

Roth elective deferrals are made post-tax and are included in a participants taxable wages. The
participant pays taxes now and may receive tax-free distributions (similar to a Roth IRA).
Pre-tax elective deferrals are excluded from a participants taxable income. The participant does
not pay taxes until the money is withdrawn.
Employer-matching contributions are based on total salary deferrals, not to exceed the plan limit.
Matching contributions are taxable upon distribution, regardless of whether they were based upon
post- or pretax deferrals.

Participants must meet certain distributable events as well as satisfy the five year participation rule in
order for the distribution to be considered qualified, permitting the earnings associated with their
distribution to be tax-free.
A distribution of Roth money is considered nonqualified if: 1) distribution is made prior to the end of the
applicable five-tax-year period and 2) distribution is not made after attainment of age 59 1/2, death or
disability.
A nonqualified lump sum distribution would only have the earnings component taxed. Any amount that
is rolled over to another qualified plan that accepts Roth contributions or a Roth IRA would not be
taxed. Also a nonqualified lump sum contribution would be subject to the 10 percent early withdrawal
penalty if the participant is under age 59 1/2
Roth elective deferrals can be rolled into another 401(k) plan that accepts rollovers and permits Roth
contributions. Roth elective deferrals can also be rolled into a Roth IRA. A Roth IRA does not require
minimum distributions at age 70 1/2, so this type of rollover may be preferable to certain participants.
Employers allowing Roth elective deferrals must follow stringent accounting requirements for plan
participants pre- and post-tax contributions: Employers must account for Roth 401(k) contributions
separately from all other contributions made to the 401(k) plan; gains, losses, and other credits or
charges must be separately allocated on a reasonable and consistent basis to the designated Roth
401(k) contribution account under the plan; forfeitures may not be allocated to the designated Roth
401(k) contribution account.

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BENEFITS 4:34

Roth 401(k) contribution considerations for employers:

Roth 401(k) contributions are an excellent employee recruiting and retention tool. Roth 401(k)
contributions have received exposure in the national news media. Some job candidates and
employees will ask if a company offers Roth 401(k) contributions. The companies that do may have
a competitive advantage in the marketplace.
Roth 401(k) contributions encourage business owner and key employee participation. As
mentioned earlier, Roth 401(k) contributions do not have an income restriction (as the Roth IRA
does) and are an excellent retirement-savings tool for key and highly-compensated employees.
Roth 401(k) contributions provide participants with a more flexible retirement planning tool. It gives
participants more options. The Roth 401(k) contribution option must be clearly presented to avoid
confusion.

If the plan is qualified under the Employee Retirement Income Security Act of 1974 (ERISA), certain
eligibility, participation, vesting, and reporting requirements will apply.

Compensation Manual

BENEFITS 4:35

Profit Sharing Plans


Profit sharing plans are designed to recognize and reward employee efforts. The amount of the
company's contribution to the plan is normally based on the company's profits. However, profits are not
required to make a contribution. An employees share of the company's contribution is most often
based on that employees earnings in proportion to total earnings of all participants. Details of the plan
are located in the Summary Plan Description and should be distributed to employees when they
become eligible.
The Employee Retirement Income Security Act of 1974 (ERISA) requires qualified plans to meet certain
minimum standards for eligibility, participation, vesting, and reporting.

Compensation Manual

BENEFITS 4:36

Savings Incentive Match Plan for Employees (SIMPLE)


The Savings Incentive Match Plan for Employees (SIMPLE) is relatively easy and inexpensive to
establish and maintain. A SIMPLE is a simplified retirement plan for businesses with 100 or fewer
employees who earned at least $5,000 in the previous year.
SIMPLE retirement plans can be structured as either an IRA or as a 401(k) plan, but the IRA version is
somewhat more popular. The employer cannot maintain any other qualified plans to which
contributions are made or benefits accrued during the same plan year that a SIMPLE plan is
maintained. ADP/ACP and Top heavy rules are not applicable to SIMPLE plans. All contributions must
be 100 percent vested and nonforfeitable.
Employers are required to match the employees elective deferrals up to three percent of total
compensation, or make a two percent non-elective contribution to all eligible employees.

Compensation Manual

BENEFITS 4:37

Miscellaneous Benefits
Flex Time
Employees often have childcare or elder care obligations that can only be met during typical working
hours. Employees try to coordinate work schedules with bus, train, or car pool schedules, avoid rush
hour traffic, or coordinate work hours with a spouses schedule. For many workers, especially in office
settings, the exact starting and stopping time of their workday isn't as important as the time and
attention given to their work. As long as the employees work is completed, the hours that make up their
workday are not as critical. Flex time schedules, which allow employees to adjust their arrival and
departure times within specified ranges may be an attractive benefit that helps meet the changing
needs of workers, thereby aiding employers with recruitment and retention efforts.
Allowing workers to adjust their schedules may reduce the occurrences of employees calling in sick or
having other unscheduled absences. Staggered workdays can provide greater employee coverage for
employers while allowing employees to better balance work and family life. It has been found that
employees allowed to arrive during off hours spend less time in traffic and are more productive.
When establishing flex time policies, it is important for employers to remain within the confines of
federal and state wage and hour laws and apply the policy in a fair and consistent manner to avoid
discrimination claims.
Not all positions are suitable for flex time options. Management must identify which positions are
eligible and clearly establish any boundaries. Once the policy has been established, it should be clearly
communicated to all employees. Since flex time schedules are not practical for all positions,
supervisors should be prepared to explain why some positions are not eligible for this program. For
example, due to customer service needs, production schedules, etc.
It is imperative for management to continuously monitor the flex time policy and make adjustments as
necessary. In some cases, the program may not work because of company culture, job duty
requirements, or behavior styles. Supervisors should try to work with employees and adjust flex time
policies as necessary to make them work. Once the flex time benefit is offered, it is difficult to take
away. Such practice can be very detrimental to employee morale.
The Request for Flex Time form is located at the end of this section.

Compensation Manual

BENEFITS 4:38

Tuition Assistance
Employers may wish to offer financial assistance to eligible employees for courses that are related to
the employee's current position. Company policy may specify that only those courses that improve
current job skills will be considered for approval.
Certain criteria should be set when implementing a tuition assistance program. To receive
reimbursement, employees should:

Successfully finish the course with a minimum grade as determined by company policy.
Be on the active payroll upon completion of the course.

Supervisors should exercise caution when implementing tuition assistance policies which require
employees to remain with the company for a specified period of time following reimbursement. Such
policies may potentially jeopardize the employment-at-will relationship and can be difficult to enforce.
The Tuition Assistance and Training Request form is located at the end of this section.

Compensation Manual

BENEFITS 4:39

Employee Assistance Programs (EAP)


An Employee Assistance Program (EAP) helps employees and their immediate family members with a
wide range of issues. Situations addressed by an EAP may include, but are not limited to, marriage and
family problems, emotional problems, alcoholism and alcohol abuse, drug abuse and dependency,
financial problems, compulsive gambling, and eating disorders.
Employers should educate employees regarding the service and its availability. Conversations and
records should be kept in strict confidence.

Compensation Manual

BENEFITS 4:40

Travel and Expense


Travel and expense reimbursements are generally left up to company policy. Reimbursement should be
made to employees for reasonable expenses incurred through business travel. All cash advances
should be accounted for and expense receipts are required.
Supervisors should inform employees of expenses that will be reimbursed and instruct employees on
how to submit for reimbursement.
State law may mandate reimbursement of business expenses, including travel, lodging, and meals
required for work.
Check with your state Department of Labor for additional information.
The Request for Cash Advance, Employee Expense Report, and Auto Mileage Reimbursement
Voucher form is located at the end of this section.

Compensation Manual

BENEFITS 4:41

Company Discounts
Providing company discounts on products and services is an inexpensive way to offer your employees
an additional benefit. Company discount policies should include eligibility requirements and terms of
payment.
Supervisors should inform eligible employees of goods and services that may be purchased at a
discount. Supervisors should explain any other restrictions regarding the company discount policy such
as whether it is for personal or family use and the acceptable methods of payment. Purchases using
the companys discount program should be approved in advance by a supervisor.
Purchases under the company discount program should be paid for at the time the purchase is made or
the service is received. Allowing employees to charge the purchase or service to a company account,
with the intent of deducting the money from future paychecks, may not be permissible under state wage
and hour laws. Federal law allows for such deductions, provided the deduction does not reduce the
employees wages below the federal minimum wage and all overtime is compensated. Employers
should have written authorization from the employee prior to making any payroll deductions.
Contact your local Department of Labor for state-specific guidelines pertaining to deductions from
wages.

Compensation Manual

BENEFITS 4:42

Qualified Transportation Plans


(Transit and Parking Section 132 Plans)
Section 132 of the Internal Revenue Code allows employees to take a pre-tax salary deduction to help
pay for parking and transit fares. Qualified transportation costs such as mass transit, van pooling, and
parking can be paid by the employee with pre-tax payroll deductions. Section 132(f) also allows
employers to pay for transit and parking as a tax-free employee benefit.
Employees who commute to work in larger cities tackle costs associated with transit and parking on a
daily basis. Many of these employees and their employers take advantage of Section 132 to save
money.
Commuter tax incentives may be available at the state and local levels as well.

Compensation Manual

BENEFITS 4:43

Qualified Tuition Program (QTP)


A qualified tuition program is also known as a 529 Plan. They allow families to save money for college
free from federal taxes. States allow College Savings Plans, Prepaid Tuition Plans, or both.

Compensation Manual

BENEFITS 4:44

Severance Plans
Companies may adopt a standard policy whereby payment in the form of a lump sum or salary
continuation is made to an employee who has been laid off. A typical severance package is two weeks
of pay for each year a person has worked at the company, although severance packages vary
substantially from company to company. Severance payments usually are voluntary payments and are
not required by law. Some exceptions occur if a union contract guarantees a certain amount of
severance or if other requirements are spelled out in a contract. Severance payments may be made in
a lump sum or may be paid out in the regular payroll process.

Compensation Manual

BENEFITS 4:45

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Benefits Forms
Section 4
Forms located in this section include:

Sample Summary of Compensation and Benefits

Request for Time Off

Absentee Record

Vacation-At-A-Glance

Leave Request Form

Request for Flex Time

Return to Work Medical Certification

Tuition Assistance and Training Request

Request for Cash Advance

Employee Expense Report

Auto Mileage Reimbursement Voucher

Remember: These forms are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Summary of Current Compensation and Benefits SAMPLE


ABC COMPANY
EMPLOYEE NAME

EFFECTIVE DATE

Compensation
You are currently employed at ABC COMPANY as a (full-time/part-time) INSERT POSITION TITLE.
Please refer to your current job description for an outline of job duties and responsibilities. You are
expected to work at least INSERT NUMBER hours each week; your work schedule is (MONDAY
THROUGH FRIDAY, 8:00 a.m. to 5:00 p.m., with a one-hour meal break). Your current compensation
is $___.__ per hour.

Benefits
Our company has developed a comprehensive set of employee benefit programs to supplement our
employees regular wages. Our benefits represent valuable additional income to our employees.
This summary reviews the current benefit plans offered by the company. Please refer to the actual plan
documents and summary plan description if you have specific questions regarding levels of coverage
regarding the benefit plan. Those documents are controlling.
The company reserves the right to modify its benefit at any time. We will keep you informed of any
changes.

Medical Insurance
Eligible full-time employees may enroll after completing three months of employment. To assist you in
the cost of coverage, the company contributes a portion of the premium on your behalf. Employees are
responsible for paying the balance through payroll deduction. A prescription drug plan is covered under
the medical insurance plan.

Dental Insurance
Eligible full-time employees may enroll after completing three months of employment. Employees are
responsible for the full cost of this insurance through payroll deduction.

Section 125 Plan


This plan allows employees to make contributions toward premiums for medical insurance, dental
insurance, and out-of-pocket medical expenses on a pre-tax, rather than post-tax basis. Your
qualified expenses are deducted from your gross pay before income taxes and Social Security are
calculated.

Holiday
Our company will be closed on the following holidays: New Years Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Employees will not be paid for the above
holidays. Employees may use their vacation and/or personal time available to be paid for the above
unpaid holidays.
Full and part-time employees will receive two paid floating holidays that are designated by management
each year after completing 90 days of employment.
Part-time employees are eligible for floating holiday pay in proportion to the number of hours they
normally are scheduled to work. Non-exempt employees must work their scheduled workday before
and after the floating holiday in order to be paid for the floating holiday, unless they are absent with
prior permission from their supervisor.

Personal Days
Full and part-time employees are eligible for paid personal days after completing 90 days of
employment. Full-time employees are eligible for one week (five days) of paid personal time per
calendar year. Part-time employees are eligible for paid personal time in proportion to the number of
hours they normally are schedule to work, up to eight hours each day.
Acknowledgment of Receipt: __________EMPLOYEE NAME______

________DATE___________

Our company adheres to a policy of employment-at-will which allows either party to terminate the
employment relationship at any time, for any reason, with or without cause or notice. The provisions of
this summary are not intended to create contractual obligations with respect to any matters it covers.
Nor is this summary intended to create a contract guaranteeing that you will be employed for any
specific time period.

Request for Time Off


Employee to Complete
Employee Name __________________________________________________________________________
Department _________________________________ Supervisor __________________________________
Reason

Dates

Number of Days

Number of Hours

Vacation
Sick
Floating Holiday
Jury Duty
Bereavement
Other (explain)

Employee Signature _______________________________________________ Date ______ /______ /______

Employer to Complete
Approved

Denied

Paid

Unpaid

Authorized Signature ______________________________________________ Date ______ /______ /______


Title ___________________________________________________________

Comments ______________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________

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Absentee Record
Employee Name

Employee Number

Current Year

Job Title

Date of Hire

Eligible Sick Days

D = DISCIPLINE
F = FUNERAL
H = HOLIDAY

Eligible Vacation Days

J = JURY DUTY
L = LEAVE OF ABSENCE
(medical/personal)

10

11

12

O = OTHER
P = PERSONAL (paid)
S = SICK

13

14

15

16

17

18

V = VACATION
U = UNEXCUSED
W = WORKERS' COMPENSATION

19

20

21

JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER

Use reverse side of card for clarification of "other" absences and management notes.

22

23

24

25

26

27

28

29

30
31

MONTH

Management Notes

DAY

REASON FOR OTHER

Vacation-At-A-Glance
EMPLOYEES

VACATION
DAYS
AVAILABLE

Year

Name

January
Dates

Name

February
Dates

Name

March
Dates

Name

April
Dates

Name

May
Dates

Name

June
Dates

Name

July
Dates

Name

August
Dates

Name

September
Dates

Name

October
Dates

Name

November
Dates

Name

December
Dates

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Leave Request Form


This form should NOT be used for FMLA Leave

Employee to Complete
Employee Name

Employee Number

Address
Department

Position

Supervisor/Manager
Status (select one)

Full-time

Part-time

I hereby request a leave of absence effective on

Date of Hire
/

(date you are requesting leave

to commence).

I expect to return to work on ________ / _______ / _________


Reason for Requested Leave
Refer to your employee handbook for state and federal leave policies. For questions regarding your companys
leave policies, consult with your Human Resources department.
Medical Leave
Non-occupational Illness, Injury, or Pregnancy-related Disability
Workers Compensation
Non-Medical Leave
Reason ________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________

Employee Signature ______________________________________ Date _________ / _______ / _______

Employer to Complete
If request for leave is for an FMLA-qualifying reason, employee should also complete the Request for
Family/Medical Leave Under the FMLA.
Leave Approved
Leave Denied
Reason ________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
Leave (select one)

Paid

Unpaid

Employee is is not required to exhaust all accrued Vacation Personal Time PTO Sick Days in
accordance with company policy and where permitted by state/federal law, before taking leave.
Supervisor/Manager Signature _____________________________ Date _________ / _______ / _______

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Request for Flex Time


Employee Name

Date

Department

Position

Proposed Flex Time Schedule

Starting Time

Ending Time

Employee Acknowledgement
I have read and understand the companys flex time policy and agree to abide by its terms and
conditions. I understand that management reserves the right to modify this schedule based on
changing business conditions or staffing needs. I understand that the company reserves the
right to cancel this arrangement at any time, for any reason, or no reason. If such policy is
revised or cancelled, I agree to return to my standard work schedule.

Employee Name

Date

Date

Supervisor Name
Approved

Recommendation

Denied

If approved, supervisor should complete the following:


Effective Date

Ending Date (if applicable)

If approved, add any comments or stipulations

Supervisor Signature

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Return to Work Medical Certification


PART I: Employee to Complete
Employee Name
Position
Date Leave
Commenced

Anticipated
Return to Work Date

Employee Signature________________________________________

/
Date

/
/

PART II: Employee's Health Care Provider to Complete


I certify that

is able to resume work


Employee Name

on

I have received and reviewed a list of the essential functions of ___________________________s


Employee Name

position and certify that ______________________

is able to perform these functions.

Employee Name

Health Care Provider Name


Address
Telephone Number ( _______ ) _________ - _______________

Health Care Provider Signature _______________________________

Date

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Tuition Assistance and Training Request


Employee Name

Employee Number

Department

Position

Course/Seminar

Cost of Course/Seminar

Tuition Assistance

Yes No

Date(s) of Course/Seminar

Time(s)

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

Completion Date

Location of Course/Seminar
Relevance to current job

Skills to be developed/improved

Employee Signature
Approved

Date

Date

Date of Disbursement

Denied

Supervisor/Manager Signature

Grade Received ____________________________________

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Request for Cash Advance


Employee Name

Employee Number

Department

Travel Date(s)

Time(s)

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

_______/ _______ / _______

___________________

Purpose of Travel

Dollar Amount

Employee Signature
Approved

Date

Date

Denied

Supervisor/Manager Signature

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Employee Expense Report


Employee Name ______________________________________
Date

Mileage
Miles

Rate

Airfare

Car
Rental

Parking/
Tolls

Date _______ /_______ /________


Hotel

Meals

Other

Destination/Purpose

Amount

Totals

Employee Signature

Date

Manager/Supervisor Signature

Date

Total

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Auto Mileage Reimbursement Voucher


Employee Name ________________________________________________________

Employee Number ______________________________

Department _____________________________________________________________

Date (M/YY)

DATE

PURPOSE OF
TRIP/DESTINATION

ODOMETER READING
BEGIN

END

/
MILEAGE AT
$ _____ RATE

MILES
TRAVELED

PARKING/
TOLLS

TOTAL

TOTAL REIMBURSEMENT
Employee Signature

Date

Manager/Supervisor Signature

Date

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Compensation Administration
Section 5
This section will explain:

implementing

communicating
and

evaluating the compensation plan.

Remember: These materials are for general information purposes only, and are not intended as legal advice.
If you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

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Implementing the Compensation Plan


Once your company has developed a compensation and benefits plan, the plan will need to
implemented, communicated, and evaluated.

Implementing the Compensation and Benefits Plan


The company should determine who will be responsible for implementation of the new plan. Will the
Human Resource department, company managers, a task committee, or a third party implement the
plan?
The timeframe for implementing the compensation plan also needs to be determined. Implementation
may occur all at once or pieces (i.e. variable pay) may be added at a later date. The plan may be
executed one department at a time, or on a company wide level.
If the compensation plan is based on performance, the performance appraisal system may need to be
evaluated to determine which performance measures will be used. Performance measures may be
related to profit, customer satisfaction or by team and/or individual goals. Remember, whatever the
factors are, they should be specific, measurable, attainable, realistic, and time-bound.

Compensation Manual

COMPENSATION ADMINISTRATION 5:1

Communicating the Compensation Plan


The plan may be communicated in a variety of ways, including newsletters, handouts, and group or
individual employee meetings. Communication should contain general information about the
compensation plan and should not include individual employee pay information. You may wish to
consider providing employees with a statement of their wages and benefits which will show the true
value of the employees total compensation. New employees should receive information on the plan at
the time of hire or during the orientation process.
Effective communication will assist employees in understanding the role that benefits play in their total
compensation. Communication to employees about the compensation plan generally includes:

wage level determination

information on salary grades or bands

pay structure determination

pay increase determination

incentive pay plans

total value of employee benefits


and

compliance with legal requirements.

Compensation Manual

COMPENSATION ADMINISTRATION 5:2

Evaluating the Compensation Plan


Compensation plans need to be reviewed periodically to ensure they continue to meet the objectives of
the company and comply with state and federal laws.
A compensation evaluation should ensure that the plan is achieving the following goals:

Meeting the company's compensation philosophy and goals.


Ensuring compliance with state and federal laws.
Not discriminating.
Assisting with recruitment and retention.
Effectively and consistently communicating to employees.
Properly administered.

Generally, a pay structure is only effective for a certain time period. The pay structure should be
evaluated annually to respond to any changes that may take place. For example, if market conditions
change, the company should re-evaluate the pay structures.
An evaluation of the compensation plan can determine both success and failure of the plan. This can
assist the company in determining if the plan is meeting company objectives, and if updating the plan is
necessary.

Compensation Manual

COMPENSATION ADMINISTRATION 5:3

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Sample Compensation Plan


The policies summarized in the Sample Compensation Plan are not intended as contractual rights or
obligations. The ABC Company may, at any time, adjust the compensation program.
The following components are addressed in this Sample Compensation Plan:

compensation philosophy
compensation objectives
salary surveys
determining compensation
job banding and slotting
job levels within bands
target rates of pay
pay adjustments
lump-sum increases
timing of pay increases or adjustments
and
total compensation.

Compensation Philosophy
We consider our employees to be the companys most vital resource. We seek to attract and retain
well-qualified, productive employees through a total compensation philosophy. Within economic and
legal boundaries, our goal is to provide compensation that is competitive with similar positions in our
industry and geographic area.
The following principles outline the ABC Companys compensation philosophy:

The missions needs, and values of the ABC Company guide the compensation plans and related
practices.
Total compensation includes pay and benefits that are used to determine market competitiveness.
The compensation plan reflects the relevant labor markets in which the company competes for
positions and may vary depending on the job.
The compensation plan and pay delivery methods will respond and relate to ABC Company
priorities and needs, while maintaining fairness and consistency.
To achieve these goals, the ABC Company compensation plans must be clearly communicated to
all employees.
Individual employee salaries may recognize exceptional performance based on such factors as;
documented performance reviews, professional development and qualifications, and the value of
individual contributions.
The compensation plans will be reviewed periodically to assess market competitiveness, company
needs, and effectiveness for attracting and retaining employees.

Compensation Manual

COMPENSATION ADMINISTRATION 5:5

Compensation Objectives
The following are the companys compensation program objectives:

Maintain internal equity by objectively evaluating jobs to assure that a position's responsibilities are
valued fairly as compared to others within the organization.
Ensure external competitiveness by developing and maintaining compensation levels that reflect
current market rates of pay.
Promote a pay-for-performance philosophy by providing incremental pay increases that distinguish
between levels of performance.
Ensure that compensation actions comply with federal, state, and local legal requirements.
Provide employees with information on the compensation process, the overall pay structure, and
target rates of pay.
Provide flexibility so the system remains responsive to changes in the market, organization, and
economic conditions within the industry.

Salary Surveys
As a further guide to establishing equitable pay, the company periodically conducts comparable
compensation surveys. Such studies are used with the goal of ensuring that our rates of pay compare
favorably with rates for work of a similar nature within the company and in similar job situations in the
area.
The company compares salaries for benchmark positions on a local basis and may extend this
comparison for certain positions to a regional and national market. Benchmark positions are
comparable jobs found in other organizations requiring similar knowledge, skills, and abilities as jobs
within the company.

Determining Compensation
Individual salaries are determined by a performance program designed to be competitive within the job
market, impartial across the company, and in line with the companys financial position.
In order to communicate the companys pay structures, we will explain how each job is valued within
the companys compensation structure, how jobs are slotted into job bands, and how the actual delivery
of employee compensation is accomplished through the establishment of target rates of pay.

Compensation Manual

COMPENSATION ADMINISTRATION 5:6

Job Banding and Slotting


Job banding is the process of grouping many jobs from various departments throughout the company in
a logical manner. Job banding clusters company jobs around occupations that are similar in their nature
of work.
Each job is assessed to determine specific requirements, expectations, and performance standards at
a target market (competent) level. The placement of a job into the banding structure is based on what
the person in this position should be doing, rather than what the person in this position could be doing,
or is actually doing.
Job band slotting is the placement of a job into a band based on its type of work and then at a particular
level within the band according to its requirements and responsibilities. Each band has a unique
definition, and there are specific levels defined for each band. The table below summarizes the
companys five bands.

Job Bands Example


Band

Definition

Management

Operational oversight of a work unit or team. Managing and supervising,


rather than performing work is the focus of the position.

Professional

Application of knowledge in a professional field, where professional


judgment is required.

Technical

Application of technical skills (specially trained, paraprofessional) and


judgment to produce work of greater complexity.

Operations

Application of general operations and maintenance skills to produce work


within a well-defined direction.

Administrative

Application of general administrative and office skills to produce work within


a well-defined direction.

Job Levels within Bands


Each of the five bands has a range of jobs with varying levels of required qualifications and specific
responsibilities. These "job levels" begin at "one" and range upward. Individual bands can vary in their
actual number of levels.

Target Rates of Pay


Target rates of pay were established by the company for each level within the respective bands. They
reflect the competitive job market from which the company hires employees. The previously mentioned
salary surveys, which include positions comparable to those with the company, are closely analyzed to
obtain the competitive data and establish benchmarks and target rates of pay.
Each level within every band has a target rate of pay set at approximately five percent above the
average rates of pay for benchmarked jobs within that level.
Compensation Manual

COMPENSATION ADMINISTRATION 5:7

Each band will be adjusted according to the specific market analysis. Individual bands will not
necessarily adjust at the same rate. It is expected that all levels within a given band move at the same
rate of adjustment, unless a multi-year trend indicates there should be pay adjustments within the band.

Target Rates of Pay Example (monthly gross salary)


Band

Level I

Level II

Level III

Level IV

Level V

Management

$4,000

$5,250

$6,750

$7,500

Professional

$3,750

$4,500

$5,500

$6,000

Technical

$3,000

$3,500

$4,000

$4,500

Operations

$2,500

$3,000

$3,250

$3,500

$3,750

Administrative

$2,250

$2,800

$3,000

$3,500

$3,800

$6,500

Although no formal salary minimum or maximum is listed for each job, the company works within a
range of 20 percent below to 20 percent above each target rate of pay. Twenty percent below the target
rate is the usual minimum hiring rate; and 20 percent above the target rate is the usual maximum rate
of pay. For example, if the target rate for a job is $3,500 each month, the minimum is 80 percent of the
target rate, or $2,800. The maximum rate of pay is 120 percent of the target rate, or $4,200. Refer to
the Target Rates of Pay Example chart above.

Pay Adjustments
Most employees achieving a satisfactory or better performance rating are eligible for pay adjustments.
Pay increases for company employees consist of two components:

Market Adjustment
Performance Increase

Market Adjustment
The market adjustment portion of your compensation is based on your salary and its relationship to the
target rate of pay for your job. The purpose behind a market adjustment is to accelerate your movement
up to the target rate of pay for your job to assure that you receive a competitive rate of pay. The target
rate of pay for your job represents an approximate five percent premium adjustment above the average
market rate. Percentages are reviewed annually; performance must be satisfactory to be eligible for a
market adjustment.

Compensation Manual

COMPENSATION ADMINISTRATION 5:8

Performance Increase
The company's pay-for-performance philosophy is designed to award performance increases based on
a three-rating system.

Rating
Exceptional
Performer

Description
Consistently performs beyond expectations and has demonstrated outstanding skill,
knowledge, and initiative in the job. This rating recognizes outstanding contributions to
the organization, within the scope of the position. Accomplishments have made a
significant impact on the mission of the department and consistently exceed those of
other employees in the same job family or work group.

Performs Well Consistently performs the duties of the position; meets and occasionally exceeds all
expected criteria for quality, quantity, and timeliness of work. Consistently meets goals
and objectives.
Improvement
Required

Performance marginally meets requirements of the position and periodically falls


below them.

Working under the guidelines of the three-rating descriptions, an employees performance is evaluated
against the organizations values and other job-related factors. An employee receives an overall rating
in both areas and a combined score of those evaluations determines a percentage of performance
increase. Although the percentages are reviewed annually, the following Performance Increase Chart
Example below shows how this pay component works.

Performance Increase Chart Example


Organizational Exceptional Performer
Values
Performs Well
Improvement Required

0.0% to 2.0%

3.75% to 4.25%

4.25% to 4.75%

0.0%

2.5% to 3.5%

3.75% to 4.25%

0.0%

0.0%

0.0% to 2.0%

Improvement
Required

Performs Well

Exceptional
Performer

Job Related Factors


Our compensation system makes the assumption that most employees are performing well.
For example, if an employee receives a rating of "Performs Well" for organizational values and a
"Performs Well" for job-related factors, then the employee is eligible for a 2.5 percent to 3.5 percent
performance increase.

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COMPENSATION ADMINISTRATION 5:9

Lump-Sum Increase
An employee's salary cannot exceed the target rate by more than 20 percent. If an employee's salary
reaches this level of pay, no further increase can be made to the employees base salary. An employee
whose current salary is close to or at 20 percent above their target rate may be eligible to receive a
one-time, lump-sum payment. The one-time, lump-sum payment cannot be added to the employees
base salary, or performance increase.
For an employee to be eligible for this lump-sum payment, he must:

be close to, or at, 20 percent above his market target rate


receive a performance rating of either "Performs Well" or "Exceptional Performer"
and
be approved for the one-time, lump-sum payment by his supervisor.

Timing of Pay Increases or Adjustments


Performance reviews are conducted based on the employees anniversary date. Awarded salary
increases begin on or about the first pay period following the employees anniversary date.

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COMPENSATION ADMINISTRATION 5:10

Total Compensation
Our total compensation package represents a significant investment by the company in its employees.
The company values its employees as its most valuable resource. The company must protect and
support its employees by offering competitive pay and benefits. Our total compensation package is a
comprehensive reward and recognition program that includes cash payments, benefit programs, and
services. Although a particular benefit plan or program may not have the same value to every
employee, together, they are intended to provide a comprehensive set of balanced offerings which
satisfy the overall needs of the employees.
The compensation package contains two distinct forms of compensation: direct and indirect. Direct
compensation consists of cash payments made to employees in exchange for their contributions to the
company. Indirect compensation is made in the form of non-cash benefits.
Direct compensation consists of actual cash payments such as:

base salary
shift differential
performance increases
bonuses
promotions
and
overtime.

Other forms of cash payments include:

paid time off for sick leave


paid personal holidays
paid vacation
paid military leave
paid bereavement
and
paid holidays.

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COMPENSATION ADMINISTRATION 5:11

Indirect compensation includes a number of important benefits that are not necessarily itemized on
employees' paychecks or paycheck vouchers. They are intended to provide a broad foundation in
which employees can provide for their needs and for the well-being of their families. These benefits are
either fully or partially funded by the company and fall into the following categories:

Health and Welfare Benefits


Government-Mandated Benefits
Retirement Benefits
Miscellaneous Benefits
Health and Welfare Benefits

Health Insurance
Dental Insurance
Long-term Care Insurance
Life Insurance
Disability Coverage
Flexible Spending Accounts
Wellness Program
Employee Assistance Program

Compensation Manual

Government-Mandated
Benefits
Social Security
Unemployment Insurance
Tax
Workers' Compensation
Insurance

Retirement
Miscellaneous
Benefits
Benefits
401(k) Parking
Company
Discounts
Educational
Reimbursement

COMPENSATION ADMINISTRATION 5:12

Legal Requirements
Section 6
The following is a limited list of applicable federal laws, executive orders, and guidelines. This is not allinclusive and the following summaries should not be used as a sole source of information regarding
compliance with such laws. Additional information regarding compliance with specific laws may be
obtained from the enforcing agencies listed. State laws may vary.
Federal Laws (this list is not all inclusive)

Age Discrimination in Employment Act (ADEA) of 1967

Americans with Disabilities Act (ADA)

Title VII of the Civil Rights Act of 1964

Civil Rights Act of 1991 (CRA 91)

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Consumer Credit Protection Act

Employee Retirement Income Security Act (ERISA)

Equal Pay Act (EPA)

Fair Labor Standards Act (FLSA)

Family and Medical Leave Act (FMLA)

Federal Insurance Contributions Act (FICA) (Social Security Act)

Federal Unemployment Tax Act (FUTA) (1936)

Health Insurance Portability and Accountability Act (HIPAA)

Immigration Reform and Control Act (IRCA) of 1986

Internal Revenue Code and Regulations

Jury System Improvement Act

National Labor Relations Act (NLRA)

Older Workers Benefit Protection Act (OWBPA)

Pregnancy Discrimination Act (PDA)

Uniformed Services Employment and Reemployment Rights Act (USERRA)

Unemployment Insurance
Workers Compensation Insurance

Laws Affecting Federal Contractors and/or Recipients of Federal Grants

Copeland Act

Davis-Bacon Act of 1931

Executive Order 11246

McNamara-OHara Service Contract Act (SCA)

Vietnam Era Veterans Readjustment Assistance Act (VEVRAA)

Vocational Rehabilitation Act of 1973

Walsh-Healey Public Contracts Act (PCA)

Remember:

These materials are for general information purposes only, and are not intended as legal advice. If
you have questions or need legal guidance regarding particular facts and circumstances, you
should consult an attorney.

Age Discrimination in Employment Act (ADEA) of 1967


Coverage
An employer is subject to ADEA requirements if they employed at least 20 employees in each of 20 or
more calendar weeks in the current or preceding calendar year and they are engaged in an industry
affecting commerce. The act covers employment agencies, labor organizations, and most federal,
state, and local governments.
Overview
This Act generally prohibits employers from engaging in age-based discrimination against workers or
applicants who are 40 years of age or older. State laws may be more restrictive.
Covered employers must maintain the following documents for at least one year: applications, rsums
and other responses to job advertisements, documentation of promotions or discharges, job
advertisements, job orders submitted to employment agencies or labor organizations for recruitment
purposes, results of physical examinations used in making personnel decisions, and pre-employment
aptitude or other employment tests. Records containing each employees name, address, date of birth,
occupation, rate of pay, and weekly compensation must be retained for at least three years. Employee
benefit plans and seniority and merit systems must be retained during the time they are in effect and for
one year following a termination.
Posting Requirement
Covered employers must post the Equal Employment Opportunity is The Law poster describing the
provisions of the Act.
Governing Agency
The EEOC is responsible for enforcing the provisions of the ADEA.

Note: Individual states may have more stringent age discrimination and record retention policies.

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LEGAL REQUIREMENTS 6:1

Americans with Disabilities Act (ADA)


Coverage
This Act applies to employers who have employed 15 or more employees for 20 or more calendar
weeks in the current or preceding calendar year.
Covered employers include employment agencies, labor organizations, and joint labor-management
committees.
Overview
The ADA protects qualified individuals with disabilities from discrimination with respect to employment,
public services, public accommodations and telecommunications. Although the Act is divided into five
titles, this summary focuses on Title I Employment.
Title I of the ADA prohibits discrimination in employment against individuals on the basis of a disability
and it requires covered employers to provide a reasonable accommodation to otherwise qualified
individuals with disabilities, unless such accommodation causes an undue hardship on the company.
Under the Act, disability means, with respect to an individual, a physical or mental impairment that
substantially limits one or more major life activities, a record of such an impairment, or being regarded
as having such an impairment. Under the ADA Amendments Act of 2008, disability should be
construed in favor of broad coverage of individuals under the Act.
An impairment that is episodic or in remission is a disability if it would substantially limit a major life
activity when active. The determination of whether an impairment substantially limits a major life activity
shall be made without regard to the ameliorative effects of specified mitigating measures. The ADA
Amendments Act includes two non-exhaustive lists with examples of major life activities.
An individual meets the requirement of being regarded as having such an impairment if the individual
establishes that he or she has been subjected to an action prohibited under the ADA because of an
actual or perceived physical or mental impairment whether or not the impairment limits or is perceived
to limit a major life activity. The being regarded as impairment does not apply to transitory and minor
impairments.
A qualified individual with a disability is an individual with a disability who, with or without a reasonable
accommodation, can perform the essential functions of the employment position that such individual
holds or desires.
Reasonable Accommodation
A reasonable accommodation may be a modification or adjustment to a job or the work environment
that will allow an individual with a disability to participate in the application process or to perform the
essential functions of the position. Inquire what accommodations the candidate would need to make it
possible for him to perform the essential functions. The employer is not under an obligation to provide
the best accommodations possible, only to provide that which will allow the job to be performed
satisfactorily. The ADA requires consideration of the following areas:

Making the workplace and interviewing locations accessible and usable.

Restructuring the job so that nonessential functions will be fulfilled by other individuals.

Modifying employment exams, training, and policies.


Acquiring or modifying equipment or devices.

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LEGAL REQUIREMENTS 6:2

Individuals covered only under the regarded as definition of disability are not entitled to a reasonable
accommodation.
Essential Functions
Essential functions are the fundamental job duties of the position the individual holds or desires. The
first consideration in determining whether a job function is essential is to ask, Are employees in this job
performing this function? If the answer is yes, then ask, Would removing this function fundamentally
change the job?
The EEOC has issued guidance to assist in determining which functions are essential. According to the
EEOC, a function may be considered essential if:

The job exists to perform the function.

There are a limited number of other employees available to perform the function or only a few
workers among whom the function can be distributed.

The function is highly specialized and the person in the position is hired for special expertise or
ability to perform the function.

The EEOC guidance identifies types of evidence considered in determining whether a job function is
essential. Such evidence includes, but is not limited to:

The employers judgment.


A written job description prepared before advertising or interviewing applicants for a job.

The amount of time spent performing the function.

The consequence of not performing the function.


The terms of a collective bargaining agreement.

The work experience of individuals who have performed the job in the past and are currently
performing a similar job.

The ADA requires covered employers to provide a reasonable accommodation to otherwise qualified
individuals with disabilities, unless such accommodation causes an undue hardship on the company.
Undue Hardship
The following factors will be considered:

The nature and net cost of accommodation.

The overall financial resources of the business.


The impact of the accommodation on the operation of the business.

The ADA set forth guidelines regarding medical exams and pre-employment testing. Pre-employment
medical exams are prohibited under the ADA. Pre-employment/post-offer medical examinations are
permissible provided all entering employees in the same job category are required to take the
examination. Employers may not conduct pre-employment tests or impose other qualification standards
that tend to screen out individuals with a disability unless the employer can show the test or standard is
job-related and consistent with business necessity.

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LEGAL REQUIREMENTS 6:3

Posting Requirements
Covered entities must post notices that describe the applicable provisions of the ADA. Posters must be
available in an accessible format to individuals with disabilities.
Governing Agency
The EEOC is responsible for enforcing the provisions of the ADA.

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LEGAL REQUIREMENTS 6:4

Title VII of the Civil Rights Act of 1964


Coverage
This Act applies to employers with 15 or more employees for each working day in each of 20 or more
calendar workweeks in the current or preceding year. Employment agencies, educational institutions,
unions, and government agencies are covered by the Act.
Overview
This law bans all employment discrimination, including harassment, based on race, color, religion, sex,
or national origin. Applicants and employees are protected by Title VII. Employers are held accountable
for any work-related discriminatory actions or decisions made by managers or supervisors.
Posting Requirement
Covered employers must post the Equal Employment Opportunity is The Law poster describing the
provisions of the Act.
Governing Agency
The EEOC is responsible for enforcing the provisions of this Act.
In addition to the protected classes listed under Title VII of the Civil Rights Act, there are state antidiscrimination laws which may be referred to as Fair Employment Practice (FEP) laws or Human Rights
laws. These laws may prohibit discrimination against additional protected classes. For more
information, contact the appropriate agency in your state or refer to your states human rights or antidiscrimination posting.
FEP laws prohibit employers from refusing to hire, employ, or discharge any individual or to
discriminate against any individual in employment privileges on the basis of a protected characteristic.
State mandated protected classes may include sexual orientation, arrest or conviction records, sickle
cell trait, status with regard to public assistance, AIDS, or those who test positive for HIV, and family
status, among others.

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LEGAL REQUIREMENTS 6:5

Civil Rights Act of 1991 (CRA91)


Coverage
This Act applies to employers with 15 or more employees for each working day in each of 20 or more
calendar workweeks in the current or preceding year. Employment agencies, educational institutions,
unions, and government agencies are covered by the Act.
Overview
CRA 91 made major changes in the federal laws enforced by the EEOC that prohibit discrimination in
employment. It was enacted in part to reverse several Supreme Court decisions that limited the rights
of individuals protected by these laws. The Act also provides additional protections. CRA 91 provides
for compensatory and punitive damages in cases of intentional discrimination, attorney fees, and the
possibility of jury trials. The Act directs the EEOC to expand its technical assistance and outreach
activities.
Posting Requirement
Covered employers must post the Equal Employment Opportunity is The Law poster describing the
provisions of the Act.
Governing Agency
The EEOC is responsible for enforcing the provisions of this Act.

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LEGAL REQUIREMENTS 6:6

Consolidated Omnibus Budget Reconciliation Act (COBRA)


Coverage
COBRA generally covers group health plans maintained by employers with 20 or more employees
during 50 percent of the working days in the preceding calendar year.
Overview
COBRAs health benefit provision amended the Employee Retirement Income Security Act, the Internal
Revenue Code, and the Public Health Service Act to provide continuation of group health coverage that
would otherwise be terminated.
Under COBRA, eligible employees and their qualified beneficiaries are entitled to continuation of their
health insurance coverage for up to 36 months, depending on the qualifying event. A qualifying event is
an event that would otherwise result in loss of coverage to a qualified beneficiary. Qualifying events
include: death of the covered employee; termination or reduction in hours of the covered employee;
divorce or legal separation; covered employees eligibility for Medicare; loss of dependent child status,
and bankruptcy (for covered retirees and their dependents). Eligible employees and qualified
beneficiaries include those individuals covered under a group health plan on the day before a qualifying
event.
Under the law, the employee or qualified beneficiary may be required to pay the full premium for the
contribution period, plus up to two percent for administration costs. For individuals receiving the 11month disability extension coverage, the premium for the additional months may be increased to 150
percent.
A General Notice of COBRA rights must be provided to eligible employees and their qualified
beneficiaries within 90 days of the date the employee or qualified beneficiary becomes covered under
the plan, or 90 days after the date the plan first becomes subject to COBRA requirements. Plan
Administrators must notify employees and their qualified beneficiaries of eligibility to enroll in COBRA
coverage upon the occurrence of a qualifying event. If it has been determined that the individual is not
eligible for COBRA coverage, then notification must be provided indicating the reason why COBRA
coverage is unavailable. If COBRA coverage is terminated prior to the maximum coverage period,
notification must be provided detailing the reason coverage is terminated and the effective date of the
termination. Additional notification requirements may apply depending on the qualifying event and who
administers the plan.
Contact your insurance carrier or the U.S. Department of Labor for more information on notification,
election, and payment requirements.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of COBRA.
Refer to the American Recovery and Reinvestment Act of 2009 (ARRA) for additional provisions.
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.txt.pdf

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LEGAL REQUIREMENTS 6:7

Consumer Credit Protection Act


Coverage
The law protects everyone receiving personal earnings, such as wages, salaries, commissions,
bonuses, or other income, including earnings from a pension or retirement program.
Overview
This Act places a limit on the amount of an employee's wages that are subject to garnishment (the
lesser of 25 percent of weekly earnings or earnings in excess of 30 times the federal minimum hourly
wage).
The Act also prevents an employer from discharging employees because of wage garnishments
resulting from one single debt or for child support garnishments.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of this Act.

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LEGAL REQUIREMENTS 6:8

Employee Retirement Income Security Act (ERISA)


Coverage
This Act applies to employee pension plans and welfare benefit plans.
Overview
ERISA is a federal law that sets minimum standards for most voluntarily established pension and health
plans in private industry to provide protection for individuals in these plans. For example, it specifies
when an employee must be allowed to participate and how long he or she must work before benefits
become non-forfeitable. ERISA also requires plans to provide participants with plan information,
including important information about plan features and it provides fiduciary responsibilities for those
who manage and control plan assets.
Generally, an employee who is at least 21 years of age and has worked for the employer at least 1,000
hours in a 12-month period is eligible to participate in any qualified plan the employer offers.
Under ERISA, plan administrators must file an IRS Form 5500 annually with the Employee Benefits
Security Administration of the U.S. Department of Labor and provide all plan participants and
beneficiaries with a Summary Plan Description (SPD) and a Summary Annual Report (SAR), which is a
summary of the information filed with Form 5500.
Governing Agency
The Employee Benefits Security Administration of the U.S. Department of Labor is responsible for
enforcing the provisions of ERISA.

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LEGAL REQUIREMENTS 6:9

Equal Pay Act (EPA)


Coverage
This Act primarily covers employees covered under the FLSA. Refer to the Fair Labor Standards Act
located in this section for more information on employer and employee coverage.
Those employees who are exempt from the minimum wage and overtime provisions of the FLSA may still be covered under the EPA.

Overview
This Act amended the FLSA to prohibit sex-based wage discrimination between men and women in the
same establishment who are performing similar work under similar working conditions. The law was
written to ensure that employers pay similarly situated female workers the same rate of pay as male
employees when both sexes are performing similar or identical work.
Pay differentials are permitted when they are based on seniority, merit, quantity or quality of production,
or a factor other than sex. These are known as affirmative defenses and it is the employers burden to
prove that they apply.
In correcting a pay differential that violates the statute, no employees pay may be reduced. Instead, the
pay of the lower paid employee(s) must be increased.
Under the EPA, records must be kept in accordance with the FLSA. Any documents describing or
relating to wage differentials for employees of the opposite sex must be retained for at least two years.
Such documents may include performance evaluations, job descriptions, collective bargaining
agreements, etc. Employers should retain employee payroll records for active and terminated
employees for three years.
Posting Requirement
Covered employers must post the Equal Employment Opportunity is The Law poster describing the
provisions of the Act.
Governing Agency
The EEOC is responsible for enforcing the provisions of the EPA.

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LEGAL REQUIREMENTS 6:10

Fair Labor Standards Act (FLSA)


Coverage
Employees may be covered by the FLSA under the Enterprise Rule or Individual Employee Coverage
Rule. The Enterprise Rule applies when two or more employees are sufficiently engaged in interstate
commerce or in the production, handling, or selling of goods or materials moved or produced for
interstate commerce and the employer (i) has gross annual sales not less than $500,000 or of at
least $500,000; (ii) is a hospital, nursing home, preschool, elementary school, secondary school, or
college; or (iii) is an activity of a public agency.
Employees are protected by the FLSA under the Individual Employee Coverage Rule if their work
regularly involves them in commerce between states ("interstate commerce"). The Act covers individual
workers who are "engaged in commerce or in the production of goods for commerce."
Overview
The FLSA addresses minimum wage, overtime, recordkeeping, and child labor provisions. It allows
recovery of wages and penalties for violations.
The Act requires covered employers to pay their non-exempt workers at least a minimum wage of
$6.55 an hour ($7.25 an hour, effective July 24, 2009) and an overtime wage rate of at least one and
one-half times the employee's regular rate of pay for each hour worked in excess of 40 hours in a
workweek. Certain employees are excluded from the minimum wage and overtime provisions of the Act
under sections 541(13)(a)(1) and 541(13)(a)(17). Under the FLSA, employers may pay employees
under age 20 a rate of $4.25 an hour for the first 90 days of employment, known as a "training wage."
The Small Business Job Protection Act established a minimum dollar amount that employers must pay
"tipped employees." The employer may credit a certain amount of tips against the employer's minimum
wage obligation. Employers may be required to pay employees more than that minimum amount to
ensure that the employee's tips, plus the dollar amount paid by the employer, equals the minimum
wage.
The Genetic Information Nondiscrimination Act (GINA) amended the FLSA regarding child labor
violations. Employers may face a penalty of up to $50,000 for any child labor violation that causes the
death or serious injury of any employee under the age of 18 years old. The penalty may be doubled if
the violation is a repeated or willful violation. GINA also increased the maximum penalty for other
violations of child labor regulations from $10,000 per worker to $11,000 per worker.
Covered employers are required to maintain certain identifying information and data pertaining to hours
worked and wages earned for covered, non-exempt employees. Certain records must be kept for
exempt employees. All payroll data records must be retained for at least three years under the FLSA
and must be available for inspection by representatives from the Department of Labor, Wage and Hour
Division.
State laws may have more stringent requirements.
Posting Requirement
A notice by the Wage and Hour Division (Federal Minimum Wage poster) must be posted on the
employers premises.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of the FLSA.

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LEGAL REQUIREMENTS 6:11

Family and Medical Leave Act (FMLA)


Coverage
All employers with 50 or more employees (including part-time, temporary, and seasonal employees)
during each of 20 or more calendar workweeks (not necessarily consecutive workweeks), in the current
or preceding calendar year must comply with the FMLA.
Overview
This Act requires covered employers to provide eligible employees with up to 12 workweeks of unpaid
leave during any 12-month period for any of the following events:
a.
b.
c.
d.

e.

The birth of a child of the employee and/or to care for the newborn child.
The placement of a child with the employee for adoption or foster care.
To care for an eligible employees spouse, parent, and/or child with a serious health condition.
A serious health condition of the employee. A serious health condition is an illness, injury,
impairment, physical, or mental condition that includes either in-patient care at a medical care
facility or continuing treatment by a health care provider as defined by the Act.
Any qualifying exigency arising out of the fact that a spouse, son, daughter, or parent of the
employee is on active duty (or has been notified of an impending call or order to active duty) in the
Armed Forces in support of a contingency operation. A qualified exigency includes: (1) shortnotice deployment; (2) military events and related activities; (3) childcare and school activities; (4)
financial and legal arrangements; (5) counseling; (6) rest and recuperation; (7) post-deployment
activities; and (8) additional activities where the employer and employee agree to the leave.

Military Caregiver Leave:


The National Defense Authorization Act amended the FMLA to provide for a Military Caregiver Leave.
Under this amendment covered employers must provide eligible employees who are the spouse, son,
daughter, parent, or next of kin of a covered servicemember with up to a total of 26 workweeks of leave
during a single 12-month period to care for the servicemember who is undergoing medical treatment,
recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability
retired list, for a serious injury. A serious injury is one incurred by the servicemember in the line of
duty on active duty in the Armed Forces that may render the servicemember medically unfit to perform
the duties of the servicemembers office, grade, rank, or rating. The 12-month period begins on the first
day the eligible employee takes Military Caregiver Leave. During the single 12-month period, an eligible
employee shall be entitled to a combined total of 26 workweeks of leave under this provision of the
FMLA, including leave taken for other FMLA-qualifying reasons.
Eligible employees include those employed by a covered employer, who work at a site with 50 or more
employees within 75 miles of the employees worksite, have worked for the employer at least 12
months (need not be consecutive, but employment periods prior to a break in service of seven years or
more need not be counted, with certain exceptions) and who have worked at least 1,250 hours in the
previous 12-month period.
During FMLA leave, employers are not required to maintain any employee benefits with the exception
of health care benefits where they were provided prior to the leave. However, all benefits must be
restored upon the employees return to work.
During the period of leave, the employer must maintain the employees coverage under any group
health plan on the same terms and conditions as if the employee were actively employed. The
employee is still responsible for his premium contribution while on leave.
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LEGAL REQUIREMENTS 6:12

The employer is not obligated to maintain the employees health insurance if the employees premium
is more than 30 days late. The employer must provide the employee written notification that the
payment has not been received at least 15 days before coverage will be terminated, unless full
payment has been received by that date. All benefits must be restored upon the employees return to
work.
Check with your insurance carrier to ensure employees are able to be reinstated to the plan without
specific requirements, such as, a waiting period, qualifying event, etc. If the insurance carrier is unable
to immediately reinstate the employee upon the employees return to work, the employer will be in
violation of FMLA.
Following an FMLA qualified leave, eligible employees must be returned to the same job or a job with
equivalent status, benefits, and pay.
Key employees may be eligible for leave and the continuation of health benefits, but may be denied
restoration to their prior or an equivalent position if: (i) the denial is necessary to prevent substantial
and grievous economic injury to the employer; (ii) the employer notifies the employee of his key
employee status at the time the employee gives notice of the need for leave, along with complete
information pertaining to the potential consequences with respect to reinstatement and maintenance of
health benefits; and (iii) the employee elects not to return after receiving notice that continued leave will
result in grievous economic injury to the employer. Under the Act, a key employee is defined as a
salaried, FMLA-eligible employee who is among the highest paid 10 percent of all employees employed
by the employer within 75 miles of the employees worksite.
The FMLA does not supersede any state or local laws which offer greater family or medical leave
rights. Compliance with the FMLA does not excuse non-compliance with other disability-based laws.
Employers must keep accurate records pertaining to their obligations under the Act in accordance with
the recordkeeping requirements of the FLSA and the FMLA. Records must be retained for at least three
years.
Posting/Notice Requirement
Every employer covered by the FMLA is required to post a notice of employees' rights under the FMLA
in the workplace. Where an employers workforce is comprised of a significant number of workers who
are not literate in English, the employer is responsible for providing the notice in a language in which
the employees are literate.
Employers must also provide a copy of the notice of employees rights under the FMLA to all new hires
unless provided in an employee handbook or similar written benefits material. The notice may be
provided electronically to employees where all requirements are met and all employees and applicants
have access.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of the FMLA.

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LEGAL REQUIREMENTS 6:13

Federal Insurance Contributions Act (FICA) (Social Security Act)


Coverage
Most employers and employees are required to pay FICA taxes. Certain classes of employment are
exempt, such as municipal employees and members of religious orders. Several types of wages are
exempt from FICA tax. Consult the Circular E (IRS Publication) for more detailed information on FICA
exemptions and exceptions.
Overview
This Act established the payroll tax paid by employees and employers. The tax is broken down into two
components: Social Security tax (6.2% of the employees wages, up to a yearly established wage base)
and Medicare tax (1.45% of the employees wages with no cap on the amount of wages subject to the
tax). The Social Security tax funds the Social Securitys Old Age, Survivors, and Disability (OASDI)
benefit programs, while the Medicare tax funds the Hospital Insurance portion of the program.
FICA taxes are due quarterly. Employers paying taxes late are subject to interest penalties. Failure to
pay taxes may result in a lien on an employers property.
Employers are required to keep records for at least four years under FICA.
Governing Agency
The Internal Revenue Service (IRS) is responsible for enforcing the provisions of FICA.

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LEGAL REQUIREMENTS 6:14

Federal Unemployment Tax Act (FUTA) (1936)


Coverage
Employers with one or more employees in 20 calendar weeks or payroll of $1,500 in a calendar quarter
are subject to FUTA taxes.
Overview
Unemployment insurance is designed to ensure financial security for qualifying workers during times of
temporary unemployment. It was established as part of the Social Security Act and is funded through a
joint federal-state program. Taxes paid under FUTA are used for: (i) paying state and federal
administration expenses of the unemployment program; (ii) providing emergency, interest-free loans to
any state for unemployment benefits; and (iii) funding 50 percent of the federal-state extended benefits
program that provides an additional 13 weeks of benefits to the unemployed during periods of extended
unemployment.
Governing Agency
The U.S. Department of Labor is the governing agency and reviews the rate annually.

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LEGAL REQUIREMENTS 6:15

Health Insurance Portability and Accountability Act (HIPAA)


Coverage
Any group health plan or health insurance issuer offering group health insurance coverage must comply
with HIPAA. The Privacy Rule and Administrative Simplification rules of HIPAA apply to health plans,
health care clearinghouses, and any health care providers who conduct certain transactions
electronically.
Overview
Title I of HIPAA, signed into law on August 21, 1996, limits the extent to which a health insurance plan
may subject employees to pre-existing condition limitations; requires certain "late enrollees" be offered
special enrollment opportunities; and prohibits discrimination either in eligibility or cost because of
health status.
The primary legal requirement under HIPAA is for plan administrators to provide a "Certificate of Group
Health Plan Coverage" at the time an individual ceases to be covered by the group plan and is not
eligible for COBRA; when an individual becomes eligible for COBRA or exhausts continuation
coverage; or anytime the individual requests certification within 24 months of when coverage ceases.
HIPAA limits or eliminates "job lock" caused when employees were unable to change jobs because
they would lose health insurance coverage and be subjected to long pre-existing condition waiting
periods on a new employer's health insurance plan.
HIPAA also incorporated changes to COBRA. Under the Act, a qualified beneficiary who becomes
disabled at any time during the first 60 days of COBRA coverage is eligible for an 11-month extension
of continuation coverage, for a total of 29 months of COBRA continuation. This extension applies to
both the disabled individual and to his family. Another modification to COBRA under HIPAA is that
children born to or adopted by an individual on COBRA will be allowed to enroll in the plan immediately,
not having to wait until the next open enrollment date.
On December 28, 2000, the Department of Health and Human Services (HHS) published final
regulations, the Privacy Rule. The intention of the privacy regulations is to control the use and
disclosure of protected health information (PHI), and to provide individuals with increased access to
their own medical records, including an accounting of non-routine uses and disclosures of their PHI.
The privacy protections afforded under HIPAA do not apply to various medical records gathered by
employers for the sole purpose of implementing the employers business practices or legal
requirements. This includes, but is not limited to, doctors notes verifying the need for disability leave;
medical certification forms requested under the FMLA; Return to Work/Fitness for Duty forms, Workers
Compensation records, etc.
Governing Agency
For more detailed information regarding HIPAA, or for sample certificates of group health plan
coverage, contact the U.S. Department of Labor, Employee Benefits Services Administration (EBSA).
For more information regarding the HIPAA Privacy Rules, contact the U.S. Department of Health and
Human Services, or visit their Web site at www.hhs.gov.

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LEGAL REQUIREMENTS 6:16

Immigration Reform and Control Act (IRCA) of 1986


Coverage
Employers with four or more employees are prohibited from discriminating against employees or
applicants on the basis of citizenship or national origin. All employers and employment agencies are
barred from hiring, continuing to employ, or referring aliens who are not authorized to work in the United
States.
Overview
This Act is structured to control illegal immigration to the United States and prohibit the employment of
unauthorized foreign nationals. This Act applies to all individuals hired after November 6, 1986.
Employers are required to have all new employees complete a Form I-9. Within three working days of
employment, employees must provide supporting documentation verifying their identity and
employment eligibility. Employers must retain a completed copy of the Form I-9 for each employee for
three years following the date of employment or one year following termination, whichever is later.
Verification of identity and work authorization may be obtained only after a job offer has been made.
Fines for failure to comply with verification and recordkeeping regulations range from $100 to $1,000.
Fines for hiring illegal aliens range from $250 to $10,000.
Governing Agency
The U.S. Citizenship and Immigration Service (USCIS) is responsible for enforcing the provisions of
IRCA. Additional information regarding your responsibilities as an employer under IRCA can be
obtained from the agencys Web site at www.uscis.gov or contact the Office of Special Counsel for
Immigration-Related Unfair Employment Practices Employer Hotline at 1-800-255-8155.

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LEGAL REQUIREMENTS 6:17

Internal Revenue Code and Regulations


The Internal Revenue Code and Internal Revenue Regulations include a series of tax laws and
regulations, passed by Congress, which are maintained and enforced under the guidance of the
Treasury Secretary.
The IRS Code and Regulations apply to a number of entities, including private businesses, tax exempt
and government entities, as well as individuals. Their purpose is to provide guidelines to ensure
compliance with tax requirements for the entities mentioned above. There are different types of
regulations which include: the Code, the Code of Federal Regulations, Treasury Regulations, and
Proposed Treasury Regulations. Failure to follow regulations could result in negative tax implications
and potential fines and penalties.
Some examples of Codes and Regulations are: Code section 401(k) pertaining to the taxation of
defined contribution retirement plans; Code section 125 relating to pretax health and fringe benefits;
Code section 132 relating to transportation fringe benefits; and Proposed Treasury Regulation 1.125-2
relating to flexible spending account (FSA) benefits.
Governing Agency
The Internal Revenue Service (IRS) is the agency responsible for maintaining and enforcing these laws

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LEGAL REQUIREMENTS 6:18

Jury System Improvement Act


Coverage
This Act applies to all employers.
Overview
This Act provides all employees the right to unpaid time off because of jury service or scheduled
attendance for jury service in any federal court. Employers may not discharge, threaten to discharge,
intimidate, or coerce employees because of such service.
Governing Agency
Any individual claiming an employer has violated the provisions of this Act may do so in district court.

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LEGAL REQUIREMENTS 6:19

National Labor Relations Act (NLRA)


Coverage
Most private employers (both unionized and non-unionized) are covered by the Act provided the
employer meets the minimum annual gross volume of business, as determined by the National Labor
Relations Board. The dollar volume threshold varies from $50,000 - $500,000 or more, depending on
the type of business. Typically, all but the smallest of private employers are covered.
Overview
Two basic rights are afforded to employees of covered employers under the Act: the right to organize,
join, or assist a union; and the right to engage in concerted activities for mutual aid or protection. The
latter includes any activity by two or more employees to improve wages, benefits, or working conditions.
The NLRA prohibits employers from taking adverse employment action against individuals who
exercise their rights under the Act.
The Act prohibits employers from engaging in unfair labor practices including: interference, restraint, or
coercion; employer domination or support of a labor organization; discrimination on the basis of labor
activity; discrimination in retaliation for involvement with any NLRB proceeding; and refusal to bargain.
Governing Agency
The National Labor Relations Board (NLRB) is the governing agency charged with enforcing the
provisions of the Act.

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LEGAL REQUIREMENTS 6:20

Older Workers Benefits Protection Act (OWBPA)


Coverage
Employers who employed at least 20 persons (full-time or part-time) in each of 20 or more calendar
weeks in the current or preceding calendar year and who are engaged in an industry affecting
commerce.
Overview
This Act, an amendment to the ADEA, was passed by Congress to regulate releases in which
employees are relinquishing the right to sue for age discrimination in exchange for a severance
package.
Employers wishing to create waivers should consult legal counsel for assistance.
Governing Agency
The EEOC is responsible for enforcing the provisions of the OWBPA.

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LEGAL REQUIREMENTS 6:21

Pregnancy Discrimination Act (PDA)


Coverage
The PDA affects employers with at least 15 employees on each working day in each of 20 or more
calendar weeks in the current or preceding calendar year.
Overview
The PDA amends Title VII of the Civil Rights Act of 1964 to prohibit an employer from treating
pregnancy, childbirth, or other related medical conditions differently than it treats other temporary
disabilities for purposes of employment, including hiring, firing, promotion, seniority, leaves of absence,
benefits, and pay increases.
Posting Requirement
Covered employers must post the Equal Employment Opportunity is The Law poster describing the
provisions of the Act.
Governing Agency
The EEOC is responsible for enforcing the provisions of the PDA.

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LEGAL REQUIREMENTS 6:22

Uniform Services Employment and Reemployment Rights Act


(USERRA)
Coverage
This Act applies to virtually all employers, including the federal government.
Overview
Employers are prohibited from discriminating against any employee or prospective employee on the
basis of application for, or membership in, a uniformed service. Uniformed Services includes the
Armed Forces (Army, Navy, Marines, Air Force, and Coast Guard), the Army National Guard, and the
Air National Guard when engaged in active or inactive duty for training, or full-time National Guard duty,
the commissioned corps of the Public Health Service, and any other category of persons designated by
the President in time of war or emergency. Employers are required to grant those who take military
leave the same rights as other employees on leaves of absence and provide returning employees with
the same benefits they would have received if they had remained continuously employed.
USERRA also requires employers to offer employees and their dependents continuing health plan
coverage for up to 24 months and the unqualified right to employment for all returning members of the
uniformed services, provided they meet certain criteria outlined in the law.
Pension plan benefits that accrued during military service, regardless of whether they are defined
benefit or defined contribution plans, are guaranteed under USERRA.
For seniority and benefits based on seniority, individuals returning from military leave are entitled to any
benefits they had prior to the leave, as well as any seniority or benefits that would have accrued had
they not taken leave and remained continuously employed. This regulation is referred to as the
escalator principle.
Non-seniority based benefits are handled according to company policy, while employees are out on
leave.
Posting Requirements
Employers are required to provide to persons entitled to the rights and benefits under USERRA, a
notice of the rights, benefits, and obligations of such persons and such employers under USERRA.
Employers may provide the notice, Your Rights Under USERRA, by posting it where employee
notices are customarily placed. However, employers are free to provide the notice to employees in
other ways that will minimize costs while ensuring that the full text of the notice is provided (for
example, by handing or mailing out the notice, or distributing the notice through electronic mail).
Governing Agency
The U.S. Department of Labor, Veterans Employment and Training Service is responsible for enforcing
the provisions of USERRA.

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LEGAL REQUIREMENTS 6:23

Unemployment Insurance
Unemployment insurance is a federal program which is administered by each state. Unemployment
insurance is available for people who become unemployed through no fault of their own. The federal
government mandates a minimum period of 26 weeks. However, state laws can extend the length of
unemployment longer and many do so during periods of high unemployment.
The federal-state unemployment insurance system offers the first economic line of defense against the
effects of unemployment. Although a federal tax is collected from employers, benefits are not paid from
the federal fund; it is funded through a state payroll tax. The unemployment tax paid to the federal
government is used exclusively for:

payment of administrative costs of the joint federal-state program


funding of an extended benefits program, split evenly with the state governments
and
interest-free loans to the state when the state unemployment fund is depleted (generally due to
poor economic conditions or high unemployment).

The state assigns every subject employer a tax rate once a year. This rate is based on the employers
experience rating. Experience rating, also called merit rating, refers to the practice of adjusting the
State Unemployment Insurance (SUI) tax rate based on the employers experience with unemployment.
The reasoning is that employers with high involuntary unemployment should pay more taxes than
employers with little or no involuntary unemployment. In fact, a good experience rating, which means a
lowered tax rate, can be viewed as a reward for employers who stabilize employment. Factors which
can affect an employers tax rate include:

claims history and other controllable factors


stabilizing employment by reducing turnover (can reduce an employers experience
rating)
protecting themselves against non-justified unemployment claims
and
analyzing the benefits of voluntary contributions.

The minimum and maximum tax rates permitted by state law vary from state to state. Minimum rates
are as low as 0%, and maximum rates are as high as 10.5%. Generally, an employers rate remains in
effect for one year. Most rates are issued on a calendar year basis, January 1 through December 31. A
few states, however, issue rates effective July 1 through June 30.

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LEGAL REQUIREMENTS 6:24

An employee or claimant is entitled to receive unemployment benefits if the individual:

meets the states requirements for wages earned or hours worked


becomes laid off
is discharged through no fault of his own
or
voluntarily terminates employment for reasons attributable to the employer (for example, a change
in hours or rate of pay).

An employee or claimant is not entitled to receive benefits if the individual:

does not meet the states wage or hours worked requirements


is discharged for misconduct (usually must be proven with witnesses and disciplinary actions)
or
voluntarily terminates employment or quits due to a reason which is not attributable to the employer
(such as relocation with lack of transportation or job refusal).

Each state has different laws regarding a voluntary termination. Employers should seek qualified
professional advice and research state laws concerning entitled and not entitled employees.
A determination is a notification of who is eligible to collect unemployment benefits and whether the
employers account is being charged. The determination notifies the employer of the Department of
Labors decision, states the employers right to an appeal and the appeal deadline.
Good claim management can reduce employer expenses by ensuring timely responses to claims as
well as the processing of accurate information. Claim response due dates are always shown on the
unemployment claim form. If an employer responds late to a claim, he may lose the right to an appeal.
The time provided to respond to an unemployment claim is short, usually four to 10 days. In some
states, the employer is penalized for not responding to a claim.

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LEGAL REQUIREMENTS 6:25

Workers Compensation Insurance


Workers compensation is a program that pays medical and disability benefits for employees who suffer
work-related injuries and illnesses. The workers compensation system provides replacement income,
medical expenses, and sometimes vocational rehabilitation benefits, which can include on-the-job
training, schooling, or job replacement assistance.
Most employers are covered under state workers compensation laws. Benefits vary by state or
jurisdiction and the nature of the disability or injury. Failure to obtain required coverage may subject
employers to fines and penalties.
To qualify for workers compensation benefits, the injury or illness must occur over the course of
employment. Most on-the-job injuries are covered. The workers compensation system provides
benefits to injured workers regardless of fault. The conditions of no fault coverage stipulate that an
employee will be covered, regardless of fault, but waives the employees right to sue the employer for
additional benefits outside those provided by workers compensation coverage.
There are, however, some limitations to this no fault coverage. Coverage may be denied if injuries
occur under the following conditions:

injuries suffered in the course of horse play


injuries suffered while an employee is intoxicated or using illegal drugs
self-inflicted injuries (including those caused by a person who starts a fight)
injuries suffered while committing a criminal act
and
injuries suffered while an employee was not on the job.

A workers compensation policy is insurance to cover the business entity (that is, sole proprietorship,
partnership, or corporation). Employers are required by law to prove they can meet financial obligations
in providing workers compensation benefits, even in the event of a serious or catastrophic injury.
Workers compensation insurance protects the employer, in the event that an employee, also called the
beneficiary, is injured on the job or becomes ill because of working conditions. The employer pays a
premium for the insurance, and the beneficiary receives the benefit after a claim has been filed.
The insurance proves the employer is financially responsible and capable of providing all benefits the
law requires. Businesses purchase workers compensation insurance to minimize the potential for
financial ruin following a serious accident.

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LEGAL REQUIREMENTS 6:26

Workers compensation insurance is governed by a set of laws intended to provide the financial means
necessary to allow workers injured on the job to be made whole, meaning to recover from their
injuries. Each state is responsible for drafting its own workers compensation laws. These laws provide
wage replacement, medical care benefits, and permanent-partial and permanent-total disability benefits
to injured workers. Nearly every business is required to provide workers compensation benefits to its
employees. Benefits vary by state or jurisdiction and by the type of disability or injury. Virtually every
state requires employers to provide these benefits. These benefits may extend to a spouse, children or
other dependents in the event of an employees death.
Workers compensation premiums are estimated for the entire policy period, unlike most insurance
policies such as auto, life, and homeowners insurance where the premium is determined when the
policy is set up. Workers compensation premiums are calculated for each business classification code.
A classification code is assigned to an employer according to the type of business operation. For
example, 8017 is the code assigned for a retail store. Each classification code has an associated rate.
Rates are regulated by the state and are published in a state workers compensation manual. The rate
is used to calculate the premium associated with a specific classification code.
Workers compensation rules govern the issuance and pricing of policies, and the minimum benefits
provided under a policy. Workers compensation laws are in effect in all 50 states, the District of
Columbia, and certain federal jurisdictions. The National Council on Compensation Insurance publishes
workers compensation insurance rules, which are recognized by more than 40 states. The remaining
states make and publish their own rules.

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LEGAL REQUIREMENTS 6:27

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Laws Affecting Federal Contractors and/or


Recipients of Federal Grants
Both federal and state governments have laws requiring contractors supplying goods or services to the
government to pay prevailing rates. There are also equal employment opportunity laws and regulations
enforced by the Office of Federal Contract Compliance Programs. The following provides a brief
overview of those laws and who is covered under them. Additional information regarding compliance
with specific laws may be obtained from the enforcing agencies listed.

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LEGAL REQUIREMENTS 6:29

Copeland Act
The "Anti-Kickback" section of the Copeland Act applies to all contractors and subcontractors
performing on any federally funded or assisted contract for the construction, prosecution, completion, or
repair of any public building or public work, except contracts for which the only federal assistance is a
loan guarantee. This provision applies even where no labor standards statute covers the contract.
The regulations pertaining to the Copeland Act payroll deductions and submittal of the weekly
statement of compliance apply only to contractors and subcontractors performing on federally funded
contracts in excess of $2,000 and federally-assisted contracts in excess of $2,000 that are subject to
federal wage standards.
The "Anti-Kickback" section of the Act precludes a contractor or subcontractor from in any way inducing
an employee to give up any part of the compensation to which he or she is entitled under his or her
contract of employment. The Act and implementing regulations require a contractor and subcontractor
to submit a weekly statement of the wages paid to each employee performing covered work during the
preceding payroll period. The regulations also list payroll deductions that are permissible without the
approval of the Secretary of Labor and those deductions that require consent of the Secretary of Labor.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of this Act.

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LEGAL REQUIREMENTS 6:30

Davis-Bacon Act of 1931


The Davis-Bacon Act of 1931 requires that workers on federal construction contracts in excess of
$2,000 be paid the prevailing wage.
The Davis-Bacon Act, as amended, requires that each contract over $2,000 to which the United States
or the District of Columbia is a party for the construction, alteration, or repair of public buildings or
public works shall contain a clause setting forth the minimum wages to be paid to various classes of
laborers and mechanics employed under the contract. Under the provisions of the Act, contractors or
their subcontractors are to pay workers employed directly upon the site of the work no less than the
locally prevailing wages and fringe benefits paid on projects of a similar character. The Davis-Bacon
Act directs the Secretary of Labor to determine such local prevailing wage rates.
Governing Agency
The U.S. Department of Labor is responsible for enforcing the provisions of this Act.

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LEGAL REQUIREMENTS 6:31

Executive Order 11246


Executive Order 11246 may affect your business if you have any federal grants or contracts, depending
on the dollar amount of such contracts.
Coverage
Employers with federal contracts or subcontracts of more than $10,000 are bound by this law.
Overview
Like Title VII of the Civil Rights Act of 1964, Executive Order 11246 prohibits discrimination on the basis
of race, color, religion, sex, or national origin. Federal contractors with at least 50 workers and contracts
totaling $50,000 or more must develop and implement written affirmative action plans to increase use of
protected classes.
Governing Agency
The U.S. Department of Labor Office of Federal Contract Compliance Programs monitors Federal
contractors' compliance with this order.

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LEGAL REQUIREMENTS 6:32

McNamara-OHara Service Contract Act (SCA)


The SCA applies to every contract entered into by the United States or the District of Columbia. The
principal purpose is to furnish services to the United States through the use of service employees. The
SCA requires contractors and subcontractors performing services on covered federal or District of
Columbia contracts in excess of $2,500, to pay service employees in various classes no less than the
monetary wage rates. Fringe benefits found prevailing in the locality, or the rates (including prospective
increases) contained in a predecessor contractors collective bargaining agreement must be furnished.
Safety and health standards also apply to such contracts.
The compensation requirements of the SCA are enforced by the WHD within the U.S. Department of
Labor.
Governing Agency
The SCA safety and health requirements are enforced by the Occupational Safety and Health
Administration with the DOL.

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LEGAL REQUIREMENTS 6:33

Vietnam Era Veterans Readjustment Assistance Act (VEVRAA)


The Vietnam Era Veterans Readjustment Assistance Act may affect your business if you have any
federal grants or contracts, depending on the dollar amount of such contracts.
Coverage
This Act applies to federal contractors and subcontractors with contracts of $25,000 or more entered
into before December 1, 2003, regardless of the number of employees.
This Act applies to federal contractors and subcontractors with contracts of $100,000 or more entered
into on or after December 1, 2003, regardless of the number of employees.

Overview for contracts of $25,000 or more entered into before December 1, 2003
Covered employers must take affirmative action in hiring and promoting special disabled veterans,
Vietnam Era veterans, other protected veterans, and recently separated veterans (3 years) who serve
on active duty or during a war campaign or expedition for which a campaign badge has been
authorized.
Overview for contracts of $100,000 or more entered into on or after December 1, 2003
Covered employers must take affirmative action in hiring qualified disabled veterans, recently separated
veterans (3 years), Armed Forces Service Medal veterans, and other protected veterans who served on
active duty in the U.S. military, ground, naval or air service in a war, campaign or expedition in which a
campaign badge has been authorized..
Federal contractors and subcontractors with 50 or more employees and $50,000 worth of federal
contracts must develop, implement, and maintain a written affirmative action plan.
Governing Agency
The U.S. Department of Labor Office of Federal Contract Compliance Programs is the federal agency
responsible for investigating individual charges of discrimination under the VEVRAA.

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LEGAL REQUIREMENTS 6:34

Vocational Rehabilitation Act of 1973


The Vocational Rehabilitation Act of 1973 may affect your business if you have any federal grants or
contracts, depending on the dollar amount of such contracts.
Coverage
Employers with federal contracts of $10,000 or more.
Overview
Covered employers must take measures to employ qualified, disabled individuals. The Act offers many
of the same protections as the ADA and requires a written affirmative action plan from employers who
employ 50 or more workers and who have contracts of $50,000 or more.
Governing Agency
The U.S. Department of Labor Office of Federal Contract Compliance Programs monitors federal
contractors' compliance with this order.

Compensation Manual

LEGAL REQUIREMENTS 6:35

Walsh-Healey Public Contracts Act (PCA)


The PCA requires contractors engaged in the manufacturing or finishing of materials, supplies, articles,
or equipment to the U.S. government or the District of Columbia, to pay employees who produce,
assemble, handle, or ship goods under contracts exceeding $10,000, the federal minimum wage for all
hours worked and time and one-half their regular rate of pay for all hours worked over 40 in a work
week.
Governing Agency
The PCA is enforced by the Employment Standards Administrations Wage and Hour Division (WHD)
within the U.S. Department of Labor (DOL).

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LEGAL REQUIREMENTS 6:36

Index
Section 7

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A
Ability of the Company to Fund the Plan.................................................................................... 2:3
Absentee Record ................................................................................................. Section 4, Forms
Age Discrimination in Employment Act (ADEA) of 1967............................................................ 6:1
Americans with Disabilities Act (ADA) ....................................................................................... 6:2
Area Wage Rate ........................................................................................................................ 2:4
Attendance Bonus ..................................................................................................................... 3:3
Auto Mileage Reimbursement Voucher ............................................................... Section 4, Forms

B
Benefit Planning......................................................................................................................... 4:1
Benefits ..................................................................................................................... Section 4; 4:4
Bereavement Leave................................................................................................................. 4:10
Bonuses ..................................................................................................................................... 3:2
Broad Banding ......................................................................................................................... 2:12

C
Cash Bonus Plan ....................................................................................................................... 3:2
Cash Profit Sharing Plan ........................................................................................................... 3:3
Civil Rights Act 1991 (CRA91) .................................................................................................. 6:6
Commission Plans ..................................................................................................................... 3:7
Company Discounts................................................................................................................. 4:42
Compensation Administration .......................................................................................... Section 5
Compensation Objectives .......................................................................................................... 5:6
Compensation Philosophy ......................................................................................................... 5:5
Compensation Plan (sample)..................................................................................................... 5:5
Compensation Plan Development Checklist........................................................ Section 2, Forms
Compensation Planning............................................................................................ Section 1; 1:1
Compensation Strategy ............................................................................................................. 2:3
Compensation Survey................................................................................................................ 2:5
Communicating the Compensation Plan.................................................................................... 5:2
Consolidated Omnibus Budget Reconciliation Act (COBRA) .................................................... 6:7
Consumer Credit Protection Act ................................................................................................ 6:8
Consumer Directed Health Plans............................................................................................. 4:28
Copeland Act ........................................................................................................................... 6:30
Cost-Of-Living Adjustment (COLA)............................................................................................ 3:5
Critical Success Factors ............................................................................................................ 1:2

Compensation Manual

INDEX 7:1

D
Davis-Bacon Act of 1931 ......................................................................................................... 6:31
Dental Benefits ........................................................................................................................ 4:29
Department of Labor Bureau of Labor Statistics (BLS).............................................................. 2:6
Developing a Compensation Plan.................................................................................... Section 2
Disability Insurance.................................................................................................................. 4:30

E
Emergency Call Back Pay ......................................................................................................... 3:5
Employee Assistance Program (EAP) ..................................................................................... 4:40
Employee Benefits ..................................................................................................................... 4:2
Employee Benefit Statements.................................................................................................... 4:3
Employee Expense Report .................................................................................. Section 4, Forms
Employee Recognition Award.................................................................................................... 3:2
Employee Retirement Income Security Act (ERISA) ................................................................. 6:9
Employee Views ........................................................................................................................ 2:3
Employee Worth ........................................................................................................................ 2:3
Equal Pay Act (EPA)................................................................................................................ 6:10
Evaluating the Compensation Plan............................................................................................ 5:3
Executive Compensation ........................................................................................................... 3:9
Executive Order 11246 ............................................................................................................ 6:32
External Factors.................................................................................................................. 2:2; 2:4

F
FSA .......................................................................................................................................... 4:19
FSA Debit Cards ...................................................................................................................... 4:21
Factor Comparison .................................................................................................................... 2:9
Factors to Consider When Developing a Plan ........................................................................... 2:2
Factors to Consider When Developing a Variable Pay Plan...................................................... 3:4
Fair Labor Standards Act (FLSA)............................................................................................. 6:11
Family and Medical Leave Act (FMLA) .................................................................................... 6:12
Federal Anti-Discrimination Laws .................................................................................... Section 6
Federal Employment Laws ............................................................................................. Section 6
Federal Insurance Contributions Act (FICA) (Social Security Act)........................................... 6:14
Federal Unemployment Tax Act (FUTA) (1936) ...................................................................... 6:15
Federal Wage and Hour Laws ................................................................................................... 6:4
Flex Time ................................................................................................................................. 4:38
Flexible Spending Account (FSA) ............................................................................................ 4:19
Flexible Spending Account Debit Cards .................................................................................. 4:21
Full Cafeteria Plan ................................................................................................................... 4:22

Compensation Manual

INDEX 7:2

G
Gain Sharing Plan...................................................................................................................... 3:2
Geographic Differential .............................................................................................................. 3:5
Group Incentive Payments......................................................................................................... 3:3

H
Hazard Pay ................................................................................................................................ 3:5
Health Insurance...................................................................................................................... 4:23
Health Insurance Portability and Accountability Act (HIPAA) .................................................. 6:16
Health Maintenance Organization (HMO)................................................................................ 4:24
Health Reimbursement Account (HRA) ................................................................................... 4:14
Health Savings Account (HSA) ................................................................................................ 4:15
Holiday or Year-End Bonus ....................................................................................................... 3:3
Holidays ..................................................................................................................................... 4:6

I
Immigration Reform and Control Act (IRCA) of 1986............................................................... 6:17
Implementing the Compensation Plan ....................................................................................... 5:1
Incentive Payments.................................................................................................................... 3:2
Indemnity Plans ....................................................................................................................... 4:26
Insurance ................................................................................................................................. 4:23
Internal Factors ................................................................................................................... 2:2; 2:3
Internal Revenue Code and Regulations ................................................................................. 6:18
Interviews................................................................................................................................... 2:7

J
Job Analysis............................................................................................................................... 2:7
Job Analysis Questionnaire (Employee) .............................................................. Section 2, Forms
Job Analysis Questionnaire (Manager/Supervisor).............................................. Section 2, Forms
Job Banding and Slotting........................................................................................................... 5:7
Job Classification....................................................................................................................... 2:9
Job Description ................................................................................................... Section 2, Forms
Job Description Sample ....................................................................................... Section 2, Forms
Job Descriptions ...................................................................................................................... 2:10
Job Evaluation ........................................................................................................................... 2:8
Job Levels within Bands ............................................................................................................ 5:7
Job Ranking............................................................................................................................... 2:9
Job Worth .................................................................................................................................. 2:3
Jury System Improvement Act ................................................................................................. 6:19
Compensation Manual

INDEX 7:3

L
Labor Market.............................................................................................................................. 2:4
Laws Affecting Federal Contractors and/or Recipients of Federal Grants........... Section 6, Forms
Leave Request Form ........................................................................................... Section 4, Forms
Legal Requirements......................................................................................................... Section 6
Length of Service Increase ........................................................................................................ 3:6
Life Insurance .......................................................................................................................... 4:31
Lump-Sum Increase................................................................................................................. 5:10

M
Management Support and Involvement ..................................................................................... 1:2
Market Adjustment .............................................................................................................. 3:5; 5:8
Market Rate ............................................................................................................................... 2:6
McNamara-OHara Service Contract Act (SCA) ...................................................................... 6:33
Medical and Non-Medical Leaves of Absence........................................................................... 4:9
Medical Reimbursement Plans ................................................................................................ 4:14
Medical Savings Account (MSA).............................................................................................. 4:16
Merit Increase ............................................................................................................................ 3:6
Monetary (Direct) Compensation ............................................................................................... 3:1

N
National Compensation Survey (NCS) ...................................................................................... 2:6
National Labor Relations Act (NLRA) ...................................................................................... 6:20

O
Objectives of an Effective Compensation and Benefits Plan ..................................................... 1:1
Observation ............................................................................................................................... 2:7
Older Workers Benefit Protection Act (OWBPA) ..................................................................... 6:21
On-Call Pay................................................................................................................................ 3:5
On the Spot Award..................................................................................................................... 3:3

Compensation Manual

INDEX 7:4

P
POP ......................................................................................................................................... 4:18
Paid-Time-Off (PTO).................................................................................................................. 4:8
Pay Adjustments ................................................................................................................. 3:5, 5:8
Pay for Performance .................................................................................................................. 3:1
Pay Grades .............................................................................................................................. 2:11
Pay Increases ............................................................................................................................ 3:6
Pay Structures ......................................................................................................................... 2:11
Performance Appraisals .......................................................................................................... 3:10
Performance Bonus ................................................................................................................... 3:3
Performance Increase ............................................................................................................... 5:9
Performance Planning & Appraisal ...................................................................... Section 3, Forms
Point Factor ............................................................................................................................... 2:9
Point of Service........................................................................................................................ 4:25
Position Requirements Worksheet ...................................................................... Section 2, Forms
Preferred Provider Organization .............................................................................................. 4:27
Pregnancy Discrimination Act (PDA) ....................................................................................... 6:22
Premium Only Plan (POP) ....................................................................................................... 4:18
Premium Pay ............................................................................................................................. 3:5
Production Payments................................................................................................................. 3:2
Profit Sharing Plans .......................................................................................................... 3:2; 4:36
Promotion .................................................................................................................................. 3:6

Q
Qualified Transportation Plans (Transit and Parking Section 132 Plans) ................................ 4:43
Qualified Tuition Program (QTP) ............................................................................................. 3:44
Questionnaires........................................................................................................................... 2:7

R
Referral Bonus ........................................................................................................................... 3:3
Reporting Pay ............................................................................................................................ 3:5
Request for Cash Advance .................................................................................. Section 4, Forms
Request for Flex Time.......................................................................................... Section 4, Forms
Request for Time Off............................................................................................ Section 4, Forms
Retention Bonus ........................................................................................................................ 3:2
Retirement Plans ..................................................................................................................... 4:32
401(k) Plan......................................................................................................................... 4:33
Return to Work Medical Certification ................................................................... Section 4, Forms
Roth 401(k) Plan ...................................................................................................................... 4:34

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INDEX 7:5

S
S125 ........................................................................................................................................ 4:17
Safety Bonus ............................................................................................................................. 3:3
Salary Plans............................................................................................................................... 3:7
Salary Plus Commission ............................................................................................................ 3:7
Salary Surveys........................................................................................................................... 5:6
Sample Compensation Plan ...................................................................................................... 5:5
Sample Compensation Surveys.......................................................................................... 2:5; 2:6
Sample Job Description ....................................................................................... Section 2, Forms
Savings Incentive Match Plan for Employees (SIMPLE) ......................................................... 4:37
Severance Plans...................................................................................................................... 4:45
School Visitation ...................................................................................................................... 4:13
Section 125 Plans .................................................................................................................... 4:17
Shift Pay .................................................................................................................................... 3:5
Short-term Disability................................................................................................................. 4:12
Sick Days ................................................................................................................................... 4:7
Skill Based Pay Plans ................................................................................................................ 3:2
Suggestion Bonus...................................................................................................................... 3:3
Summary of Current Compensation and Benefits SAMPLE................................ Section 4, Forms

T
Target Market Rate .................................................................................................................... 2:4
Target Rates of Pay ................................................................................................................... 5:7
Time Away From Work .............................................................................................................. 4:5
Timing of Pay Increases or Adjustments ................................................................................. 5:11
Title VII of the Civil Rights Act ................................................................................................... 6:5
Total Compensation................................................................................................................. 5:11
Travel and Expense ................................................................................................................. 4:41
Tuition Assistance.................................................................................................................... 4:39
Tuition Assistance and training Request ............................................................. Section 4, Forms
Types of Benefits ....................................................................................................................... 4:4
Types of Compensation ................................................................................................... Section 3
Types of Insurance .................................................................................................................. 4:23

U
Unemployment Insurance ........................................................................................................ 6:24
Uniformed Services Employment and Reemployment Rights Act (USERRA)......................... 6:23
Union Environment .................................................................................................................... 2:6

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INDEX 7:6

V
Vacation and Personal Days ..................................................................................................... 4:5
Vacation-At-A-Glance .......................................................................................... Section 4, Forms
Variable Pay .............................................................................................................................. 3:2
Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) ............................................ 6:34
Vocational Rehabilitation Act of 1973 ...................................................................................... 6:35
Voting Leave ............................................................................................................................ 4:11

W
Walsh-Healey Public Contracts Act (PCA) .............................................................................. 6:36
Witness Leave ......................................................................................................................... 4:12
Workers Compensation Insurance.......................................................................................... 6:26

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