Types of Pay
Sometimes getting paid isn’t as simple as drawing a salary or getting paid by the hour. Let’s look at some of the different types of pay.
Minimum wage is a frequent topic of debate. In 2015, the federal minimum wage stands at $7.25 an hour. For the average fulltime worker, that’s only $14,500 a year, which can make supporting
oneself -- much less a family -- very difficult, especially in big cities where property values and rents are high. The inflation adjusted value of this minimum wage is the lowest amount in 50 years. Many states do have a minimum wage greater than the federal minimum. Montana has a minimum wage of $8.05.
Minimum wage laws still apply to salary workers. A salary employee’s regular rate cannot be less than the minimum wage and is calculated by dividing the salary by the number of hours for which the salary compensates. Here’s an example:
Salary: $25,000/year Hours worked: 40 hours a week * 52 weeks a year = 2080 hours Regular rate: $25,000 / 2080 hours = $12.02/hour
For information on the minimum wage in your state, check out the Department of Labor.
As long as an employee is at least 16 years old, there is no limit to how many hours an employer can require him or her to work, though overtime must be paid for all hours beyond 40 worked per week. Employees who earn a salary rather than an hourly wage and are either an executive, learned professional or a creative professional are exempt from overtime requirements. Outside sales employees, computer specialists earning at least $27.63 an hour, independent contractors, small farm employees and some others are also exempt. Overtime rules are also slightly different for police officers and fire fighters. Many states have passed legislation concerning overtime, so if you think you may be eligible for overtime pay, consult your state’s Department of Labor Web site.
The FLSA dictates that tipped employees can be paid a direct wage of $2.13 an hour on two conditions:
- The employee earns at least $30 a month in tips.
- The employee’s total income (tips plus wages) is no less than the federal minimum wage.
Special Types of Pay
When a court orders a wage garnishment, an employer withholds money from an employee’s paycheck in order to pay off a debt. This money could be withheld to pay for child support or alimony. Title III of the Consumer Credit Protection Act states that up to 50 percent of a person’s disposable earnings (earnings remaining after tax, Social Security and other deductions) can be withheld to pay child support or alimony. Up to 60 percent can be withheld for other sorts of debts, and another 5 percent can be withheld if child support or alimony payments are more than 12 weeks overdue.
A commission is a sum of money given to an employee after completing a task, such as selling goods or services. A salesperson in a clothing store may earn commission based on a percentage of his sales. An insurance broker may earn a commission dependent upon how many policies she sells or for reaching a target number of policies sold.
Commissions provide incentives for workers to be productive, but they can cause some problems. For one thing, a policy of compensation by commission can create an intensely competitive atmosphere among workers, which may actually undermine the business by creating a hostile work environment. Another concern is when employees are paid entirely by commission and don’t draw a regular wage. Not only can this method be burdensome for the employees, but it causes them to not know how much they are going to be earning from month-to-month.
Severance pay is given to employees upon termination. If the termination process goes well, this can be something like a “farewell gift.” Frequently, we hear about these severance packages when large companies are forced to lay-off many employees after a major restructuring or a merger.
Severance pay is usually based on length of employment and terms set out in the employee’s initial contract. The FLSA doesn’t require employers to offer severance pay, but if you didn’t receive the severance package promised in your contract, the Employee Benefits Security Administration may be able to help.
Hazard pay is additional pay for performing dangerous or
physically demanding work. It can involve work that is potentially life threatening, such as mining, or something that causes physical discomfort or stress such as working in extreme temperatures or frequent exposure to dust and other irritants. Members of the armed forces involved in combat operations are likely eligible for hazard pay. The amount or rate of hazard pay is usually based on the hardships involved and the amount of time workers spend exposed to those conditions.