Minimum Wages and the FLSA

The recent move by Walmart to raise entry level wages provides an interesting case for opening our compensation and benefits discussion this semester. Walmart is clearly making this move for several strategic reasons related to employee attraction, retention and development, as many of you noted in your discussion board posts. We'll come back to these strategy issues in the coming days as we discuss compensation strategy. For today, let's focus on some of the basics...

A basic tenet of the Fair Labor Standards Act is who's in and who's out in terms of the law's protection and coverage. Here's the basic premise: assume everybody in your company is covered by the FLSA, unless they fall into one of the specific exemption categories identified by Muller (2013). And if as an employer you are claiming one of these exemptions for a particular employee classification (job), you'll need to be diligent about making that case.

We'll focus on the five white collar exemptions here, but understand that there are a lot more, each with a very specific set of standards that require close attention. See this brief video for an introduction.

The white collar exemptions are: executive, administrative, professional, outside sales people, and computer professional. Note the pay and duties, and sometimes training/education criteria defined in Muller (2013) for each. These guidelines must be carefully followed, and relevant jobs regularly reviewed to ensure compliance. Employees within these groups are classified as "exempt" from the FLSA minimum wage and overtime rules.

So now how do we classify everybody else who is not in one of these exempt categories? Everybody not is an exempt classification is "non-exempt", or not exempt from the FLSA. In other words, the FLSA minimum wage and overtime rules apply to everybody else. This is the group to which Walmart's pay increases apply.

Getting our managerial heads around these classifications is critical; it impacts both our ability to comply with national, state and local labor laws, as well as ensure we have competitive pay practices.

So what is the real minimum wage?

While the FLSA establishes a national floor for wages and work hours, states and municipalities can adopt higher minimum wages and stricter work hour rules, and they are increasingly doing so. Here's a Bloomberg Business story highlighting all of the changes happening in 2015.

http://www.bloomberg.com/bw/articles/2014-12-29/minimum-wages-to-increase-in-several-states-cities-in-2015

Our Walmart story is not an isolated instance, as several of you noted in your posts. It seems to be part of a larger movement by companies and voters to take independent action in raising base wages.

Reference

Muller, M. (2013). The manager's guide to HR. New York: Amacom.