The Legal Environment and Pay System Governance

The legal framework exerts substantial influence on the design and administration of compensation systems. The key federal laws that govern compensation criteria and procedures are the Fair Labor Standards Act, the Equal Pay Act, and the Internal Revenue Code. In addition to these, each state has its own sets of regulations that complement federal law. Labor laws may also limit managerial discretion in setting pay levels.

The Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) of 1938 is the compensation law that affects most pay structures in the United States. To comply with the FLSA, employers must keep accurate records of earnings and hours worked by all covered employees and must ...

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