By Carol Nibley

When was the last time you performed a compensation review in your company? Can you defend pay discrepancies for employees who do the same jobs but earn different salaries? Are you losing your best talent to companies that are paying more? Have you classified your positions as either “exempt” or “non-exempt,” and are you paying overtime to your non-exempt employees? Do you know and understand the Equal Pay Act? These questions are but some of the reasons a compensation review may be helpful.

Small businesses routinely neglect formal compensation reviews. Startups often pay what they can afford to friends and family members who help in the early stages of growth. As these companies mature and new employees join, a serious disparity can develop between the salaries of the early employees and of those who come later, especially if later hires have critical skill sets or the market is competitive. Or perhaps a relative of a business owner is paid generously compared to other employees who are hired to do the same job. These scenarios develop quite innocently but can have serious consequences if not addressed.

Another consideration is the legal requirement to pay overtime for certain classifications of jobs. Small companies are not exempt from the requirements of the Fair Labor Standards Act (FLSA), even if employees agree to a fixed wage without overtime pay. Roughly 90 percent of employers either have misclassified at least one position or otherwise are in violation of the FLSA.

Enforcement of the Equal Pay Act is one of the priorities of the Equal Employment Opportunity Commission (EEOC). The Department of Labor has hired hundreds of new investigators to audit pay practices under the Fair Labor Standards Act. Your competitors for talent may lure away your best employees because they have established more competitive pay ranges.

Don’t wait for a government audit or the exodus of great employees to review and correct compensation practices in your organization.


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