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Common questions covered here
Do I have to keep track of minimum wage and overtime laws for every state where I employ someone?
How do you pay employees who live and work in a different state?
Do laws about compensation vary by state?
Compensation is a complicated topic in its own right, and crossing state lines impacts what kind of pay and associated benefits you offer employees in a number of ways. You’ll need to factor in state and local laws regarding minimum wage and overtime, among other things. And to do that, you’ll need to know which kind of employees you have.
Exempt vs. Non-exempt Employees
Although it might be tempting to think of minimum-wage and overtime rules as applicable to all workers, this isn’t the case. Instead, they apply to some workers (non-exempt employees) but not others (exempt employees and independent contractors) based on classifications that are initially set at the federal level.*
Exempt employees are excluded from minimum-wage and overtime regulations, along with other rights and protections afforded nonexempt workers. Employers must pay a salary rather than an hourly wage for a position for it to be exempt, and exempt employees are expected to complete their duties irrespective of the amount of time required to do so.
Non-exempt employees are generally subject to coverage by the Fair Labor Standards Act (FLSA), which establishes mandatory minimums for minimum-wage and overtime pay.
For most employees, whether they are exempt or nonexempt depends on:
how much they are paid
how they are paid
what kind of work they do.
With few exceptions, to be considered exempt, an employee must a) be paid at least $684 per week,* b) be paid on a salary basis, and c) also perform exempt job duties. Of the many categories of exempt employees, you are most likely to encounter the federal exemption for salaried employees in executive,* administrative,* professional,* computer,* and outside sales* roles. For computer workers specifically, the exemption applies even if they are paid on an hourly basis, as long as they are paid at least $27.63 per hour.*
importantStates and localities can set their own requirements for their minimum-wage and overtime laws, so it’s important to be familiar with the rules in all the states and localities where you have employees. For example, in California an exempt employee must be paid at least twice the state minimum wage.*
If a remote employee is non-exempt, they must be paid at least the amount of the highest minimum wage that applies to them based on their location.*
importantFederal law does not consider equity compensation to be a form of wage, so even if you’re offering employees primarily equity, you will still need to meet minimum-wage requirements,* or pay your employees enough that they qualify as exempt.* Also, state and local laws may treat equity compensation differently than federal law,* so it’s essential to consult a local expert.
Federal law requires overtime pay for non-exempt employees who work more than 40 hours in a week, but state and local laws can be more generous. For example, California also considers any work beyond eight hours in a day to be overtime, and an employee gets whichever overtime amount is greater between daily hours (beyond 8) and weekly hours (beyond 40).
Federal law generally does not require employers to reimburse employees for business expenses, but the FLSA does require reimbursement if the expenses reduce an employee’s pay below minimum wage.*
Additionally, some states, such as California and Illinois, require employers to reimburse “necessary expenditures.”
Compensation and Location
Once you’re above the required thresholds for exemption or satisfying minimum-wage and overtime requirements, there’s a further question of how you want to gauge the appropriate amount to pay your employees. This is less a legal question than a question of company philosophy and policy; but briefly, your options include:
Paying all employees a global salary as if they were based where your company is based (as Chef does).
Paying each employee a local salary based on the market rate where they are based (as GitLab does).
importantYou should not use compensation to discriminate between employees based on their race, color, religion, sex, national origin, age, or disability. A number of federal laws prohibit discrimination in compensation.*
Equal Pay Act. This law requires all employers to give men and women equal pay for equal work in the same establishment. Generally speaking, “establishment” is understood to mean worksite, so differences in remote employees’ pay according to their location may be acceptable under these terms. The Equal Employment Opportunity Commission advises that “workers at different worksites sometimes may be compared if the same managers oversee the operations of both locations and workers frequently transfer between the two locations.”
importantState and local governments may supplement federal protections on equal compensation. For example, Oregon’s Equal Pay Act requires all employers to provide comparable pay for comparable work to all Oregon-based employees regardless of race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability, or age. This goes beyond federal requirements because it has no minimum employee count and extends rules about equal pay beyond the issue of sex.
A thorough checklist to use when determining compensation would include:
Determine whether an employee is exempt or non-exempt under federal and applicable state and local laws.
Ensure that non-exempt employees are paid at least minimum wage and are paid overtime as required by applicable laws.
Ensure that any business expenses incurred by non-exempt employees are reimbursed if deducting them from the employees’ pay would mean their compensation does not adhere to minimum wage and overtime requirements.
Ensure that your employees’ compensation is not discriminatory, including by complying with federal and state laws that require employees to be paid comparable pay for comparable work.
Benefits can vary significantly at state and local levels, so this is one area where it’s important to be aware of a host of differences (or ensure whatever third party or service you’re using is doing so adequately instead).
The United States does not guarantee paid family leave, a fact that makes it unique among industrialized countries.* Instead, federal law provides unpaid family leave for approximately 60% of the workforce through the Family Medical Leave Act (FMLA) (see more on this in the following section).*
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