Pennsylvania Compensation and Benefits
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Several different federal and Pennsylvania laws regulate various forms of compensation and benefits. Each social sector organization should adopt a compensation scheme that is compatible with the organization’s mission and furthers its human resources goals.Wages
Most employers - regardless of size - are governed by both federal and state wage and hour laws. Federal and state wage and hour laws can differ slightly, and employers must follow both. On July 24, 2009, both the federal and Pennsylvania minimum wage was increased to $ 7.25/hr.
The two major requirements in both federal and Pennsylvania wage and hour laws concern: (1) payment of the minimum wage and (2) payment for overtime hours. Under the minimum wage laws, employers must pay employees an amount that is at least the statutory minimum wage multiplied by the number of hours that the employee worked in any given work week. Under the laws governing overtime, employers must pay most employees additional compensation for overtime hours.
Minimum wage and overtime laws are not limited to hourly employees. Employees who are paid in other ways, such as by salary or commission, may also be entitled to minimum wages and overtime pay. The minimum wage laws apply to all employees and the overtime laws apply to all employees except those who fall into one of the “exempt” classifications under federal and state law.Bonuses
Bonuses can improve employee retention and provide extra incentives for reaching certain targets. Employers who provide bonuses (other than gift bonuses like holiday bonuses) should have a written bonus plan to ensure clarity, and to avoid unintended implied bonuses in contracts. Furthermore, how bonuses are determined and whether they are guaranteed (for example, for hitting certain production goals) or discretionary will also have an effect on calculating an employee’s overtime.Taxes
Employers are required to withhold federal income tax and social security tax from taxable wages paid to employees. Under federal law, funds withheld must be deposited in certain depositories accompanied by a Federal Tax Deposit Coupon (IRS Form 8109) or through the Electronics Federal Tax Payment System (EFTPS). An Employer’s Quarterly Federal Tax Return (IRS Form 941) must then be filed before the end of the month following each calendar quarter. Willful failure on the part of the employer to collect, account for, and pay withholding taxes will subject the employer to a significant monetary penalty, and in some cases will impose personal liability on those responsible for remitting the withholding taxes.
Most employers, including non-profit organizations that are not 501(c)(3) organizations, must also file an Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS Form 940) and pay any balance due on or before January 31 of each year. Details may be found in IRS Circular E, available at http://www.irs.gov/publications/p15/index.html
. Employers who are 501(c)(3) organizations, however, are not required to file a FUTA Tax Return. If payment of tax is required, any balance is due on or before January 31 of each year. Details may be found in IRS Circular E, available at http://www.irs.gov/publications/p15/index.html
and in Publication 15A.Mandatory BenefitsWorkers’ Compensation
All Pennsylvania employers with one or more employees provide workers’ compensation insurance for their employees. There are some limited exemptions from this requirement, but the workers’ compensation benefits are the only benefits available for an employee injured in an “on the job accident.” What this means for employers is that an employee who is injured while performing work for the employer cannot sue the employer for his/her injury, but is compensated through workers’ compensationUnemployment Insurance
Most Pennsylvania employers must contribute to an unemployment compensation fund. When an employee is granted unemployment compensation benefits, whether those payments are counted against the employer’s account depends on several factors, one of which is how long the employee worked for the employer.Other Pennsylvania Laws
Pennsylvania law does not require any particular job benefits other than the payment of minimum wages and overtime. This means that the law does not require that employees receive a certain amount of paid time off, whether for vacation, holidays, or sick leave. However, if an employer has a policy or contract with employees to pay such benefits, the employer must follow its policy or contract for these types of payments. Pennsylvania law also does not require that employers provide disability benefits. However, Pennsylvania employers with less than 20 employees that sponsor group medical insurance (typically group medical policies that insure two or more employees) are required to offer employees and their dependents the opportunity to purchase up to nine months of medical continuation coverage upon a qualifying loss of employer-sponsored medical coverage (e.g., separation of employment). In addition, for those employers who provide disability and medical benefits, those plans may be subject to federal laws such as ERISA, COBRA or HIPPA. See summaries of those laws in the Federal Laws Regarding Employment
section.Federally Mandated Benefits
See summaries of ERISA, COBRA and HIPPA in the Federal Laws Regarding Employment
discussion. If applicable, these federal laws mandate certain specified benefits.Mandatory Leave of Absence
Several federal and Pennsylvania laws either require or govern leaves of absence, depending upon the reason for the leave. Although these leave laws can be very complicated, application of the laws usually depends on the size of the employer, and some of the more complicated laws do not apply to small employers. Various special leave provisions are discussed in the Federal Laws Regarding Employment
section and the Other Pennsylvania Specific Considerations
With certain exceptions, the federal Family and Medical Leave Act (“FMLA”) requires employers with 50 or more employees to provide unpaid family or medical leave of up to 12 weeks in a 12-month period for the birth or adoption of a child, for the serious health condition of the employee or spouse, parent or child of the employee, or for a qualifying exigency arising out of the fact that a spouse, child or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in the support of a contingency operation. A “serious health condition” includes inpatient hospitalization and subsequent treatment therefore and continuing treatment by a health care provider, including pregnancy. To be eligible for FMLA leave, the employee must have worked 12 months or longer, performed at least 1,250 hours of service for the employer in the 12 months prior to the date of leave, and must work at a site within 75 miles of which the employer has 50 or more employees. If the employee’s need for leave is foreseeable, the employee must provide his or her employer with 30 days notice before taking leave. When the need for leave is unforeseeable, the employee is required to provide notice as soon as practicable.
An individual who believes his or her FMLA rights have been violated is entitled to file a lawsuit. Remedies include lost compensation, liquidated damages, other out of pocket expenses, equitable relief, and attorneys’ fees.Voluntary Benefits
The benefits listed below are not required by law. However, many employers choose to provide employees with such benefits in order to attract and retain the most qualified workers. Furthermore, under Pennsylvania law, an employer that has a policy or contract to provide certain fringe benefits is required to follow its policy or contract as it relates to payment of such benefits.
An employer is not required to provide employees with retirement benefits, welfare plans, severance pay, or other voluntary benefits. If an employer does establish such plans, however, they may be governed by a federal law called the Employee Retirement Income Security Act (“ERISA”). See the Federal Laws Regarding Employment
section for more information. Under ERISA, employee benefit plans must comply with numerous and complex procedural requirements.
An employer is not required to provide employees with vacation pay. If an employer elects to provide vacation benefits, however, they should be uniformly applied in conformity with a written policy. This will provide protection against claims of discrimination and may be necessary to ensure the employer complies with the pay provisions of the Fair Labor Standards Act (“FLSA”) as it relates to “exempt” employees.
Although it is not uncommon to do so, employers are not required to give employees paid holidays. Indeed, except in cases where accommodation of religious holidays might be required, employers are not even required to give employees time off during holidays.
Employers are not required to offer paid sick leave to employees. Traditional sick leave is often limited to time off for dealing with the employee’s own illness or possibly to care for a sick child or spouse. Upon termination, the employer has no legal obligation to pay out unused sick leave, which means the employer’s written policy will control.
Many employers choose to combine vacation, sick leave, personal days, and floating holidays into a single “paid time off” or “PTO” policy. This makes it easier to administer employee time off and a single policy for accumulating and using PTO will often suffice.
Paid leaves of absence, such as paid maternity or paternity leave, are not required by law.
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