Employee compensation in the United States
The Fair Labor Standards Act (FLSA) establishes a minimum wage at the federal level that all states must abide by, among other provisions.
Fourteen states and a number of cities have set their own minimum wage rates that are higher than the federal level.
Five categories were identified as being "exempt" from minimum wage and overtime protections, and therefore salariable—executive, administrative, professional, computer, and outside sales employees.
Incentive stock options (ISO) are not, assuming that the employee complies with certain additional tax code requirements.
However, taxes can be delayed or reduced by avoiding premature exercises and holding them until near expiration day and hedging along the way.
Many assert that over-reporting of income by methods such as this by American corporations was one contributing factor in the Stock Market Downturn of 2002.
It raises net income (by lowering taxes) and is subsequently deducted out in the calculation of operating cash flow because it relates to expenses/earnings from a prior period.
The term "fringe benefits" was coined by the War Labor Board during World War II to describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.
Employee benefits in the United States might include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans; legal assistance plans; adoption assistance; child care benefits; transportation benefits; and possibly other miscellaneous employee discounts (e.g., movies and theme park tickets, wellness programs, discounted shopping, hotels and resorts, and so on).
Companies provide benefits that go beyond a base salary figure for a number of reasons: To raise productivity and lower turnover by raising employee satisfaction and corporate loyalty, take advantage of deductions, credits in the tax code.
Many employer-provided cash benefits (below a certain income level) are tax-deductible to the employer and non-taxable to the employee.
Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage (up to US$50,000) (and employer-provided meals and lodging in-kind,[22]) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax in the United States.
A notable example is medical insurance, which has risen in cost dramatically in recent decades and been shifted to employees by many American employers.
The portion paid by the employees is deducted from their gross pay before federal and state taxes are applied.
Common perks are take-home vehicles, hotel stays, free refreshments, leisure activities on work time (golf, etc.
[25] The benefit is usually "defined" by a formula based on the employee's earnings history, tenure of service and age, and not depending on investment returns.
Deferred compensation plans in the US often have the benefit of employers' matching all or part of the employee contribution.
In the US, Internal Revenue Code section 409A regulates the treatment for federal income tax purposes of “nonqualified deferred compensation”, the timing of deferral elections and of distributions.
[26] A "qualifying" deferred compensation plan is one complying with the ERISA, the Employee Retirement Income Security Act of 1974.
[28] However, ERISA does not generally apply to plans by governmental entities, churches for their employees, and some other situations.
It is for high earners like the CEO, that companies provide "DC" (i.e. deferred compensation plans).
[32] Nonqualifying differs from qualifying in that: Deferred comp is only available to senior management and other highly compensated employees of companies.
[citation needed] Although DC is not restricted to public companies, there must be a serious risk that a key employee could leave for a competitor and deferred comp is a "sweetener" to try to entice them to stay.
[citation needed] Plans are usually put in place either at the request of executives or as an incentive by the Board of Directors.
There is a doctrine called constructive receipt, which means an executive cannot have control of the investment choices or the option to receive the money whenever he wants.
