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Pay and Benefits - General

 

Basic issues in the area of compensation agreements:

  1. Compensation agreements can be oral or written, with hourly, weekly, biweekly, semi-monthly, monthly, commission, piece, book, flag, day, ticket, or job rates, as well as other components such as bonuses or dividends.

  2. As noted in the section on Offers of Employment and Compensation Agreements, if unusual pay methods are contemplated, the employer should have the employee sign a written pay agreement that spells out the conditions for pay exactly in order to avoid misunderstandings and possible wage claims.

  3. An employer may change both the method and the rate of pay, but only prospectively, never retroactively (risk of wage payment law or breach of contract claims); always give written notice of changes in pay.

  4. Employee benefits such as health care, retirement plans, paid time off, and meal or rest breaks are not required under Texas or federal law; it is generally possible to have different sets of benefits available for different categories of employees (such as one set of benefits for hourly workers and another set for salaried exempt employees), but the specifics should be clear and in writing.

  5. Some benefits have specific rules if the company offers them, however:

    1. Pension or retirement benefits - if a company offers such benefits, the federal law known as ERISA provides that an employee who works at least 1,000 hours in a twelve-month period must be given the chance to elect participation in the pension or retirement plan (this is known informally as the "thousand-hour rule" - see 29 U.S.C. § 1052).

    2. Health insurance benefits - if an employer has a health insurance plan, Rule 28 T.A.C. § 26.4(15) provides that an "eligible employee" is anyone who usually works at least 30 hours per week.

  6. Fringe benefits such as paid leave and paid holidays are taxable only after being used, not when accrued.

  7. Benefits that are forfeited are non-taxable (as would be the case with paid leave lost due to carryover limits or forfeiture of unused leave upon a work separation).

  8. Any benefits that are components of the employee's regular rate of pay, such as in-kind wages (meals and lodging, for example), are taxable along with other wages.

  9. Not taxable: pre-tax benefits such as certain types of flex accounts.

  10. Taxability of fringe benefits is complicated; employers should consult IRS Publication 15-B for details, and doubtful cases should be referred to an employment tax professional such as a CPA or an attorney.

 

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