Ask Dr. Salary

Women Earn Less Than Men, but Why?

2009-11-19T11:19:02-08:00

In a recent project with Catherine Rampell at the New York Times Economix Blog, we examine the pay differential between men and women across a set of 90 jobs.

Numerous studies have looked at the gender wage gap, including the Bureau of Labor Statistics (BLS), the New York Times, and the Census. However, the question remains, why does the gap exist?

Examining national pay differences across men and women, even by job title, can be misleading. Men and women in a sample may be different in ways that employers could legitimately pay differently.

Using our unique dataset here at PayScale, we are able to control for many outside compensable factors (experience, education, specialty, company size, etc.) in order to provide a more apples-to-apples comparison.

This allows us to give one of the strongest answers to date to the question, "If a man and woman are doing the exact same job with the exact same qualifications, responsibilities, and employer type, is the man still paid more than the woman?"

In this post, I will look at what our data says, and address some of the questions and misconceptions Economix readers have.

Are you curious if you're paid what you're worth, no matter your gender? Find out with a free PayScale Salary Report.

Do Women Earn Less than Men? <$100,000

The simple answer is typically yes, women have lower salaries than men.

With no consideration of job title or other factors, the BLS reports women working full-time earn 80% of what men earn as of 2008. This is down slightly from a peak of 81% in 2005.

However, the size of the gap varies dramatically as more legitimate outside factors (non-gender) are taken into account, and disappears for some jobs entirely at the national level.

Our first step was to compare the pay of men and women with the same job title for 90 typical jobs. The typical female worker across these jobs earns pay that is 90% of the pay for the typical male worker, on average. Hence half of the BLS gap can be explained by men and women typically having different jobs.

Once we control for outside factors that influence pay within a job, the typical woman earns pay that is 94% of that earned by men. Looking at jobs that pay below $100,000 per year, which is where most workers in the U.S. are, the salary gap narrows even further to 96%, on average.

Therefore, for most jobs, 80% of the original 20% wage gap reported by the BLS (16%) is caused by men and women not doing the same job, with the same levels of responsibility, qualifications, and for the same kind of employer.

Being paid 4% less is real money, but this is a dramatic improvement from the 1960's, when the equal pay for equal work legislation was first passed. At this point, women earned 60% of men's earnings, and Hillary Clinton wasn't allowed to be an astronaut because she was female.

Do Women Earn Less than Men? >$100,000

As seen above, even after controlling for outside factors, women still earn less than men on average. The biggest offenders are jobs that typically pay more than $100,000. In these jobs, women earn just 87% of what men earn on average (compared to 96% for under $100,000). The following table lists the 10 jobs with the largest wage gap between men and women:

Job	Male National Median Pay	Female Controlled Median Pay	Ratio of Female to Male Controlled Pay
Chief Executive Officer	$187,000	$132,000	71%
Hospital Administrator	$108,000	$82,900	77%
Vice President of Operations	$135,000	$107,000	79%
Sales Director	$132,000	$105,000	80%
Chief Operating Officer	$149,000	$119,000	80%
Chief Financial Officer	$142,000	$118,000	83%
Marketing & Business Development Manager	$90,700	$76,100	84%
General Sales Manager	$78,300	$66,200	85%
Finance Director	$131,000	$111,000	85%

Why is it that these jobs have such a large pay differential, even when controlling for outside compensable factors?

One possibility is that higher-paid jobs often have less concrete or quantifiable measures of productivity or duties. Performance and success in these jobs are relatively subjective. Therefore, men in these jobs may be compensated better for reasons other than their qualifications.

It is important to note that not all jobs with median pay >$100,000 suffer from large gender bias. For example, the highest paid job included on the list is Anesthesiologist, where females earn typical pay 93% of typical male pay. Another example are Senior Program Managers, IT – in this case women typically earn pay 102% of male pay.

Why Women Earn Less than Men: Main Arguments

At the end of the Economix Blog entry, Catherine poses this question to readers, "How would you explain why women at the top of the income scale earn so much less than their male counterparts, even when you control for outside factors?" Numerous responses were given: some witty, some insightful, some with incorrect conclusions, and some that were just downright sexist (in both directions).

In the rest of the blog post, I will discuss the common themes in the comments, as well as provide arguments for and against certain conclusions drawn.

The main arguments given in the comments as to why the wage gap exists, especially in the higher paid jobs, fall into several categories:

Women lose time in the workforce in order to have and raise children
Sexism/Discrimination/Good ol' Boys Club
Men are overrepresented in higher ranking positions and may tend to hire applicants like themselves
Women typically do not ask for raises or push for higher starting wages

Argument #1 is (mostly) controlled for in our comparison and thus does not explain the observed earnings differentials in the controlled sample.

For example, if women on average have less time in a career than men due to maternity leave and we assume more experienced workers are paid higher, the PayScale analysis would take account of that experience difference in comparing salaries of men to women. Therefore, losing weeks, months, or even years to raising children is controlled for in the sample and thus does not explain the wage gap.

However, if women work fewer hours per week to spend more time with their children, the analysis does not control for this (as discussed below) and it may contribute to the observed wage gap.

Arguments #2 and #3 are in part subjective and cannot be controlled for in this study. Furthermore, argument #3 is an explanation as to why fewer women are in high paying positions, not why they earn less in said positions.

In the academic realm, studies on callbacks based on resumes are used to root out discrimination in the hiring process. Names on otherwise identical resumes will be changed to represent different genders. The results of these studies do find evidence of gender discrimination in callbacks, but are unable to determine discrimination in job or salary offers.

Argument #4 is a valid point and has seen play in the media before, including this article on msnbc.com which claims poor negotiating skills by women is one reason for an existing pay gap. Typically women do not ask for pay increases, while their male counterparts do, causing male pay to rise faster and by more.

As another example, the XX Factor blog discusses a book written by Linda Babcock, a professor at Carnegie Mellon. According to her research on starting salaries, Professor Babcock found only 7% of women asked for more money than their initial offer compared to 57% of men. She furthermore shows the discrepancy between male and female starting salaries is ~$4000 on average. This turns out to be almost the exact same discrepancy between the starting salary of those who asked for a raise and those who didn't. Therefore, argument #4 appears to explain at least part of the wage gap.

Why Women Earn Less than Men: A Result of Fewer Hours Worked per Week?

A caveat to the PayScale Study is our analysis does not control for hours worked per week on the job for salaried positions. For example, if the typical male CEO works 60 hours a week and the typical female CEO works 50, this analysis will say they should be paid the same amount, ceteris parabis.

However, we are not aware of many CEOs who are explicitly rewarded for the number of hours they spend on the job. :-) In other words, to be a successful CEO one may often work above and beyond the normal 40 hour work week to complete necessary tasks. Successful completion of these tasks is why they earn a high salary, not because they work longer hours.

Not taking into account hours worked per week is likely a larger issue for jobs like Detective and Clinical Psychologist, where we see an above average wage gap. In these jobs, pay is often directly proportional to hours worked. Even when controlling for other compensable factors, it may be possible that men earn a higher typical pay than women in these jobs simply because they work longer hours during the week.

Another issue of not taking into account hours worked in the pay comparison is the proven trend that women with children work fewer hours per week than men with children. In other words, women may choose to work an 80% workweek (32 hours/week) and be paid an 80% salary for doing so.

This pattern of women working less hours has been proven for doctors. This fact together with women often choosing lower paid specialties may explain the wage gap observed in the profession.

However, in this study, we did only consider full-time workers (>35 hours per week), so the differences in work week that could lead to pay differences are not from women working part-time, but would be from men working overtime.

Although we are unable to control for all differing characteristics across genders, our unique database allows us to provide one of the strongest "apples to apples" comparisons to date.

In doing this we find the typical female pay is much closer to typical male pay than the oft quoted 77 cents to the dollar. The key is examining workers within the same job, while controlling for outside compensable factors (years of experience, budget managed, number supervised, skills, education, industry, etc.).

Once we do this, we find that women in fact earn on average 94 cents to the dollar across 90 common jobs. The remaining wage gap may be a result of sexism, working fewer hours per week, the failure of asking for a raise, limitations in our model for controlling for differences, or something else.

Need relevant market data to make a strong case when negotiating for higher pay? For powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's full salary survey.

Regards,

Katie Bardaro
Research Analyst, PayScale, Inc.

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4-Year vs. 2-Year College Degrees: How does the Pay Compare?

2009-10-29T17:22:00-07:00

With the rising cost of four year colleges, people may ask themselves whether the salary promised by a bachelor's degree is really worth the time and money required to complete the program. Why not complete an associate's degree program, and enter the workforce sooner and (mostly) free of debt?

Using the extensive PayScale salary database, in this post we will examine the pay differences across degrees and other characteristics. While our database has its limitations - for example, we don't track unemployment rates, which are much higher for less advanced degrees - it gives us insight into the value in salary of finishing 4 years at a college or university.

Will a bachelor's degree lead to higher pay in your career? Use the PayScale Salary Survey to find out.

Salary by Degree for Starting Workers

We first look at pay for starting workers, which are workers with less than 5 years of experience. The typical starting worker in the included data set has 2 years of experience. Regardless of whether we are looking at the bottom earners (10^th percentile), the top earners (90^th percentile), or the typical earners (50^th Percentile/Median), the bachelor's degree worker earns at least 20% more than the associate's degree worker in our sample:

Pay Percentile	Associate's Degree Starting Pay	Bachelor's Degree Starting Pay
10^th	$21,000	$25,400
25^th	$26,700	$32,900
50^th	$35,100	$43,200
75^th	$46,700	$56,900
90^th	$61,600	$73,800

Pay by Degree for Experienced Workers

Next we looked at the pay for experienced workers, which we defined as employees with at least 10 years of experience. The typical experienced worker in the included data set has 15 years of experience. Similar to starting workers, experienced bachelor's degree workers make more than experienced associate's degree workers at every level. In fact, the increase in bachelor's pay over associate's pay (Bachelor's Premium) increases with each pay percentile.

Pay Percentile	Associate's Degree Experienced Pay	Bachelor's Degree Experienced Pay	Bachelor's Premium
10^th	$29,600	$39,600	34%
25^th	$39,100	$54,100	38%
50^th	$52,100	$75,000	44%
75^th	$69,200	$106,000	53%
90^th	$90,100	$151,000	68%

It is possible for an employee with an associate's degree to earn the same or more than one with a bachelor's degree, but it is not the most common case. One would hedge one's bets of higher earnings by getting a bachelor's degree or more. For example, when looking at experienced workers, you need to be in the top 20% of earners with associate's degrees to earn the same or more than the typical bachelor's degree worker.

Pay by Degree for a set of Jobs

Looking at national pay by degree shows that a bachelor's degree is generally a win in terms of earnings, regardless of the experience and pay percentile of the worker.

What if we look at pay for specific jobs where a worker can hold either a bachelor's or associate's degree? Does a bachelor's degree always offer a large increase in pay over an associate's degree? The answer is no. For certain jobs, you obtain the necessary knowledge in an associate's degree program and thus gain little job-specific knowledge by instead taking a bachelor's degree program (e.g. Nurse, Dental Hygienist, Chef, etc.)

The following table lists jobs where holding a bachelor's degree increases a worker's median pay by no more than 10% above associate's degree workers:

Jobs	Bachelor's Premium (Starting Pay)	Bachelor's Premium (Experienced Pay)
Administrative Assistant	10%	4%
Dental Hygienist	9%	5%
Funeral Director	9%	2%
Interior Designer	2%	10%
Registered Nurse	4%	6%
Systems Administrator	7%	9%
Executive Chef	10%	6%

In other jobs, it does truly pay to hold a bachelor's degree, although one is not required in the job. In these jobs, which are mostly managerial and professional jobs, bachelor's degree workers earn a median pay 15% or more above associate's degree workers.

Jobs	Bachelor's Premium (Starting Pay)	Bachelor's Premium (Experienced Pay)
Construction Project Manager	17%	19%
Data Analyst	22%	25%
Financial Controller	28%	38%
Graphic Artist / Designer	15%	20%
Information Technology Manager	28%	26%
Inside Sales Representative	15%	24%
Outside Sales Manager	33%	19%
Systems Engineer, IT	22%	21%

Do the Extra 2 Years Pay-off?

In general, getting a bachelor's degree is a win in terms of pay over an associate's degree. In our sample, the national starting median pay for those who hold only a bachelor's degree is $43,200, which is over 20% higher than the national starting median pay for those who hold an associate's degree ($35,100).

However, those extra two years are expensive. Assuming you don't work at the median associate's degree pay of $35,100 for two years, and pay ~$8,000 a year for tuition and fees, that is a $88,200 in foregone income and expenses.

With the $8,100 (starting) to $22,900 (experienced) median per year premium for a bachelor's, it will take less than 10 years to earn back the missing earning years and tuition cost. Everything after that is gravy.

Of course, most people would also count two years of college as a lot more fun than 2 years of full-time work :-)

Getting a bachelor's degree doesn't just come with a higher chance of good pay. It also improves your chance of staying employed. According to the Bureau of Labor Statistics, the unemployment rates of workers who were 25 years and older in September 2009 were as follows:

High School Degree/GED and no college: 10.8%
Some College/Associate's Degree: 8.5%
Bachelor's Degree and Higher: 4.9%

In conclusion, when looking at typical pay the employee with a bachelor's degree will always earn more than one with an associate's degree. Although top earning associate degree workers can earn the same or more as the typical bachelor degree holder, the key word here is "can." The above data shows that it is not the common case.

For people trying to find a way to earn high pay, a bachelor's degree will likely help them.

Are you curious about the pay you could receive with your bachelor's degree? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's full salary survey.

Regards,

Katie Bardaro
Research Analyst, PayScale, Inc.

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Is Your Job One of the Best in America?

2009-10-09T17:00:00-07:00

In a recent project with CNN/Money Magazine, we looked at all the factors, not just pay, that go into making the 100 Best Jobs in America. Is there a lot of growth in the field? Is the job low stress? Does it offer scheduling flexibility? And how many positions are even available?

The set of jobs is a mix: some require extensive medical training (e.g. Anesthesiologist); others offer a lot of schedule flexibility (e.g. Software Product Manager), and still others are sworn to secrecy about their day-to-day activities (e.g. Intelligence Analyst).

In this post, I will discuss the methodology used to determine the Best Jobs in America, and pull out some of the most interesting points from the data.

Is your job a "Best Job" and you are wondering if you are earning top dollar? Find out with a free PayScale salary report.

Best Jobs: How Were They Determined?

We started with a list of over 7,000 job titles from the PayScale system. First we whittled down the list by focusing on jobs that the Bureau of Labor Statistics (BLS) projects will grow 10% or more over the next decade.

The next step was to only consider jobs that generally require at least a bachelor's degree. This did cut out some desirable jobs, such as Registered Nurse, where people doing the job have an Associate's or High School Degree.

We then used PayScale's proprietary compensation data to screen out any jobs where the median pay fell below $65,000/year for an experienced worker (at least two to seven years of experience in the field, depending on the job). Lastly, we eliminated any job where there are fewer than 10,000 positions nationwide and eliminated senior executive positions (e.g. CEO). These cuts brought the list to 260 jobs.

To determine the top 100, we then eliminated "cyclical" jobs that did poorly during the recent recession (based on Conference Board data showing growth in on-line help-wanted ads in 2009) and grouped jobs with similar responsibilities and skills (e.g. Business Analyst, IT and Programmer Analyst).

In order to determine the top 50 jobs, we factored in various quality-of-life characteristics such as scheduling flexibility, stress level, job satisfaction, etc, which we determined by a PayScale.com/Money Magazine Job Satisfaction survey of over 35,000 workers.

Finally, together with CNNMoney.com, we ranked the top 50 jobs using a score calculated as follows: current employment, long-term growth, median pay (determined by a PayScale survey of millions of workers), and security (60% of score); projected job openings provided by the BLS (15% of score); and quality-of-life factors (25%).

This methodology meant pay was not the only factor considered when determining the "best" jobs.

Best Jobs: Who's on Top?

It pays to be in Healthcare or IT: 6 of the top 10 jobs, 22 of the top 50, and 39 of the top 100 are in these two industries alone. This is a result of several factors. Generally, median pay in Bachelor's or higher jobs in Healthcare is relatively high and sometimes extravagant; e.g. Physician Assistant: $90,900, Nurse Practitioner: $85,200, Anesthesiologist: $292,000, etc. The pay for IT jobs is also good: median pay ranges from $68,000 to over $140,000 per year.

In addition, Healthcare jobs hold up well during a recession as people always get sick regardless of economic conditions. For example, 6 of top 10 jobs with the highest level of job security, as determined by survey participants, are in the Healthcare sector. Although IT jobs are not necessarily recession proof, they are projected to have good 10-year growth by the BLS. Of the top 10 jobs for growth, 5 are in the IT sector.

Best Jobs: Interesting Tidbits

Being a Best job is not all about technology and healthcare. One can work in an artistic field and still be in a top job, even if the pay runs a little lower than other top jobs. This is due to other features such as growth prospects, job satisfaction, stress level, etc. Examples include 3D Artists, Senior Web Designers, Creative Directors, Director of Communications, and TV/Cable Broadcast Producer-Directors.
The rankings favored jobs that did not suffer badly during the recent recession – this lowered the ranking of many good paying construction and manufacturing jobs. Only 5 of the top 100 are directly in these sectors: Quality Control Engineers, Quality Assurance Managers, Architects, Construction Project Managers, and Civil Engineers.
Jobs related to large government projects like bridges, tunnels, roads, and water treatment plants did better than other construction jobs: Civil Engineers, Environmental Project Managers, and Senior Geologists (who do both oil exploration and soils analysis) are in the top list.
According to the PayScale College Salary Report, engineering is a top paying college major, but it is not necessarily a top job. Very few of the top jobs included on the list are in the engineering field. Only Civil Engineers and Quality Control Engineers make the list of 100. This is mostly due to limited 10-year growth projected by the BLS, and the cyclical nature (layoffs in recessions) of typical engineering employers like manufacturing and construction.
Even though Investment Banking has been hit hard in the current recession, Associates in Investment Banking are optimistic, with over 80% thinking jobs like theirs will grow in the future.
Of the top 10 jobs where workers feel their jobs provide a benefit to society, 7 are in Healthcare. These include General/Family Practice Physicians, OB/GYNs, Clinical Psychologists, Physician Assistants, Anesthesiologists, Nurse Practitioners, and Speech-Language Pathologist. Also included on the list at #4 are Veterinarians.
Intelligence Analysts are #3 on the top 10 jobs that provide a benefit to society. Intelligence Analysts play a key role in national security, international policy, and military strategy. They gather and analyze data related to these things and work for the government or defense contractors.
Several of the top paying jobs were MDs and Lawyers (#1 was Anesthesiologist with a median salary of $292,000). However, the rest of the 10 highest paid jobs only required masters or bachelors level education: Nurse Anesthetist: $157,000, Sales Director: $140,000, Actuary: $129,000, Finance Director: $121,000, Software Architect: $117,000, and Insurance Broker: $114,000.
Sales Directors have the most flexible schedules of all the jobs in the top 100, where ~45% say they can decide whether to work or take time off on any given day.
Maybe it is the laughing gas, or maybe it is the money: the #1 and #2 jobs with the most satisfied workers are Nurse Anesthetist (4^th highest paid at $157,000) and Anesthesiologist (1^st highest paid at $292,000).

What type of pay can you expect with your job? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's full salary survey.

Regards,

Katie Bardaro
Research Analyst, PayScale, Inc.

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Private vs. Public Universities: Is CalPoly Better than USC?

2009-10-01T09:56:27-07:00

Looking at the PayScale data on the pay of college graduates, I was struck again by how very different schools can produce graduates who earn similar salaries.

My favorite example is comparing the University of Southern California (USC) to the University of California at Los Angeles (UCLA) and the California Polytechnic State University, San Luis Obispo (CalPoly). All three are southern California universities. In our report, at mid-career, median total cash compensation of graduates is:

USC was at $103K
CalPoly at $102K
UCLA at $97K

While UCLA pay is 6% less, the differences are not particularly statistically significant between these three.

These are three very different schools: a selective private research university, a leading public university, and a state school whose "career orientation is evident in its programs in Agriculture, Architecture, Business, Design, Education, Engineering, Graphic Communication and Journalism." How can all produce graduates who earn nearly the same amount?

In this post, I will look at how this is possible, and see what it means for the cost/benefit analysis in choosing colleges.

Should you be earning like a USC grad? Spend 5 minutes completing the PayScale online salary evaluation survey and know.

Different Inputs – Same Outputs

Since I have taken geography – a factor good for ~20% variations in pay of graduates around the country – off the table by comparing schools in California, perhaps all the important characteristics of the incoming students are all the same, so it is not surprising the pay is so similar.

Perhaps the expensive private school, USC, really has much weaker incoming students than CalPoly, so USC is adding more value to its graduates though a USC education.

Fortunately, there is a great data source for comparing students and schools, the Department of Education's IPEDS database, which has a friendly interface called College Navigator. I will use IPEDS for all the non-salary information in this post.

Let's look at one simple measure of the abilities of incoming students: SAT scores.

The 25^th to 75^th percentile (middle 50%) of enrolled first year students had the following scores(this is the sum of math and reading scores – I don't believe in the newer writing section). Also shown is the cost per year for an on-campus and in-state student (2008-2009 tuition):

USC: 1270 – 1470; $51,881/year
UCLA: 1160 – 1410; $25,131/year
CalPoly: 1080 – 1280; $19,117/year

Basically, 75% of the students at USC would be in the top 25% at CalPoly. For 150% more money, USC takes more able students and gives them an education that leads graduates to earn the same as CalPoly grads.

What about UCLA? At least UCLA only costs 30% more for an education that takes better students and produces graduates who earn 5% less. :-)

It's the Majors, Stupid

How can this be that a more expensive school, with more able incoming students, produces graduates that earn the same?

As the PayScale college graduate salary report shows, the major a student chooses has a huge impact on future earnings.

Of ~7000 graduates from USC, only ~100 are in the physical sciences, ~200 in math, and ~400 in engineering, or about 10% of the total. CalPoly has ~1000 graduates in these areas, out of 3,600, or about 27% in these high paying major categories.

The other popular majors at CalPoly are similarly hardnosed and practical, in keeping with the school's mission. USC graduates favor fine arts and liberal arts degrees.

Even if only the top 25% of students at CalPoly are capable of doing these hard and best paying majors, then 75% of the students at USC could major in similarly hard majors (based on SATs) and earn more, but they don't.

Perhaps John McCain was right to call USC the "University of Spoiled Children;" USC is where his wife went.

It's Not Just California – BU vs. UM-Lowell

For those who think this is just because people in California are "a little different," a similar analysis can be done for schools in Puritan Massachusetts.

The University of Massachusetts at Lowell (a state technical university) graduates at mid-career make $90K, statistically the same as Boston University (a private university) grads at $91K.

For $51,100 a year, BU takes students with SAT scores of 1170 – 1370 and produces graduates that earn the same as UM-Lowell ($18,736/year in-state) graduates, who entered with dramatically lower SAT scores of 980 – 1180.

Key Missing Metric – Graduation Rate

There is one measure which may justify the cost of a Boston University or USC education: graduation rate.

The PayScale data are for Bachelor's degree graduates. Attending, but not graduating from, college is a huge hit for future income. Four year college non-graduates earn pay typical of associate's degree graduates, about ~$20,000 lower than 4 year college graduates.

While Boston University graduates do not earn more the Lowell graduates, a lot more of the entering frosh actually graduate: 80% for BU vs. 50% for UM-Lowell. Similarly, USC graduates ~85% of incoming students, while CalPoly graduates ~68%.

These are huge differences. Perhaps paying so much for college makes students value it more, and hence actually graduate :-)

And the Winner is – UCLA

So which school is the best deal, if maximizing return on investment in tuition is your goal?

Taking graduation rate into account, the big winner is UCLA. With a 89% graduation rate, comparable graduates' salaries, and low tuition, UCLA appears to be the best deal in southern California.

All that, and great sports teams too...

Graduate or not, are you being paid what your worth? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's salary survey.

Cheers,

Al Lee

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Top Paying Undergraduate Degree Majors: Which List is Right?

2009-07-28T12:01:34-07:00

The National Association of Colleges and Employers (NACE) released their annual list of top 15 paying undergraduate majors yesterday.

They are a little late: We released the PayScale list of salary by major last week :-)

While the top level take away - starting pay is highest for engineering and other technical fields - the differences are an interesting look into how a survey is defined affects the results.

Are you being paid all you are worth? Spend 5 minutes completing the PayScale online salary evaluation survey and know.

Here is the top 15 majors by starting median pay (~2 years after graduation) in the PayScale report:

PayScale Top Paying Degrees	Starting Median Pay
Chemical Engineering	$65,700
Computer Engineering	$61,700
Occupational Therapy	$61,300
Electrical Engineering	$60,200
Aerospace Engineering	$59,600
Mechanical Engineering	$58,900
Industrial Engineering	$57,100
Computer Science	$56,400
Civil Engineering	$55,100
Nursing	$54,900
Environmental Engineering	$53,400
Construction Management	$53,400
Management Information Systems	$51,900
Physics	$51,100
Computing and Information Systems	$50,900

Here is the NACE top 15:

While there is a lot in common, there are some obvious differences:

No Petroleum Engineering on PayScale list
- This shows our east coast bias: if MIT doesn't offer it as a major for undergraduates, it is not a real engineering major :-)
- Actually, we focused on the 75 most common majors; Petroleum engineering is just not very common.
- Several other specialized majors are too small to make the PayScale list
  - Mining Engineering
  - Systems Engineering (unless this means computer and information systems)
  - Engineering Technology (could be because we subdivided by type of technology)
  - Actuarial Science
  - Agricultural Engineering
  - Biomedical Engineering
- Note that NACE considers 70 majors, while we consider 75;
- I don't know how they can fit these niche majors into that short of a list
- At PayScale we estimate there are over 1000 distinct majors offered in the US.
- We will lexpand PayScale list of majors next year; Petroleum Engineering may top the list then
No Nursing (BSN) on NACE list
- Nursing is a huge undergraduate major, even at the Bachelor's level (many RNs have Associate's degrees)
- I have two reasons it is not on the NACE list
  - NACE only surveys 200 universities, PayScale includes all 2,500 US bachelor's granting institutions
  - Nursing is a more popular major at smaller and less prestigious universities; likely not in NACE's 200
  - For example, I am sure Loma Linda University, which we had as the school with the highest paid graduates to start, is not in the NACE 200.
  - Another possibility is that nursing is just outside the top 15, pushed out by the specialty degrees
- A similar argument goes for Occupational Therapy as an undergraduate major.

Of the majors in common, it is astounding how similar the PayScale median pay (total cash comp after two years on the job) is to the NACE average starting salary (accepted job offer; I assume "average" mean arithmetic mean).

Of the 7 in common all are within 2.2%; the largest differences are the PayScale value for Industrial Engineering is 2.2% below NACE, and the PayScale value for Computer Engineering is 1.2% above.

PayScale is 5.8% higher for Aerospace/Aeronautical Engineering, but that is likely because these are slightly different majors, or are at least the schools that grant each are slightly different. MIT calls it Aeronautics and Astronautics; maybe we should switch :-)

I am not surprised the mean and median give the same answer for starting pay: these tend to be less heavy tailed (subject to the Bill Gates effect) and also symmetric. Hence, with enough statistics, median and mean will give the same answer.

I am also not surprised that pay does not change that much in the first couple of years. Once a company has an engineer, particularly for a high demand specialty, there is less reason to bump up what is already a high pay after only a couple years of experience.

How does your pay compare? When you want powerful salary data and comparisons customized for your exact position or job offer, build a complete profile by taking PayScale's salary evaluation survey.

Cheers,

Al Lee

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Predicting Future Wages is Hard, Even When Budgeted

2009-07-17T17:35:33-07:00

World at Work released the preliminary results for the 2010 salary budget survey.

While its predictions for next year are interesting, what is really fascinating is the difference between predictions and reality for this year.

Back in May 2008, employers looked at their budgets, and predicted raises for the coming year. This survey contains the actual raises given as of May 2009.

In this post, I'll take a quick look the World at Work preliminary data, what our PayScale data show, and take my guess at what the future holds.

A raise is made up of two parts: changes in your abilities and responsibilities, and general market forces. While the big picture market is bleak, is your employer recognizing all you are worth? Use the free PayScale Salary Survey to find out.

How PayScale Measures Annual Salary Increases

When we at PayScale look at pay trends, we consider the change in pay for this year over last for an employee with a specific set of skills, experience and knowledge, doing a with a specific set of responsibilities for a particular employer in a specific location. We then average over of set of similar employees (e.g., all nurses nationally), to find an aggregate change (increase or decrease) in pay.

As usual, we include all cash compensation types in our measure of pay - base salary, bonuses, commissions, tips, profit sharing, etc.

The salary increase we find for a job is not the same as a raise you, as an employee, should earn. In the last year, you have gained a year of experience in your job, and may have taken on additional responsibilities. Whether those changes in you and your job translate into higher pay depends on the details.

For example, for a software developer 2 years out of school, the on the job experience gained in the last year is tremendously valuable in the market typically leading to a ~7% increase in median pay. Not so much for a senior software developer: going from 14 to 15 years of experience, without any other factors (new skills, greater scope of responsibility), is worth ~0% more.

Our measure of salary increase for a job is different from some other methods, specifically WorldatWork's. The WorldatWork "Salary Budget Increases" measures the increase in salary budget available per employee. This rolls together two components:

The increase in pay for the same job and employee ability (like PayScale salary increase for a job)
The average amount all employees have grown in effectiveness or responsibility in the last year

The second part depends on the mix of workers at a company:

If a company has a lot of senior (maxed out in grade) employees, this would be ~0%.
If a company has a lot of junior employees (new to the job/career), this could be as 4% or more.

Since WorldatWork has roughly the same employers contributing data each year, the mix of employees does not change very quickly, so they have a fairly stable year over year number. I just don't like to mix apples and oranges :-)

No Pay Cut is the New Raise

The picture is bleak - looking at the change in salary over the last 12 months (July 2008 to July 2009), it is hard to find jobs where the salary is actually going up at all (though we did find a few for Forbes).

If you are doing the same job, with the same effectiveness and scope of responsibility, as last year, it is hard now to argue for a raise for most careers.

The ~0% increase we found for most jobs in the last year is very different from what we found for previous years. For July 2005 through July 2008, most jobs had annual pay increases of 2% to 4%. While there were always some jobs that were not doing well in a given year and getting ~0% increases, this was not typical.

While we don't have many jobs where pay is definitively down - though we do have some, like Investment Banking Associates and Analysts - if the changes we are seeing hold up, I may be telling a different story in six months. As it stands, no pay cut is the new raise.

Past Performance is No Guarantee of Future Results

The WorldatWork salary budget survey had a great record going: for the previous 4 years (and likely much longer), the budgeted increases were always within 0.1% (better than 1 part in 30) of the actual increases reported the next year.

This looked like the magic crystal ball: we could all know what wages were going to do in the coming year, at least in aggregate, by simply looking at what companies were budgeting today.

It turns out, these predictions were not unlike predicting the weather: consistently one of the best predictions for the weather tomorrow is the weather today. These salary budget predictions were similar. Companies generally added or subtracted 0.1% over the previous year's increase, but basically were saying increases next year would be the same as increases today.

And just like the weather prediction, the salary budget prediction misses the really valuable prediction: when the weather is going to turn.

Here is the WorldatWork table for overall salary increases for the United States:

	Actual 2008	Projected 2009	Actual 2009	Projected 2010
Nonexempt Hourly Nonunion	3.8%	3.8%	2.3%	2.8%
Nonexempt Salaried	3.8%	3.8%	2.1%	2.8%
Exempt Salaried	3.9%	3.9%	2.2%	2.8%
Officers/Executives	4.0%	4.0%	2.0%	2.8%

Comparing the first column and second, across job categories, companies in May 2008 were predicting increase for the coming year would be list the year before - there is no change in increase percentage for any category of job.

The comparison of the second and third columns is the shocker. For the first time in over 5 years, the actual in May 2009 did not match the prediction from a year earlier.

How wrong was it? The predictions were between 1.5% and 2% too high. Stated another way, the predictions were between 65% and 100% too high!

That large companies like these, that usually have year-long planning cycles with detailed budgets done well in advance, found that economic conditions forced them to radically change their salary increase plans during the year is dramatic.

Note that these salary increase budgets do not include layoffs or hiring freezes: these data are the salary increase per employee that is still employed.

Once Burned, Twice Shy

These same employers now predict increases for 2010 of 2.8%, halfway in between the actual raises in 2008 and 2009 :-)

It is safe to say, HR professionals, and company salary budgeters in general, do not have a crystal ball to see the future of wages. The average raise next year could be 2.8% (as predicted above), but I would not rule out anywhere from 0% to 5%, given the turbulence we are now in.

It is also safe to say no one has a clear picture whether next year economically will be like the last 12 months, even worse, or getting back to the more stable growth of 2005 to 2008.

I recently heard a very frank discussion by a hedge fund manager whose job it is to decide which companies to buy based on the value of their future income. He does not like the current economy: record federal deficits, record unemployment, record low interest rates, major company bankruptcies, 20% of home owners owing more on their houses than they are worth, and the list goes on.

Given all the "record" (not typical) conditions, he can't figure out what companies are worth. The companies he is now buying may be incredibly good deals, or he could be like the last round of investors who put billions into Washington Mutual 6 months before it failed, taking all their money with it.

Predicting the economic future, beyond recognizing the impact of demographic trends (e.g., baby boomers are getting older), is not simple, if the future is different in any way from the past.

And the future always is...

How good are you at predicting what you should be paid? When you want powerful salary data and comparisons customized for your exact position or job offer, build a complete profile by taking PayScale's full salary survey.

Cheers,

Al Lee

Follow Dr. Salary on Twitter
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Comp. Time and Overtime: Only After 45 Hours of Work a Week?

2009-06-24T12:09:31-07:00

Things have been busy at PayScale - we have been adding new features to our flagship professional product, PayScale Insight, and our Research Center - so I haven’t had as much time to post on salary issues.

I did respond to a reader’s question about overtime; others might be interested in the question and answer:

I get paid a annual salary of $40,000. I am a maintenance person. I work on AC units and furnaces; I paint; I am a jack of all trades and a master of none. I work around 5 to 6 hrs overtime a week.

My employer says I can't get comp time until 45 hrs a week have been met; is this legal? I only get 1 hr comp time over 45 hrs. Should I get 1 1/2, if it is legal to allow the comp time over 45 hours? This must mean I’m non-exempt right? If I confront them with this issue, can they say you are exempt and work me to no end? Help!

These questions are about the federal Fair Labor Standards Act (FLSA): what is a legal use of over-time, comp. time, etc.?

In this post, I will answer these, and also take a quick look at what FLSA says about breaks and meal time.

Wondering if you should be earning $40,000/year, like our "Jack" of all trades? Use the PayScale Salary Calculator to find out.

Really, I am still not a lawyer

I am still not a lawyer, and this post is not legal advice. I am also only discussing federal law: state laws are often much more stringent than federal law on pay practices.

If you have serious concerns about how your employer is paying you, consult a labor lawyer or the federal Department of Labor or your local state Department of Labor.

See the previous posts for caveats and sources. See even earlier posts for the difference between exempt (hourly) and non-exempt (salaried) workers under federal law, in particular the Fair Labor Standards Act (FLSA).

Since "Jack" is paid $40,000 per year, that means he is promised ~$800 per week (50 x $800 = $40,000), or about $20/hour. Since this is well above federal minimum wage, his employer could follow the rules for “salary non-exempt” and only pay a little extra when Jack works overtime. My post on "Salaried, non-exempt" discusses how the employer could pay the least amount for overtime, legally, in a situation like this.

Easy Question: Could this Job be Exempt?

First to answer the easy question: given the role of maintenance person, with no management, professional, sales, administrative, or other "exempt" duties, there is little chance this job could be classified as anything other than a "non-exempt" position. Hence the Fair Labor Standards Act overtime pay rules (1 1/2 pay for more than 40 hours) applies.

The way the employer describes pay, e.g., annual salary, hourly, weekly, etc., does not affect FLSA exempt vs. non-exempt status. It is the duties of the job. While all jobs can be non-exempt (subject to FLSA overtime rules) by employer decree, only specific jobs can be made exempt based on rules in the law. This job is not one of them.

45 vs. 40 Hours: Are Lunch and Snack Breaks Work Time?

The first odd part is the employer’s insistence on comp. time (compensatory time) only after more than 45 hours per week. The law is very explicit:

After working 40 hours in any one week,
1.5 times the regular hourly rate has to be paid for any additional time worked

The key here is that all the hours have to be "working." There are many special cases, but the only one I could think of for this job is that the employer is assuming Jack is taking a one hour lunch break each day.

As explained by the Department of Labor, lunch breaks, with no work responsibilities, of 30 minutes or more do not have to be considered "work time" for pay purposes. An employee is "off the clock."

However, short breaks of less than 20 minutes generally are considered work time. That time must be counted towards total time worked in a week.

If Jack is taking an hour for lunch each day, he may be "at work" from 8 to 5 every day, 5 days a week, for a total of 45 hours, yet only "working" for 40 hours each week.

If this is the case, since Jack is not paid for this lunch hour each day, he should be sure not to work at all during this time.

Is Comp. Time Legal?

The final question is about whether Jack can be "paid" in comp. time instead of overtime wages.

As noted above, the federal rules are that if Jack works more than 40 hours in any 7 day work week, Jack needs to be paid overtime. The starting day of the work week can be picked by the employer, but needs to be the same each week.

There is no per day maximum. For example, no overtime pay is legally required for Jack to work 15 hours on Monday, 15 hours of Tuesday, 10 hours on Wednesday, and then have Thursday and Friday off as "comp time."

However, there is also no carrying over to the next week. For comp. time to be legal, instead of overtime pay, the time off would have to come in the same week as the extra time was added to be within the FLSA rules.

If Jack is working 50 hours one week, he needs to be paid 1.5 time for the extra 10 hours, even if he only works 30 hours the next week (for a total of 80 for two weeks). Of course, the employer only needs to pay Jack for the 30 hours worked in the second week, but the net result will be that Jack will be paid more for working 50/30 than for working 40/40.

With or without overtime, are you being paid what your worth? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale’s full salary survey.

Cheers,

Al Lee

Follow Dr. Salary on Twitter
Curious about salaries? Email Dr. Salary
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Human resources your job? Stay informed about Compensation

"Salaried, Non-Exempt:" When Hourly Rate is "Flexible"

2009-04-29T10:03:39-07:00

First the important news: I am "micro-blogging" on Twitter. Follow my feed and see me struggle to limit my comments to 140 characters :-)

The question of "salaried, non-exempt" jobs came up again in my inbox (I have changed a few details to make the email not personally identifiable):

My classification was Salary Non-Exempt, and I am being told that I will not receive time and one half pay for these hours, such as a Non-Exempt employee would have, but only "Half Time" due to the Salary Non-Exempt classification.

Half Time is calculated by taking the weekly salary amount ($800.00) and dividing it by 40 hours in the work week; which equals $20.00 per hour. For any time worked over the 40 (example: 10 hours worked over 40 in a week for a total of 50 hours) and dividing it into the normal salary amount of $800.00, giving $16.00 per hour, then dividing the $16.00 by half resulting in $8.00 per hour for any hour worked over 40, or "Half Time" versus the traditional time and one half, in this example $30.00/hour for time and one half.

Is this accurate? Legal? Do I have any recourse? I answered the phone and supervised no one, swept the floors and cleaned the toilets. Is Salary Non-Exempt even accurate and should I consider a separate complaint to correct it to Non-Exempt?

When I first read this, I thought paying only $8/hour for overtime had to be illegal under federal Fair Labor Standards Act (FLSA) regulations.

However, I was wrong: the above pay is legal under federal law. In this post, as previously promised, I will address how salary, non-exempt, pay works.

Wondering if you should be earning $20/hour for answering phones and cleaning toilets? Use the PayScale Salary Calculator to find out.

I am still not a lawyer

I am still not a lawyer, and this post is not legal advice. State laws are often much more stringent than federal law on pay practices. If you are an employer thinking of using the "salary, non-exempt" trick to save money, consult a labor lawyer.

See the previous posts for caveats and sources. See even earlier posts for the difference between exempt (hourly) and non-exempt (salaried) workers under Federal law, in particular the Fair Labor Standards Act (FLSA).

See a post from two years ago, when I first addressed "salary, non-exempt" jobs. How naive I was.

The Key Trick: The Hourly Wage Is Flexible

"Non-exempt" means that FLSA applies to the position. The key provisions of that law for this case are:

Employees have to be paid at least minimum wage for every hour worked
If an employee works more than 40 hours in a week, pay for every hour over 40 must be at "time and a half" the employee's "regular rate"

The regulations make no statement about when the "regular rate" is set. In fact, for non-exempt workers, it can change every week. As long as the "regular rate" in any week does not drop below the federal minimum wage, it can have any value.

This is the trick with "salaried, non-exempt" pay: A worker only knows her hourly wage at the end of the week when she works overtime.

Let's look at the case above:

In a particular week, the employee works 50 hours
The regular pay for this week is $800
Assuming no other pay, the feds say the "regular rate" of pay is $16/hour (800/50) for that week
Since the workweek exceeded 40 hours, the excess time must be paid 1 1/2 times the "regular rate" for that week
So for 10 hours, the worker gets an additional $8/hour, or $80 total for the week, for overtime.

With Salaried, non-exempt, jobs, as long as the "regular rate" does not go below minimum wage, all is legal under FLSA.

The net result is that, the more overtime a worker works, the less the worker costs per hour. Even with overtime, the employee was only paid $880 for 50 hours of work, or $17.60/hour.

By working 10 hours overtime, the salary, non-exempt worker gets a 12% per hour pay cut!

This does seem like a bad deal for the employee, but is clearly a good one for the employer.

If I had 5 salaried, non-exempt employees, working 40 hours a week for $800/week, I would fire one and make the other 4 work 50 hours a week. This would save me $800/week for the 5th employee, at the cost of paying 4x$80 = $320 per week in "overtime" for the other four.

Note that, if there is not enough work, "salaried, non-exempt" workers can be sent home, and have their wages docked, e.g., at $20/hour, for hours not worked.

"Salaried" in "salaried, non-exempt" just means no agreement between the employer and employee up front on the hourly wage. It does not mean an "exempt" position, with the FLSA requirements of no fixed hours for a work week, and no ability to dock pay for lack of work when the exempt employee is available to work.

What if the Hourly Wage is Fixed?

It is wise for employees not to agree to a "salaried, non-exempt" contract. Even if the job does not usually require overtime, it is better to have the agreement be "hourly, non-exempt".

The difference is you agree with your employer on the "regular rate" hourly wage up front, rather than having it fluctuate from week to week.

How much more money is this worth? In the case above, an "hourly, exempt" job at $20/hour would pay $800 in a normal week, the same as the "salary, non-exempt" position.

However, if 10 hours of overtime are needed, then the pay is $30/hour for the extra hours, since the "regular rate" was set, by agreement, at $20 per hour.

Hence the 50 hour week means

$300 extra in pay, instead of $80
total weekly earnings of $1100, instead of $880
an average hourly wage of $22/hour, instead of $17.60

It also has the desired effect of the federal overtime law: employees only have to work 40 hours a week. Because the hourly wage is higher with overtime, employers will tend to favor hiring more workers, rather than working existing workers longer hours.

Cheers,

Al Lee

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Human resources your job? Stay informed about Compensation

Key Determinant of Pay: Location, Location, Location

2009-04-16T17:18:55-07:00

Companies frequently employ workers all across the nation, but how do they decide what to pay their workers located in different regions? Should they focus on a set of fixed geographical pay offsets? In other words, if pay for a Software Developer is 30% higher in New York than Chicago, should the same pay difference exist for Financial Analysts? The answer is a resounding "no!"

By using fixed geographical pay offsets, a company will fail to reflect the true variations in labor markets for employees by region. For example, the typical Higher Education Administrator in Chicago earns a pay ~24% less than one in New York, while a typical Urban Planner in Chicago earns ~30% more.

In this blog, I will show this extreme variation in pay exists across numerous jobs and locations. The results highlight the key reasons why fixed geographical pay offsets across all jobs simply do not make sense.

Does the location of your job lead to higher pay? Use the free PayScale Salary Survey to find out.

Last fall we worked with U.S. News & World Report on a list of the top 30 jobs for 2009. These jobs range from Hairstylist to Veterinarian and provide a wide ranging set of skills, education, hours, and responsibilities. They are in the fields of Healthcare, Financial Services, Technology, and Education, among others.

Below is a table comparing pay for half of these jobs across several cities: Seattle, Boston, Chicago, Miami, and Phoenix. Since PayScale is based in Seattle, I chose the median pay of Seattle as the basis for comparison across the jobs.

Career (Seattle Median Pay)	Boston Increase Over Seattle	Chicago Increase Over Seattle	Miami Increase Over Seattle	Phoenix Increase Over Seattle
Hairstylist/Cosmetologist ($42,800)	-18.0%	-11.7%	30.6%	-13.6%
Locksmith/Security Technician ($49,700)	14.9%	1.6%	-19.9%	-14.9%
Biomedical Equipment Technician ($54,100)	5.7%	3.0%	-9.1%	16.6%
School Psychologist ($58,300)	16.1%	18.7%	3.4%	11.8%
Registered Nurse ($58,900)	30.9%	17.5%	16.8%	24.1%
Higher Education Administrator ($62,300)	48.8%	48.8%	44.6%	63.7%
Fundraiser ($68,200)	23.2%	17.9%	22.3%	1.9%
Landscape Architect ($69,100)	-8.1%	-6.8%	15.3%	-6.5%
Fire Fighter ($70,500)	-19.3%	1.7%	-5.4%	-12.3%
Veterinarian ($83,900)	9.3%	1.8%	13.0%	17.3%
Systems Analyst ($96,700)	9.6%	4.4%	-7.3%	-3.9%
Physician Assistant ($98,100)	-4.8%	-12.7%	-8.6%	-2.2%
Engineer ($98,500)	-0.2%	-10.3%	-12.8%	-8.0%
Optometrist ($101,000)	6.9%	3.0%	-19.5%	7.9%
Management Consultant ($138,000)	15.9%	15.2%	5.1%	-6.5%

For those of you who are visually inclined, here is a graphical representation of the difference in median pay across a random sample of 5 jobs:

As you can see, there is large regional variation in pay across jobs:

Boston: Ranges from 19% below to 50% above Seattle
Chicago: Ranges from 13% below to 50% above Seattle
Miami: Ranges from 20% below to 45% above Seattle
Phoenix: Ranges from 15% below to 64% above Seattle

Given these broad ranges in pay, fixed geographical pay offsets will not accurately price various employees across regions. If a company chooses to follow fixed pay offsets, then they may overvalue certain employees or hire under-qualified workers (as good workers will not allow themselves to be undervalued).

For example, assume HR departments in Phoenix choose a fixed 10% mark-up in pay over Seattle. Locksmiths will be paid an amount almost 30% higher than their true market value. On the other hand, highly qualified Registered Nurses will drain out of Phoenix as they would be looking at a pay 11% below their true market value.

When location specific data for jobs are not available, falling back on a fixed geographical offset can be the only solution. However, that is certain to lead to incorrect market prices by 10% or more in many cases.

A better approach is for companies to price their employees by job and location. PayScale Professional can help employers gather this necessary information using up-to-date and accurate information from over 16 million profiles.

Pay differences across locations are not only an important consideration for HR departments and hiring managers, but individuals as well. When comparing job offers in two or more locations, a potential employee should factor the cost-of-living into their decision.

Here at PayScale, we offer a handy Cost-of-Living Calculator that enables you to compare pay from city to city. In addition, Kristina Cowen (a reporter for PayScale) answers some of your FAQ about cost of living comparisons.

As an example, consider a Certified Public Accountant (CPA) who is comparing a job offer in Birmingham, AL to one in Portland, OR. The job in Birmingham comes with a pay of $48,000, while the job in Portland offers a pay of $55,000. The applicant might be quick to choose the job in Portland; however he should first consider the difference in the cost of living in the two areas.

Portland is about 30% more expensive to live in than Birmingham and thus the pay in Portland should be $62,000 to compensate for this difference. This pay is much higher than the typical CPA receives in Portland as shown below:

Cost of Living in Portland, Oregon by Expense Category

CAREER TOOLS: Salary Calculator, Career Path Tool, Cost of Living Calculator, Meeting Miser

Salary Range for a Certified Public Accountant (CPA) in Portland, Oregon

CAREER TOOLS: Salary Calculator, Career Path Tool, Cost of Living Calculator, Meeting Miser

Given this consideration, the job in Birmingham may be the better choice :-)

Are you curious about how your pay varies by location? Do you wonder how pay may differ across employers or positions? For powerful salary data and comparisons customized for your exact position, qualifications, and location, be sure to build a complete profile by taking PayScale's Full Salary Survey. Then use the "What If" features of "MyPayScale" to compare your pay against other locations.

Regards,

Katie Bardaro
Research Analyst, PayScale, Inc.

Curious about salaries? Email Dr. Salary
Compare your salary: Get a free Salary Report

Cutting Hours and Pay: Hourly vs. Salaried II

2009-03-27T16:50:37-07:00

Two month ago, I started to answer a few readers questions about cutting hours and pay for exempt and non-exempt workers. I promised a second post of the subject: this is it.

Here are the questions I still need to answer:

"[...] can a person be determined exempt for the reason of “Professional” when he/she only works 10 months out of the year, furloughed for 8 weeks to go on unemployment benefits, then return to work?"

"[...Given the downturn in our business] our exempt and non-exempt employees would be willing to trim their hours from 40 hours to 32 hours per week (get paid for 32). Having said that, I wanted to verify if this would violate any FLSA benefits and/or rights for either classification (exempt or non-exempt)."

"I am an exempt employee; can my company strongly request that I volunteer to take 2 days off without pay in order to help meet the annual budget?"

These questions are basically the same; can salaried employees "ready, willing, and able to work" be paid less than their full salary? The simple answer would be no, but nothing is ever simple.

Are you paid your full salary, or is your pay already on a furlough? Find out with a PayScale free salary report.

Despite my mother's wishes, I am still not a lawyer

See the previous post for caveats and sources; suffice to say, I am still not a lawyer, and this is still not legal advice.

See even earlier posts for the difference between exempt (hourly) and non-exempt (salaried) workers under Federal law, in particular the Fair Labor Standards Act (FLSA).

I will continue to ignore a few categories of exempt workers: government employees (exempt do not need to be paid during a budget required furlough), outside sales representatives (no minimum hourly wage or salary required), and teachers (no minimum hourly wage or salary, and no overtime requirements).

Hence "Susie Screwed", who commented on my previous post, is aptly named. As a public university, her employer likely can declare budget required furloughs (time off without pay) to reduce expenses. Since she is a teacher, there is also no federal minimum hourly wage or overtime rate.

I hope she has a strong union or state labor laws. However, both are unlikely, since she is in the southeast, not a hot bed of labor law or unionism.

Her best backup plan is to eat cheese sandwiches and lentil soup; both are high in protein and low in cost.

10 Months per year for a salaried employee?

The first case, a professional exempt employee who is laid off for 2 months a year and collects unemployment, reminds me of British graduate students, at least as they were in the early 90's.

Back then, every UK graduate student "went on the dole" for the summer, as a way to get paid during their summer holiday. I was jealous, since they got summers off, and money to live on.

Clearly, the company could fire the employee after 10 months, and the employee could go on unemployment. The odd feature is that this is recurring every year.

The actually arrangement definitely looks like it is pushing the limits of the "bona fide salary reduction", due to economic conditions, allowed for exempt workers.

The Department of Labor opinions I can find appear to say that the minimum weekly salary still must be paid (currently $455/week), no matter how "short" the work week becomes. Hence if this person were paid 8 x $455 for the summer, and did not have to show up to work, that would be legal.

The gray zone is that the "ready, willing and able to work" clause requiring pay is in the same paragraph of the regulations that also say, "exempt employees need not be paid for any work week in which they perform no work."

If the professional showed up at work and sat around for a few hours each week during the summer, the employer may obligated to pay at least the $455 minimum. If s/he never comes in, the employer can pay nothing.

This is related to taking weeks off "voluntarily". That is the subject of the next questions.

Whether collecting unemployment during "voluntary" time off is legal under unemployment laws, I have no idea.

I am amazed how far companies go to avoid having to pay their employees overtime under FLSA. This is clearly a case where a non-exempt employee, paid an hourly wage, could simply not be paid for the summer.

Do you "volunteer" not to be paid?

The last two questions are about exempt workers agreeing not to work and not be paid.

The rule here is very clear: if, for the employee's benefit, an employee does not work during a given week, the employer does not have to pay the salary for that week.

It is also clear that, if the employee is "ready, willing, and able to work" during a week, the employer must pay the full weekly salary, whether there is work to do or not.

However, what happens if the employer asks for "volunteers" to take time off without pay? This makes me think of the Sarge asking for "volunteers" for a suicide mission in a World War II movie. He usually looked someone in the eye, making it clear that soldier was supposed to volunteer.

An employer does not have to pay for time a worker is away for work for true "voluntary" time-off. For this kind of voluntary time off, particularly if there is a general time-off plan, pay can be reduced in daily increments.

As mentioned above, employers also do not have to pay for any week when no work is done.

The second case - reducing every exempt employee's pay for the difference between a 40 and 32 hour work week - is likely legal, as long as the pay does not go below $455/week.

This doesn't really have to do with voluntary time off. The employer could cut wages, and require the salaried workers to continue to work 40, 50 or even 70 hours a week, if that is what it took to do their jobs.

However, this employer is trying not to be a jerk, so is indicating they expect the employee will do 20% less work per week, usually by not working one day. This is likely fine.

For the third case - two days of unpaid time off to make the budget - likely is trouble for maintaining exempt status, even if the time off is voluntary. The lawyers at Davis Wright Tremaine recommend whole workweek "voluntary" time-off only.

The reason is simple: less than full week deductions of pay are only to be made when the time off was for the benefit of the employee - the employee asks for the time off for his/her own use.

When the employer requests the days off for business reasons, and the reduction in pay is less than a week, the notion that the employee is "salaried" (paid a fixed amount per week), is called into question, and with it the exempt status.

So it goes. The answers to the three questions are yes, yes, and no, but each answer has caveats. No wonder it is a good idea to consult a lawyer when trying to understand labor law.

Exempt or not, are you being paid what your worth? When you want powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's full salary survey.

Cheers,

Al Lee

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